In the past–before it began bluffing that Australian gambling tycoon James Packer’s proposed resort in Sri Lanka would not have a casino–the Government cited Singapore’s successful foray into gaming as good reason to expand the industry here. But Singapore’s decision to allow casinos for the first time was preceded by research and a firm policy [...]



Competitive bidding turned on head

Country hears of multi-million dollar contracts only after Cabinet has approved the projects

In the past–before it began bluffing that Australian gambling tycoon James Packer’s proposed resort in Sri Lanka would not have a casino–the Government cited Singapore’s successful foray into gaming as good reason to expand the industry here.

But Singapore’s decision to allow casinos for the first time was preceded by research and a firm policy decision backed by regulations that are routinely updated. Parliament was educated over a four-day period and the quality of debate was impeccable.

Crucially, Singapore also chose to go the route of competitive bidding. There would be none of this “unsolicited” business there. A request-for-concept was called and 19 bids were submitted. These were narrowed down through a transparent process and the final selections made.

Forget transparency. Sri Lanka has turned the entire concept of competitive bidding on its head. Few, if any, of its mega private and public sector projects or investments are today carried out through an open tender process. From resorts to power plants; from “port cities” to ports and airports; from roads and bridges to railways and water schemes; from housing complexes to reservoirs; from communication towers to heaven-knows-what-else—little or nothing is competitively selected.

Taxpayers learn of each multimillion dollar venture only once, and if, Cabinet announces approval. Some are gazetted under the Strategic Development Projects Act of 2008. As the numbers explode, fingers are getting burned. Apart from a few Opposition parliamentarians, however, the critics are mute.

It was different in 2007, when the phenomena of unsolicited proposals was growing but hadn’t yet reached the epidemic proportions of today. That year, the Ceylon Electricity Board Engineers’ Union (CEBEU) told the Public Utility’s Commission chairman in a letter that it had become a habit for government tender procedures not to be followed in large power projects.

The union said this had caused “a very unhealthy situation” of unplanned projects being forced on the CEB with no competition or transparency. The CEB was being landed with “unsuitable and inferior quality plant and equipment at exorbitant prices”. Six years later, the Chinese-built Lakvijaya Coal Power Plant in Norochcholai has proved that the unions were right.

Sri Lanka’s construction sector also objected. In a 2007 interview with an online business magazine, Chamber of Construction Industries Secretary-General Dakshitha Thalgodapitiya said people were making proposals and the Government was “sometimes” accepting them without calling for competitive bids. “This may sometimes result in contracts being offered not to the most qualified contractor or developer, or not at the best price,” he said.

It didn’t take long for this to become the norm, and for those who had formerly expressed alarm to fall silent. But the wheel might have come full circle. Unsolicited bidding and allegations of corruption are too rampant now to ignore. “More and more people are talking about it in business forums and at other meetings and discussions,” said a senior academic, who did not wish to be identified. “It is an unavoidable topic.”

The issue has already made its way into important international documents. For instance, the United States Trade Representative’s 2013 report observes that, while the Sri Lankan Government publicly subscribes to principles of international competitive bidding, “charges of corruption and unfair awards are common”.

The US State Department’s 2013 Investment Climate Statement on Sri Lanka warns: “The greatest challenges lie in infrastructure contracts or competing forany government tender offer, where foreign investors find it difficult to navigate the opaque procurement process.”

It doesn’t help that the National Procurement Agency was disbanded in 2008 and a Special Cabinet-Appointed Review Committee (SCARC) appointed in its place to evaluate unsolicited development proposals. The SCARC is headed by the Secretary to the Prime Minister and perceived to be politicised.The Sunday Times was also informed during interviews that the Government sometimes offers investors an opportunity to bypass the SCARC. But Finance Ministry Secretary P.B. Jayasundera said this was not possible.

It is patently obvious that some countries repeatedly secure the big contracts, notably, China. Western Governments complain of a lack of progress on their proposals. “This is strange because the tempo of some of the major infrastructure projects that are awarded on an unsolicited basis is going up,” said one source. “A lot of Western companies are not pursuing projects here. Burma’s opening up and everyone’s leapfrogging over Sri Lanka.”

The Sunday Times was reliably informed that large British infrastructure companies have struck Sri Lanka off their list because it was a waste of their time. After preparing bids and project concepts, the work would go to China. These governments claim that, as a result, Sri Lanka is losing out on technology transfer, employment, durability, good corporate social responsibility projects and a host of other advantages.

Officials, diplomats, businesspeople, economists and professionals this newspaper interviewed — there were no politicians — repeatedly questioned the quality and standards of some of the high-cost, high-profile projects. Many wished to remain anonymous when answering sensitive questions.

“The costs of these roads they’re putting in are astronomical,” observed one source. “In the infrastructure sector, all we are seeing are Chinese companies with frankly varying degrees of expertise and quality. The product Sri Lanka gets is not always very good so it costs more over time.”

One of the most damning allegations is that any prospective investor must have a local agent with close ties to President Mahinda Rajapaksa and his inner circle. If the equation and connections are right, mountains are moved for certain parties.

“Take the more high profile examples like Shangri La,” commented a senior official. “The land was bought at an undervalued price. There are reports that land was sold to Hyatt for a song and that somebody close to the President was given the keys to that. Then, there is Krrish. Nobody quite understands who it is. There is uncertainty and questions regarding many of these projects.”

There is talk of commissions being paid and of various project costs being inflated to accommodate such payments. But there is no proof. The closest the Sunday Times got to obtaining evidence was an email alleging that payments were discussed between China Machinery Engineering Corporation (CMEC) Norochcholai Project Manager Ning Li and businessman Eshana de Silva, who was the commission agent for the project.

In it, Mr. Ning instructs Mr. de Silva to arrange for him and some colleagues to apply for multiple entry visas to Sri Lanka. He then writes, “According to my calculation, your comm. is $25.4Mn, including: A. $13.2Mn and B. $12.2Mn. Please check and contact me if any questions.”

The email is dated June 10, 2005. Less than three months later, in August, the CMEC and the Ceylon Electricity Board (CEB) signed a Memorandum of Understanding with former Sri Lankan President Chandrika Kumaratunga and former Chinese President Hu Jintao as witnesses. But it was President Rajapaksa who got the project implemented.

“It’s not difficult to establish what the fair price of a stretch of road is or what a multinational corporation would pay were it given the same specifications,” said one official, on the possibility that project costs are inflated to accommodate commission demands. “If you compare it to what was delivered and the quality of the project, you can kind of tell what the mark-up is.”

There are also questions about who decides the priorities. A few powerful ministries handle most of the large projects. And it is true that dropping the competitive bidding route is faster. “Faster, but at what cost?” asked another source. “I don’t know on what basis some of the proposals are decided upon.”

“I don’t think even the government knows,” he concluded.

The way Cabinet approves projects

Confusion, contradictions, and cons

In January 2014, Investment Promotion Minister Lakshman Yapa Abeywardena once again submitted papers to the Cabinet seeking approval for three ‘integrated super luxury tourist resorts’ in Colombo. These unsolicited projects were pending for months, held up by concerns that they sought to inject more casinos into an unregulated gambling market.

The gazettes had now been redesigned to exclude the word “gaming”; they were before ministers as the penultimate step in a process prescribed by the Strategic Development Projects Act of 2008. This time, the government wanted it quiet.

At Cabinet news briefings that month, not a word was spoken about these papers. Neither the Government’s official news portal nor the website of the Office of the Cabinet of Ministers–both routinely publish Cabinet decisions–listed them as approved.

But on the night of January 30, the Government Printing Department uploaded the three gazettes onto their website. They had been issued under sub-section (4) of section 3 of the relevant Act. The next step was Parliament. This could only mean that the Cabinet had sanctioned the papers in January, probably on the morning of that day.

To confirm this, the Sunday Times telephoned a senior minister. The question of Cabinet confidentiality did not arise as the gazettes were already public. But he said the papers had not been taken up and that nothing related to integrated resorts or casinos was discussed.

A second senior minister was contacted. He said the papers had been presented, discussed and passed, with even the minister from the government’s Buddhist nationalist coalition party raising his hand in assent.

A third minister was rung. The papers might have come up, he said, but he was not sure they had been approved. He thought the Cabinet had asked for more time. Within seconds, he could no longer remember if they had been discussed at all. He said to call him around 4 pm (“I’m meeting a few others and will check with them”) but his phone was switched off at the allotted hour and afterwards.

Between them, the ministers have a combined political experience of nearly 150 years. There are several possibilities here. One was that the Cabinet had agreed to conceal its decision–which meant one minister was in the breach. Another was that only one out of three ministers was paying attention. A third was that the papers were rushed through with such speed that some ministers missed the plot. A fourth is lethargy and a lackadaisical attitude towards governance. And so on.

Is this how official business is conducted today? Authoritative sources claim that many unsolicited proposals are approved without debate or study by ministers who are collectively too afraid to raise critical questions. The documents–with whatever detail that is available–go unstudied. Massive tax concessions are granted for grandiose private sector projects without sufficient verification of the credentials of investors. The necessity for granting priority to these ventures, and not others, is not explained or queried.


Normal tender procedures not possible for mega projects: PBJ

P. B. Jayasundera

Despite the flak it has been attracting, the route of unsolicited proposals–it is widely agreed–is quick. The Chinese are also quick. And even the critics agree that, notwithstanding quality concerns, the Government is getting its infrastructure in place fast. This is beginning to look like a trade-off.
Finance Ministry Secretary P B Jayasundera is eager to deflect criticism that the Government is not transparent in its dealings. On a request by the Sunday Times, he compiled a list of recent projects being implemented or negotiated on the basis of export credit. These are not subjected to the open bidding process. Some of these, along with costs, are reflected in the table.
Simply put, the Government has changed the way it does business because “such large-scale investment, whether private or public, cannot be handled through normal tender procedures”, he said. “Routine procurement committees have no capacity to handle these.”
Secondly, Sri Lanka’s foreign assistance is no longer largely mobilised through the Asian Development Bank (ADB), World Bank (WB) and Japan International Cooperation Agency (JICA). Each had its own procurement system. There were long, time-consuming processes on both sides before a project was finalised.
Money for large transactions–such as those Sri Lanka were currently undertaking — now came from two sources, Dr Jayasundera said. One was the capital markets. The second was Export Import (Exim) bank credit. The countries currently being tapped in a major way are China, Korea and India.
Any project worth of Rs. 500 million or US $5 million goes to Cabinet for transaction. “But today we are talking not of US $5 million but of US $300 to 500 million dollar, average sized projects!” he said. Cabinet learns of a project once a paper is presented by the relevant minister, complete with exhaustive observations from the Ministry of Finance. Time can be requested to study the proposal.

It is only in “very urgent cases” that a paper is not circulated in advance.

On the controversial Colombo Port City Project, Dr. Jayasundera said, “It was in the Cabinet Secretariat for more than two months because the Treasury asked for time to get all the information and to examine various aspects.”

The Treasury Secretary said it was “perception” that most projects were going to China. “Railways have gone entirely to India,” he pointed out. “The US doesn’t commit that much money. Europe doesn’t commit that much money. Exim banks are richer and came very largely in recent times from India and China. And Western countries have basically cut down on official development assistance.”

Defining “unsolicited proposal”, Dr Jayasundera said an investor had a right to make his interest in a particular project or programme known. “In some cases, some large investors anyway express their interest on that basis,” he noted.

If the proposal is within the Government’s public investment or private investment agenda, it will first be conveyed to the Special Cabinet-Appointed Review Committee (SCARC). The SCARC does due diligence to find out, among other things, whether investor credentials are sufficient to proceed. After an assessment, the proposal can be taken to the Cabinet for approval.

The projects are not advertised. The public does not know of them till the Cabinet approves them. But, Dr Jayasundera said, everything is disclosed to Parliament. “What is lacking in this country is that the disclosed information is not examined,” he reflected.
Dr. Jayasundera admitted that select ministries handle the mega projects, the critical infrastructure –roads, irrigation, water supply and distribution, ports, airports and urban development. Highways, urban development and ports as well as finance and planning are all under President Rajapaksa. There is no separate ministry for airports.

Are commissions factored into project costs? “We don’t know,” he replied. “Our involvement is to comment on the project when it goes to the Cabinet and on loan negotiations. In some of the cases, there are project agents. What I can assure you is that no agent, no commission guys, visit this place. Fortunately, this ministry’s officials are not approachable in that way.”

“If society knows all these corrupt guys, why can’t the media and those organisations simply target them rather than generalising?” he queried. “I’m speaking of the corporate world. The Ceylon Chamber of Commerce and private sector are against corruption. Why not they pass a resolution that no member of their corporate sector will pay a bribe?”

“Now see how many Ambassadors are coming,” he continued. “The US Ambassador comes and each time she takes up her business list. ‘Why not you buy Boeing?’ she asks. My explanation is that we need a right size in our SriLankan Airlines to go beyond Airbus because you can’t have two Airbuses and three Boeings.”

“So, I value the US Ambassador doing that or the Indian Ambassador doing that or anybody doing that as long as it’s their countries’ interests, not any personal business interests,” he said. “It’s a question of how you draw the line between business interest and public interest.”
Dr Jayasundera said normal tender procedure was “definitely not” possible for mega projects. “I’m not saying it’s the perfect, ideal condition but the country needs a certain rapid transformation on all fronts if we are to get serious information technology and advanced investments coming in,” he stressed.

As for costs, “The engineers decide the costs. Not the journalist, not the Parliamentarian, not the Opposition guys, not the JVP guys.” (So we know whom to blame when things go wrong).

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