Japanese prosecutors have arrested an official of Taisei Corporation–which is set to win a multibillion rupee contract for the third section of Sri Lanka’s Central Expressway (CEP III)–in an ongoing bid rigging investigation. On Tuesday, Japan’s Infrastructure Minister Keiichi Ishii told a news conference that he would consider excluding Taisei and other companies facing the [...]


Central Expressway bid winner Taisei official arrested for rigging in Japan


Japanese prosecutors have arrested an official of Taisei Corporation–which is set to win a multibillion rupee contract for the third section of Sri Lanka’s Central Expressway (CEP III)–in an ongoing bid rigging investigation.

On Tuesday, Japan’s Infrastructure Minister Keiichi Ishii told a news conference that he would consider excluding Taisei and other companies facing the charges from bidding for public construction projects ordered by his office, Japanese media reported.
Sri Lanka’s Cabinet has now approved the granting of the 100bn Japanese Yen (more than US$ 936 million) CEP III contract to Taisei Corp. It was earlier reported that the project would be implemented as a joint venture between Taisei and another Japanese firm called Fujita Corp which had offered a lower-priced bid.

“But the decision now is to give the contract to Taisei,” an authoritative source said. “If Taisei then wants to enter into a joint venture with Fujita, it may do so and report the terms to the Cabinet.” The Government is to secure a yen loan equivalent of around US$ 1bn from the Bank of Tokyo-Mitsubishi UFJ Ltd (BTMU) for the project.

Takashi Okawa, a Taisei adviser and former executive officer, was seized last week in Tokyo alongside a former senior manager of Kajima Corporation. They and others are suspected of violating the Antimonopoly Act (AMA) by conspiring with industry competitors Obayashi Corp and Shimizu Corp to rig a bid for the construction of a new Nagoya station for the maglev line.

Shimizu, Kajima and Taisei tendered for the project, Japanese national television NHK reported. Taisei bid about a billion dollars (much higher than expected) while Shimizu and Kajima then presented even steeper bids. “Prosecutors believe the three contractors rigged the bidding so Taisei could win the contract at a favourable price,” the report said.

Bid rigging is defined as “a form of fraud in which a commercial contract is promised to one party even though for the sake of appearance several other parties also present a bid”. This is not the first time Taisei has fallen foul of regulators on the same charge.

Last year, Taisei Rotec Co Ltd, its road and infrastructure arm, was fined millions of dollars for violating the AMA by rigging a bid for restoration of paving works for the Great East Japan Earthquake. The Sunday Times first reported that the company was under investigation in November 2016. The latest Taisei Corp annual report acknowledges that the violation occurred.

Ironically, the tender process for the Japanese-funded CEP III–one of the country’s most expensive road initiatives to date–has also been under question. Under instructions from the Cabinet Committee on Economic Management (CCEM), which is headed by Prime Minister Ranil Wickremesinghe, Sri Lanka’s Highways Ministry eschewed transparent, competitive bidding from the outset. It opted for limited tenders from Japanese companies, saying this was a prerequisite to securing a concessional “tied loan” from BTMU.

Then, rather than open the project out to all Japanese firms, the Ministry instructed the Japanese embassy in Colombo to nominate contractors. The Embassy came back with just three: Taisei Corporation, Penta Ocean Construction Co Ltd and Wakachiku Construction Co Ltd.

It said they were recommended by the Japanese Chamber of Commerce and Industry in Sri Lanka. It is not clear why the embassy did not ask the Overseas Construction Association of Japan which, with 50 members and 43 associate members, promotes international cooperation and construction abroad.

In the first round, which took place in late 2016, only Taisei submitted a bid. This wasn’t surprising as Penta Ocean Construction specialises in marine works and land reclamation, not road building; and Wakachiku Construction has mostly been involved with bridge work in Sri Lanka. But Taisei’s bid was cancelled because it did not submit the mandatory bid bond.

Incidentally, Penta Ocean Construction was also investigated for bid-rigging in 2006 and slapped with a bidding suspension and other administrative penalties. But after the Taisei bid was rejected, Mr Wickremesinghe’s Secretary wrote to the Highways Ministry Secretary saying: “Japanese authorities at the highest levels have forwarded a letter requesting that the third phase be awarded to a Japanese construction company and regretting the lapse on the part of the tenderer.” It suggested direct interference in the tender process.
The Government then chose to float a two-week tender to allow the same three pre-selected Japanese companies to bid again while specifying that bid bonds must be provided. Officials claimed that this made mockery of the procurement process.

The Cabinet decided to include a fourth firm recommended by the Japanese Government, Fujita Corporation, in the process. Bids were invited from Taisei, Fujita, Penta and Wakachiku but only Taisei and Fujita responded. Taisei quoted a contract price of Rs 160bn while Fujita offered Rs 147.7bn, a difference of Rs 13bn.

In December 2016, the Finance Ministry recommended that the project be awarded to Fujita as it submitted the lowest offer under the competitive bidding process. He also proposed to negotiate with Fujita to bring the cost further down to an acceptable level.
But the Project Committee (PC) that evaluated the bid reported to the Cabinet Appointed Negotiating Committee (CANC) that Fujita did not satisfy required criteria, such as experience in similar works or key activities. It also could not provide insight on Fujita’s financial capacity as the company had not submitted audited financial statements for 2015/2016.

The CANC consequently concluded that Fujita did not satisfy key criteria stipulated in the bidding documents and conveyed this to the Cabinet. It proposed that the next bid–Taisei’s–be evaluated to see if it complied with the technical and financial requirements. This was conveyed to Ministers via the Cabinet Committee on Economic Management (CCEM) and approved.

In March last year, the CANC recommended to the Cabinet that the contract be awarded to Taisei at a contract price of Rs 135b. Fujita was informed of the outcome but did not appeal before deadline. In April 2017, however, there was another twist to the story. Shigeru Kiyama, a Special Adviser to the Cabinet and Ambassador for Economic Cooperation on Quality Infrastructure Investment Promotion, wrote to Sri Lanka’s Highways Minister backing Fujita. He said the company was a “prominent civil works contractor capable to construct a 32.5km long, 4 lane two way expressway”.

“The Government of Japan appreciates your favourable consideration to be given to Fujita along with other competent Japanese companies in this regard,” it said, in documents seen by the Sunday Times. The CCEM subsequently instructed the Highways Ministry to revisit the evaluation criteria to see whether there was a disadvantage to Fujita; and to reconsider Fujita bid in view of strong recommendation of Japanese Govt.

In May 2017, the PC upheld the disqualification of Fujita. And Kenichi Suganuma, Japanese Ambassador, wrote to the Prime Minister saying, “The Government of Japan fully respects the Sri Lankan rules and procedures for tenders carried out by the Government of Sri Lanka, including for the Third Section of the Central Highway and is in no position to raise objections to the results of a lawful tender procedure”.

In July, Cabinet decided to grant the contract to Taisei and to obtain a loan from BTMU. Considering the recommendation of the Japanese Government and the CCEM, it also agreed to provide an opportunity to Taisei and Fujita (a company twice rejected by the PC and CANC) to form a consortium on terms agreeable to the two companies and the Government of Sri Lanka.

But the latest Cabinet decision has placed the contract firmly back in Taisei’s hands, after more than one year of lobbying from various quarters (including a visit from a large delegation from Japan headed by an adviser to Prime Minister Shinto Abe). The Sunday Times saw documents related to the project including Cabinet memoranda, CCEM meetings, reports and other official letters.

There are other concerns about CEP III, which runs 32.5 kilometres from Pothuhera to Galagedara. The Central Environmental Authority (CEA) approved implementation of the project without waiting for the outcome of a series of vital geological surveys and tests. Consent was expedited due to the Government’s focus on speed over caution.

The Environmental Impact Assessment (EIA) clearly states that, while bore-hole tests were done during feasibility studies, further studies on geological and soil conditions around three proposed tunnels were necessary prior to implementation. There are 93 conditions attached to the CEA’s licence.

CEP III will be four-lane carriageway with four interchanges, 12 main bridges and 17 viaducts across the floodplains of three major rivers—Rambukkan Oya, Kuda Oya and Kospothu Oya. It will have 106 culverts, 23 underpasses, 14 overpasses and three tunnels. Certain sections run through steep mountain slopes while others run across paddy fields and low-lying areas.

More than 1,162.5 acres occupied by 2,069 households (8,465 people) in 97 villages will be hit, requiring permanent relocation for 857 of them. The CEA has instructed the RDA to compensate for the loss of buildings and private lands, and to determine the entitlements of persons on a project-specific entitlement matrix based on the National Involuntary Resettlement Policy. The RDA has not followed the NIRP in recent years, opting to take over lands under emergency procedures that leave affected parties without compensation for years.

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