The Sri Lanka Land Development Corporation (SLLDC) management this week mounted a spirited defence of its proposal to spend more than Rs 6.5bn on a dredger to mine sea sand for the local construction industry. At least seven officials, including General Manager K. Rajapakshe, met the Sunday Times in Chairman Roshan Gunawardena’s office. On the [...]


SLLDC defends bid to buy sand dredger costing more than Rs. 6.5bn


The Sri Lanka Land Development Corporation (SLLDC) management this week mounted a spirited defence of its proposal to spend more than Rs 6.5bn on a dredger to mine sea sand for the local construction industry.

At least seven officials, including General Manager K. Rajapakshe, met the Sunday Times in Chairman Roshan Gunawardena’s office. On the conference table was a model gifted by China Communications Construction Company Ltd of a trailing suction hopper dredger. The officials insisted that the expected growth of demand for sea sand in the local market justifies the cost of the dredger.

Despite it clearly not being part of its mandate, the SLLDC is the only Government organisation that sells offshore sand to the construction industry. Its first hydraulic sand fill was in 1993 when 400 acres of marshland in Kerawalapitiya were reclaimed.

In 2005, the SLLDC mined sand to fill the embankment of the Colombo-Katunayake expressway. It sold the leftovers to the construction industry. Then, in 2011, it procured offshore sand to compensate for a shortage caused by Government restrictions on river sand mining.

According SLLDC data given in response to an article published last week about the proposed high cost purchase, Rohde Neilsen A/S of Denmark is now executing a contract worth US$ 22mn to dredge 4mn cubic metres of sand from the sea on the Corporation’s behalf. Sand thus sourced is pumped ashore to Kerawalapitiya where it is washed with fresh water and sieved before being sold in bags.

Between 1995 and 2019, four contracts were given to Boskalis BV of Netherlands, Rohde Neilsen A/S and Dredging International of Belgium. There was a gap of ten years between the first and second contract; of four years between the second and third contract; and of five years between the third and fourth contract.

But the SLLDC management insisted this week that, as sea sand was becoming more popular and was the most eco-friendly substitute for river sand, it made economic sense for them to invest in a trailing suction hopper dredger for the Corporation–notwithstanding the towering cost.

The SLLDC sells offshore sand at half the price of river sand, thereby acting as a price control. At present, however, the Corporation meets “less than 10 percent of the total sand requirement of the construction industry,” Mr Gunawardena said.

The chairman predicted a construction boom in Sri Lanka. And he said the chambers want more offshore sand. The SLLDC has reserved 170 square kilometres of seabed. It no longer needed to stockpile the sand for two or three years prior to sale (for exposure to rainfall) because the aggregate was now mechanically washed and sieved.

To buy sand internationally, tenders are called and the process takes around ten months to complete. according to Mr Gunawardena. The total cost of each contract is around Rs 4bn. He claimed that tenders will have to be floated more frequently, once in two years, to cater to the growing demand. And that this was a drain, the officials said, on foreign exchange reserves.

To buy a dredger (the investment is expected to be recovered in ten years) made sense. The SLLDC management repeatedly extolled the virtues of such a purchase. In his note, the chairman even said “dredgers are at the heart of the global economic activities” and that they will “decide the development of the world in the future”.

The SLLDC wants a brand new 3,700 cubic metre hopper dredger, the same type of vessel that was used by the builders of Colombo Port City but of a much smaller capacity. The required dredging depth is around 40m.

The Corporation admitted there will be costs additional to the initial capital outflow. A financial analysis was undertaken considering such aspects as fuel and insurance, maintenance and repair, crew and labour, parking fees, pipe laying for the stockpile, compensation for fishermen, mining and exploration costs and local selling costs, etc. Provisions were also kept for hiring foreign crew members where locals could not be hired.

The dredger cannot work during monsoons. The operation cycle was considered as seven months per year. Yet a financial feasibility study the SLLDC commissioned was accepted by the Bank of Ceylon and Treasury.

The SLLDC management scoffed at allegations that a company from whom to buy the dredger was already decided and that the bid will be rigged in its favour. Transparent tender procedures will be followed, Mr Gunawardena said, accommodating both local and international parties.

National Audit report shows SLLDC overestimated demand

While the popularity of sea sand has been rising, a report from the National Audit Office (NAO) shows the SLLDC has a history of overestimating demand. For instance, a project appraisal drawn up to obtain a bank loan of Rs 4bn to procure 4mn cubic metres of sea sand, the Corporation forecast future demand by merely adding a percentage to existing selling quantities, the NAO’s 2017 report on SLLDC says.

This meant that, if the Corporation failed to achieve expected sales targets, it would be difficult to pay the loan instalments and interest thereon. And, while the project appraisal report anticipated earnings of Rs 1.99bn from selling 256,238 cubic metres of washed and sieved sea sand in 2018, only 33,435 cubic metres was sold up to August 31, 2018.

Compared to the net assets of the Corporation, “the loan so obtained had become high value of 87 percent and, as a result, that situation had badly affected the liquidity assets of the Corporation,” the NAO report said.

It also flags another issue: the failure of the Corporation to maintain proper procedure for management of stock levels. Consequently, it did not identify stock levels at the end of 2017 in advance of reaching replacement levels. Therefore, a contractor had to be selected immediately via tender for sea sand extraction. Three months were granted to hand in bids–from May 30 to August 30, 2017.

Four parties sent proposals. And the second bidder was selected on the grounds of “a lack of adequate time to further evaluate the qualifications of the lowest bidder due to diminishing sand stocks”. As a result of the lowest bidder being ruled out, the loss incurred was US$ 800,000 or more than Rs 145mn.

The audit clearly calls into question the “profitability and practical aspect” of the process of washing and selling sand. It says of the 185,552 cubic metres extracted up to August 2018, only 45,973 were sold after washing.

Construction industry sources the Sunday Times interviewed agreed that the demand for sea sand will rise but questioned why a dredger was being sought now before a focused marketing campaign guaranteed higher buyer confidence leading to better sales.

The SLLDC counters that sales are already high and will only get better.

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