Govt coal imports:

How dirty is our coal supply?

By Manjula Fernando & Rukshana Rizwie

Handling coal is a dirty business, dirty enough for another load of claims in the latest corruption case to shake up the power and energy sector. A Supreme Court ruling has found procedural flaws in a tender process for the procurement of coal for the Lakvijaya Power Plant which, politicians argue may have caused losses in millions to the Exchequer. The Hong-Kong based raw materials company Nobel Resources Limited initially secured the first tender in 2009 when the Lanka Coal Company and the Ceylon Electricity Board called for bids to supply the Lakvijaya Power Plant in Norochcholai for 2.2 million tons. Since the first bid, Nobel monopolized the trade when it was consecutively chosen by every tender committee for the supply of coal. Nobel won contracts to supply a total of 4.4 million tons between 2010 and 2015. When Minister Champika Ranawaka took over the Power and Energy portfolio, he alleged that coal had been imported sans proper procedures and that an entrenched mafia was to blame.

‘Coal war’ hots up Who is Lanka Coal? Lanka Coal was incorporated in 2008 for the sole purpose of purchasing coal for Norochcholai Power Plant. The Ceylon Electricity Board (CEB) pays Lanka Coal for the coal it procures from suppliers. How did it all begin?

Dr. Suren Batagoda, Secretary, Minister of Power and Energy, who was the Secretary of the same Ministry during the coal controversy says, he has inherited a messy tender deal. When the new government assumed power, both, Lanka Coal and the CEB announced a Rs.50 billion tender to supply 6.75 million tons of coal over three years. He told the Sunday Observer, it was baffling that this tender had caused a ruckus, when it was the only tender during the last few years to have been approved unanimously by, the tender boards of Power and Energy Ministry, Ceylon Electricity Board as well as Cabinet’s procurement committee and the technical evaluation committee.

“Based on the Supreme Court ruling, we sought the advice from the Attorney General’s Department, who suggested that we engage in discussions with Swiss Singapore, the current company, to ponder the possibility of cancelling this process,” he said. “We’ve held only one meeting so far and the company declined to accept our offer. The company cited that all necessary purchases had been made and it was not plausible to back out.” Dr. Batagoda said, the Ministry might refer the matter to the Cabinet next week if both parties still fail to reach an amicable solution. “We are not concerned about the quantity of coal, because we have 2 million tons which is sufficient. However, we will call for at least 5 spot tenders starting next week, so that we can avert possible shortages arising from this tender process.”

He added that the Ministry is planning on calling five spot tenders for the supply of 330, 000 tons of coal. “In the past there have been several instances when we’ve had to force the plant to shut down or go slow simply because we didn’t have enough coal. This time we will make sure it does not happen.”

Dr Batagoda said, when he realized last year that the tender awarding procedure would cause a probable shortage, the Ministry went ahead with spot tenders. He said, if the spot tenders had not been called then, Lanka Coal would have continued to purchase coal from Nobel. To him, spot tender ensured that the country didn’t run into a scarcity, and it was the easiest way of mitigating the crisis.

Referring to a three-member committee comprised of eminent academics who have been asked to make their observations, he said, the committee will in no way contradict the Supreme Court ruling and will merely ascertain if the procedural flaws cited in the ruling have led to a loss/profit during this deal.

Prof. Lakshman Watawala and Prof K.K.Y Perera who are in the committee declined to make a comment since the report was due the following day. Meanwhile, a highly placed source at the Ministry of Power and Energy told the Sunday Observer, that the committee will not dwell much on the corruption claims but will merely highlight the procedural flaws in the bidding process.

“We need to come clean,” he said. “We also must accept the fact that we changed the evaluation criteria. The Ministry also requested Cabinet approval for the evaluation and technical committee to open bids from the other companies, which was rejected.” He added that factions within the Power and Energy Ministry were divided in opinion over the tender process with some calling it corrupt and flawed.

‘No fraud committed’

Power and Renewable Energy Minister, Ranjith Siyambalapitiya

“We have no intention to delay implementing the recent Supreme Court ruling on the coal tender awarded to Swiss Singapore Overseas Enterprises Pvt. Ltd.

It is a travesty of the truth to say, the appointment of the three member committee is a ruse to dodge the Judgment. Besides, the court did not rule that the tender should be cancelled immediately. It says, the tender may be terminated after consulting the company concerned to avoid compensation claims.

Hence, the Ministry secretary will have a round of discussion with representatives of the Swiss Singapore Overseas Enterprises Pvt. Ltd.

The Attorney General has advised that a final decision over the tender should be approved by the Cabinet. We have nothing to hide, the tender process for Lakvijaya Power Plant was transparent and in keeping with the standard norms. I totally reject accusations that the tender caused a great deal of financial loss to the government or that it was awarded to the highest bidder. This statement is inaccurate.

The Cabinet appointed expert committee will report if there has been a ‘procedural flaw’ in awarding this tender.

It comprises reputed experts in the field of power generation. The Committee report will be tabled in Parliament shortly, so that the truth will be revealed.

I made a detailed statement in Parliament in this regard, and the relevant documents were tabled for anyone to refer to. It was not a transaction done in secrecy. In fact, it is the most transparent tender procedure since the commissioning of the Norochcholai coal power station in 2009.

If there are any doubts over the statistics, anyone is free to visit the Ministry and examine the relevant documents. It is incorrect to say that we offered the tender to the highest bidder, in fact, Swiss Singapore Overseas Enterprises Pvt. Ltd had the lowest bid according to our criteria.

During my short tenure as Power and Energy Minister, I have striven to put the Ceylon Electricity Board (CEB) tender process in order, to make it corruption free and competitive in all sectors of power generation. In fact, recently we managed to close a deal to purchase 20 MW of wind power at a highly competitive price of Rs.12.20 per unit.

I totally reject that a fraud had been committed here.”

‘Attempt to continue corrupt deal’

Wasantha Samarasinghe, Anti Corruption Front:

“The Court has proved that, public funds had been misused through this transaction. In its recent ruling the Chief Justice directed the Power and Renewable Energy Ministry to terminate the contract and call for fresh tenders.

What we see now is an effort by the Ministry to give different interpretations to the SC ruling and continue this corrupt deal. Instead of implementing the judgment, they have appointed a committee. There is no need for another committee to probe the tender procedure, the SC ruling is very clear.

This tender will be effective for three years. The government has time to cancel it and go for fresh bids so that there will be no shortage in the coal supply to the Lakvijaya power plant.

The Minister has said that due to this transaction there has not been any loss to the country. It is a diabolical lie. If that is the case, they should have submitted their proof to the Supreme Court during the proceedings. Why didn’t they do that?

The Court has accepted that there has been a fraud. The Auditor General has given his opinion that if the contract is not terminated, the country will continue to incur losses. A similar loss was incurred by the country due to the Hedging deal in 2007. Due to short sighted decisions of officials, millions of public funds were wasted.

Even if the intention was to break the monopoly enjoyed by the supplier company, they should have offered the tender to a lower bidder. What is the point in awarding the tender to a higher bidder and incurring losses? Is that a wise decision?”

‘Contract to Nobel was a violation’

Minister Patali Champika Ranawaka

“My observation is that the computation of the Auditor General where he has calculated a loss of Rs. 1,803 million due to this coal deal is incorrect. The Ministry of Power, in its calculations, has shown that no financial loss has been incurred by not awarding the tender to Nobel Resources International Pvt. Ltd.

According to the Ministry, the award of the tender to Swiss Singapore Overseas Enterprises Pvt. Ltd, in preference to the unsuccessful bidder in question, has resulted in a saving of US$ 408,458 (LKR million 59), with no compromise on the quality of the coal supplied. It is up to the Ministry officials to respond to the Auditor General’s calculations in question.

Ironically, the central issue that has conveniently escaped the attention of the critics is that during the period, 2009 – 2015, the coal supply tender had continually been awarded to the same supplier (Ms Nobel Resources) through various manipulations.

It should be noted that when the coal supply contract was awarded to the said company for the first time on July 27 2009, it was done in gross violation of all due procedures of procurement.

Then, it was followed by subsequent repetitive direct awarding of the contract to the same company on three occasions, cancelling the procurement process in progress on each occasion. It was I who revealed this fraud to the nation, through my publication ‘‘Doomed economy’’ written in Sinhala, in November 2014. More importantly, not only did we reveal the scandal, but also acted to end it.

The monopoly that prevails in the supply of coal as well as oil was broken by the Government during its 100 day program. It was the new ‘spot contract’ system introduced, which eventually brought to an end the massive embezzlement of public funds through an artificial scarcity of coal and awarding the supply contract to the same tenderer. The observation by the Auditor General indeed amounts to endorse the ‘spot contract’ system introduced by us.”