The Government is set to make a loss of US$2.7mn (Rs412mn) in importing – outside of tender procedure – a massive consignment of granular urea at the same price as the more expensive prilled urea, a group of fertiliser importers has warned. They point out that two associated companies of the Agriculture Ministry – Ceylon [...]


Urea import saga reaches president


The Government is set to make a loss of US$2.7mn (Rs412mn) in importing – outside of tender procedure – a massive consignment of granular urea at the same price as the more expensive prilled urea, a group of fertiliser importers has warned.

They point out that two associated companies of the Agriculture Ministry – Ceylon Fertiliser Company and Colombo Commercial Fertilisers Ltd – have clearly stated they do not need granular urea as it cannot be sold. Prilled urea is made up of smaller particles and is softer.

“We appeal to you to intervene and stop the said award,” importers wrote to President Maithripala Sirisena and the National Procurement Commission this week. “The last purchase of 36,000mt of granular urea was done in August 2015, part of which stock remains to date – i.e., over 2 years from the date of purchase.”

The importers have offered to supply the same cargo of granular urea at US$280 per metric tonne (cost and freight), as opposed to the price the Ministry of Agriculture is now getting it at which is US$316.20 per metric tonne.

The industry’s appeal is the latest in a months-long saga involving urea imports, the background to which is outlined in the letters sent on Monday. Public sector purchases of fertiliser were previously on open tender, publicised through newspapers or via request to all pre-qualified registered suppliers. The evaluation was done by a Cabinet Approved Tender Board. And the tenders adhered to Cabinet Approved Tender Conditions which specified that such offers should be on Letter of Credit (L/C) terms.

In October this year, however, the Ministry of Agriculture allegedly attempted to bypass transparent tender procedure and L/C procurement terms by submitting a Cabinet paper for the direct procurement of 100,000mt of prilled urea for the Yala season. This was more than double the quantity of the previous purchases for Yala.

“Furthermore, the product was to be purchased from an unknown supplier, not registered with the Ministry of Agriculture, with no previous history of supply,” the importers wrote. “The purchase was to be done on DA [documents against acceptance] terms, totally outside of the L/C terms as per tender procedure.”

The Ministry maintained that the purchase was necessary via special Cabinet approval as there was an emergency requirement for urea. But the fertiliser industry blocked the deal by protesting to President Sirisena. They pointed out that there was a Cabinet approved tender procedure for emergency purchases and that an open tender should be called.

A tender was then called last month for 72,000mt of prilled urea. But it specified that offers should be on DA terms, contrary to usual practice. The industry says L/C terms typically attract lower prices.

There were five bids but only one was on DA terms from a non-prequalified, unregistered, first-time supplier. The other four were on L/C terms from pre-qualified, registered suppliers. The offer on DA terms – by JAT Holdings – was the highest while the others were lower by as much as US$10pmt.

The L/C offers were rejected and the contract granted to JAT to supply the cargo by December 15, 2017. But the tender was then cancelled because JAT could not – after the award – meet the required specifications. The Ministry did not make a claim on JAT for not being able to complete the supply.

“This whole procedure has made a mockery of the emergency procedure, as a result of which there will be no urea arrival in December,” the importers say.

Then, on December 7, the Ministry of Agriculture called yet another tender to purchase 36,000mt of prilled urea in bags for Ceylon Fertiliser Co Ltd and Colombo Commercial Fertilisers Ltd on L/C or DA terms. Once again, the tender was cancelled without, the industry says, “any explanation to the tenderers”.

The Ministry of Agriculture then awarded a contract for double this quantity (that is, 72,000mt) to the fourth-ranking bidder of the last tender – and that, too, for a consignment of granular urea at the same price as the more expensive prilled urea. The order, therefore, changed from prilled to granular and was given to the fourth-ranking bidder, Agri Commodities, with no price reduction for switching to the cheaper urea.

Furthermore, the price of prilled urea offered by the fourth-ranking bidder was US$316.20pmt while the lowest prilled urea offer at tender closing on December 7 was US$289.29 – a difference of US$26.91.

“As per Argus FMB, a weekly World Market report used by the National Fertiliser Secretariat, the FOB [free on board] price differential between prilled and granular urea is US$10.00pmt whereby at present granular urea is US$20.00 cheaper than prilled urea,” the importers point out to President Sirisena and the National Procurement Commission. They have enclosed the latest nitrogen report which confirms that granular urea prices are relatively lower than prilled urea prices at present.

Agriculture Minister Duminda Dissanayake, however, dismissed any allegations of irregularities in urea procurement. He said there was no problem with changing from prilled to granular urea as the latter was as slow release application. He also said the tender of December 7 was cancelled because the consignments would only have been delivered at the end of January 2018 – too late for farmers.

“That’s why we took a special Cabinet decision to procure the fertiliser through a company,” he said. “We will get the consignment on December 27.”

The Minister confirmed that the company was supplying the granular urea at the same price as the prilled urea. Asked why prilled was changed to granular, he said, “Only granular is available. If we go for prilled, we have to wait till the end of January. We can get granular faster.”

The JAT Holdings contract was cancelled owing to a specifications problem, he continued. “When the specs are wrong, we could not have brought that urea to Sri Lanka,” he said. “And it’s not Duminda Dissanayake that decided it but the Technical Evaluation Committee. I’m not even slightly involved in this.”

“This whole problem is because Pakistan stopped exporting urea,” he said, blaming delayed urea imports on a September 31 policy decision by Pakistan rather than the lopsided recent tenders.

Emergency measures to provide urea
The Ministry of Agriculture has issued directives to provide a maximum of two sacks of urea (100kg) to all farmers to tide over the temporary shortage in the market.

Maha season harvests have been affected owing to climate change and there has been an unexpected increase in demand for urea in December, says a letter from Agriculture Ministry Secretary B Wijayarathne to Director Agriculture Services Development, Director General Mahaweli Development Authority, Regional Agricultural Officers and several others. As a result, there was a temporary shortage of urea in the market.

To meet this demand, the Ministry has decided to purchase urea from private suppliers and to distribute this equitably among all farmers. Cabinet approval has been secured for the plan. The Government has set a controlled price of Rs2,500 per 50kg bag of urea.

The letter instructs farmers to make their requests through regional agricultural centres around the island. These should be authorised by the Regional Officer and District Deputy Additional Commissioner and should be handed over to the National Fertlizer Secretariat Office.

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