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Govt in talks with Japanese contractor to revive BIA expansion project
Sri Lanka has reopened negotiations with a Japanese contractor who bid for the Bandaranaike International Airport (BIA) expansion project under a 2016 loan agreement signed with the Japan International Cooperation Agency (JICA).
The project is several years overdue but the Government could not proceed as the two contractors that submitted bids under the JICA loan were both far more expensive than the engineer’s estimate provided by Sri Lanka. While one company’s price was 46 percent higher, the other was 96 percent steeper.
Meanwhile, the BIA terminal has grown increasingly crowded and requires urgent modernisation to match Sri Lanka’s tourism aspirations.
The Ministry of Tourism and Civil Aviation under Prasanna Ranatunga–the brother Arjuna Ranatunga, who last held the aviation portfolio–is taking a fresh look at the project and has started talks with the contractor that offered the lower bid. “It is still under negotiation,” said Marina Mohamed, Ministry Secretary.
The borrower and executing agency is the Airport and Aviation Services Ltd of Sri Lanka. While the loan contract was signed nearly four years ago, Sri Lanka has faced a dilemma as only two Japanese companies came forward and they were both too expensive.
But the loan, offered under JICA’s Special Terms for Economic Partnership (STEP) at 0.1 percent interest, decrees that the prime contractor shall be a Japanese company or a joint venture between a Japanese and Sri Lankan company.
A decision must be taken whether to cancel the earlier tender or to try and negotiate an acceptable price with the lower bidder, aviation sources said. The company had earlier proved intractable, prompting the matter to drag on without conclusion.
In 2018, AASL even proposed splitting the tender into four in an effort to bring down the value. Even so, work for the permanent terminal would still have to be awarded to a Japanese company under the conditions.
Sri Lanka wanted the concessionary JICA loan, the sources said. However, the “tied loan” with its many conditions did not give the country space to call an international bid that could attract lower offers. And if it cancelled the 2016 agreement, it might not qualify again for a STEP loan as these are not offered to Upper Middle Income Countries–a category to which Sri Lanka belongs from July last year.
The Ministry has, in the past, attempted to convince JICA to “untie the loan” so that offers could be solicited from international companies. But provision was not made for it. The Japanese Embassy did, however, advise the Ministry not to go for a re-bid as it might end up with one or no bidders and the price could be higher.
“Competition for projects here is very low,” the sources said. “For instance, the Outer Circular Highway Phase II attracted only a single bidder. For Japanese companies, the Sri Lankan market is very small. Not only are they averse to risk, they don’t like to go out unless there are future projects on the horizon. Countries like Vietnam, Thailand or India offer them a huge market.”