Champikas Cabinet paper on the Coal

Tender - Who siphoned off Rs 12

Billion?

BY J. RICHARD JAYAWARDENA- 2015-08-13

Information received from the ministry of Power and Energy reveals that
someone has tried to pilfer a sum of Rs 12.18 billion in the procedure to
supply coal as raw material for the next three years on behalf of the
'Lakvijaya' thermal power station in Norochcholai, Puttalam.
With this incident being disclosed in the media, gradually the voices of a
certain group have become silent, and the side effect of this that supplying
coal required for the Lakvijaya power plant has become a problem.
Sources of the power plant says that there is only sufficient coal to run the
power plant until 15th August, and thereafter operations at the thermal

power station will come to a standstill.

It is also said that production at the Lakvijaya power station has been
restricted as well. To override that shortage it is said that the Kerawalapitiya
power station is producing extra power.
Diesel is used for production of power at the Kerawalapitiya Power Station.
The cost of a unit of electricity produced using diesel is Rs 22. The cost of a
unit of power produced at the Norochcholai Thermal Power plant using coal
is Rs 7. Accordingly the loss due to producing electricity at the
Kerawalapitiya Power Station, per unit is Rs 15. The monthly loss therefore
amounts to hundreds of thousands of rupees.
The loss in purchasing coal for the use of the Norochcholai Power Station
runs into millions of rupees. The loss due to the delay in getting supplies of
coal is also massive.
The reason for this series of incidents is as follows:
According to the Cabinet Paper submitted by the Minister of Power and
Energy Patali Champika Ranawaka on the 7th of this month, it is stated that
the Norochcholai/Lakvijaya Thermal Power Station in Puttalam is the one
and only coal power station belonging to the Ceylon Electricity Board.
The capacity of this thermal power station which was constructed in three
stages, in order to supply electricity to the island in line with the demand is
900 mega watts. The contract for construction of this power station was
given to 'China Machinery Engineering Corporation.' The monthly
production is 560 Giga watt hours. The Minister has stated further that fifty
five per cent of the overall requirement of power in Sri Lanka is being
produced by this power station. The yearly requirement of coal for
producing of power at this power station is 2,250,000 Metric Tons. And the
cost of this is Rs 70.2 million. The stock of coal required for the next three
years is 6,750,000 metric tons.
Since this is a massive stock and a large quantity of money will have to be
spent on it, in order to acquire it at a lesser cost, this time a competitive
system of calling for prices from the international community, was followed.
According to the decision taken by the Cabinet on 23-08-2014 international
costs had been called for. The estimated value of the required stock of coal
is US $ 550 million. It is said that this is the largest stock of coal to be
purchased at once, in the history of Sri Lanka.
The Tenders were opened on the 8th of April this year (2015). Eight
international companies had responded to the Tender. When the Technical
Committee inspected documents submitted by these companies, they
discovered that three companies had not responded adequately and
submitted their Tenders and these three companies were rejected during

the first stage itself. Although one qualification for submitting a Tender
required was the experience of having supplied coal before, one company
did not have that experience, and as a result was rejected during the
second evaluation.
Accordingly, four of the eight companies which had submitted Tenders were
rejected. The Technical committee had recommended that the remaining
four companies had qualified for selection as suppliers of coal. At the same
time the Technical Committee had recommended that the Tenders of these
four companies be opened on 16th April 2015. The four companies
recommended as suitable for selection were, Noble Resources Ltd., Swiss
Singapore Overseas, Adamin Global Ltd., and Tratgare Ltd.
All good thus far until...
Up to now, the Tender Procedure followed for obtaining supplies of coal was
the accepted procedure as well as the Procurement Guidelines system.
However, all instructions and rules and regulations of the Procurement
Guidelines had been violated and a paper submitted to the cabinet on 15th
May 2015 for the supply of coal which had been granted approval by the
Cabinet.
Approval had been received inclusive of the prices of three of the four
suppliers rejected by the Technical Committee. Not only that, these had
been submitted by violating overall, all rules and regulations in connection
with the Tender Procedure, subsequent to having amended all shortcomings
which had been used as criteria to reject these companies by the Technical
Committee. It has to be said there is a rumour in the Ministry that cabinet
approval was granted to this paper which was amended because some of
the facts had been concealed from the Cabinet.
According to trusted sources, the basis for this occurrence was, though
rejected during the first round of inspection; it was to grant the opportunity
for a company which was being provided support by a high ranking,
powerful figure. Certain sources from the ministry said that, cabinet papers
have not been presented to the cabinet previously, without taking into
consideration recommendations made by the Technical Committee and the
Procurement Board.
Due to the Cabinet approval which was obtained thus, the tenderers who
submitted tenders accurately have been dealt with in a prejudicial manner.
However, according to the decision of the Cabinet, the tenders were opened
on 16th May 2015 and M. S. Noble Resources which had submitted the
lowest price was recommended by the Technical Committee as suitable to
grant the Tender to.
The Procurement Board appointed by the Cabinet summoned Noble
Resources Company on 19th June 2015 subsequent to this decision to

discuss prices.
This act of summoning the company was against the tender conditions and
Procurement Guidelines. Neither was approval for this granted by the
cabinet. It is said that however the Procurement Board did this due to an
influence of political figure.
Tainted tender reeking of fraud
It is known that, although the series of incidents was thus, M. S. Noble
Resources Company did not agree to any request of the Procurement Board
and it was decided not to award the Tender to this company. Later reasons
for this were being searched for and even legal advice had been sought.
An appeal was obtained on 29th June 2015 by the M. S. Swiss Singapore
Company who had submitted the lowest prices in the fifth place in order to
change the Price Adjustment Formula for size Variation.
This was a totally illegal procedure. If a certain condition contained in
tender documents are modified it should be done at the Pre Did Meeting
prior to handing over Tenders. Not only that, all those who submitted
Tenders have to be informed of this modification.
Re-preparing conditions of a Tender on the requirement of one person who
submitted a tender, subsequent to opening tenders is a serious fraud.
If such an amendment is carried out, the tender should be cancelled
through a justified legal procedure and tenders should be called for once
again from all whose tenders were annulled.
Under these circumstances on 29th June 2015, the Procurement Board who
considered the tender submitted by M. S. Singapore Company or the appeal
that was obtained, as fair, on that day itself (29-06-2015), had instructed
the Technical Committee to carry out another evaluation. That request had
been made by modifying the Price Adjustment Formula as well.
It was blatant misconduct. The Procurement Board has evaluated the Swiss
Singapore Company, which the Technical Committee had accepted on the
said order or request or influence according to the new Price Adjustment
Formula, and recommended on 03.07.2015 that this company (Swiss
Singapore) had submitted the lowest prices.
A certain person or a group who had shuffled the cards in the pack
according to their requirements had gambled in that manner itself.
Subsequent to receiving the report of the Technical Committee, on the
same day (03-07-2015) the Procurement Board met for this purpose itself
and recommended that the tender be awarded to the Swiss Singapore
Company.
There is suspicion why the Tender Board met on the same day the Technical
Committee gave their recommendation and were in such a hurry to award
this tender. If so, it confirms the suspicion that some powerful figure was

behind this incident.

The Noble Resources Company had quoted US $ 75.59 for a metric ton of
coal. The Swiss Singapore Company which was awarded the Tender through
trickery had quoted US $ 87.96 per metric ton. Therefore the difference
between the two quoted prices was
US $ 12.37. As a result the extra amount to be paid out of public money
was US $ 87 Million. In Rupees it is Rs 12.18 Billion.
Awarding a Tender to an institution which had submitted a higher price and
sidelining the other companies which had quoted less for the supply of a
metric ton of coal is a serious fraud. An irregularity which was done due to
someone's requirement. It should be stated that a bee-hive is broken not to
merely lick the hand.
If so, intellectuals should inquire whose pocket benefited from this act.
The next step of this incident is for the other companies led by Noble
Resources Companies to complain to the Procurement Appeal Boards
regarding the injustice done to them. This Board should submit the report
on the complaint to the Cabinet. It is know that this report has already been
prepared. However we cannot say what is contained in this report. If the
report of the Procurement Board has recommended that the contract be
assigned to Swiss Singapore, and Cabinet approval is granted for the
recommendation, a sum of Rs 12.18 Billion of public money would have
gone into the pockets of certain individuals. If not, the public money can be
saved. That is one side. The other side is that, the only intention of officials
who value good governance is to inquire into this group who cheated on
public money and that it is the responsibility of good governance to punish
them.
Posted by Thavam