News
Mishandling leads to loss of millions in organic fertiliser deal with China
View(s):By Namini Wijedasa
Sri Lanka’s two state-owned fertiliser companies paid China’s Qingdao Seawin Biotech Group more than US$ 6.87mn or Rs 2.4bn for organic fertiliser in a court-mediated dispute settlement nearly one year ago but the shipment is yet to come.
Not only has this disbursement gone to waste, but Sri Lankan officials also failed to redeem two performance bonds of US$ 4.4mn provided by Qingdao Seawin that could have cushioned some of the losses arising from the controversial deal, the National Audit Office pointed out in a special report.
Performance bonds are securities against non-fulfillment of contracts. Qingdao’s bonds expired in March.
The Ceylon Fertiliser Company Ltd (CFCL) and the Colombo Commercial Fertilisers Ltd (CCFL) could now face additional compensation claims from Qingdao Seawin for loss of reputation, Agriculture Minister Mahinda Amaraweera told the Sunday Times yesterday: “They think it’s a black mark as they are a global supplier to reputable markets.”
On Minister Amaraweera’s proposal, the Cabinet has approved the appointment of a committee headed by Foreign Minister Ali Sabry to negotiate with Chinese counterparts a diplomatic-level resolution to the incomplete procurement. But this was only done after the NAO released its report calling for action against relevant parties.
“Between the payments being made to Qingdao Seawin in January and the release of the audit report in August, the Cabinet was told nothing more about the Chinese fertiliser deal,” an authoritative source said. It was not immediately clear if a committee has been named.
The source also revealed that Qingdao had “quietly” taken action through a Chinese court to prevent the encashment of the performance bonds.
“They obtained a stay order in January this year, even as a settlement was being reached through the Colombo Commercial High Court, to prevent their bonds being realised,” the source said. “We were notified only recently. As a result, Sri Lanka missed the window to file objections.”
The Sri Lanka court-mediated agreement entered into between CFCL, CCFL and Qingdao in Colombo had said, however, that in the event samples of a fresh fertiliser shipment do not comply with agreed standards, the Sri Lankan companies will have the right to encash the performance bonds.
But one reason why Qingdao has not provided a new fertiliser consignment is that the Government has failed to amend Sri Lanka Standard 1704 which mandates that any solid organic fertiliser imported to the country must be sterilised or “free from any living organism or their viable forms”.
Organic fertiliser necessarily contains living organisms. And part of the agreement reached in the Colombo Commercial High Court earlier this year was that local laws would be changed (in keeping with international guidelines) to allow for “harmless organisms”.
“We don’t know what happened to the draft amendment,” an authoritative official source said. “There is also a division of opinion among experts on whether the standard should be changed at all, based on fears that pathogens will enter Sri Lanka and cause damage to local agriculture.”
Even Sri Lanka’s sweeping overnight decision in 2021 to go “fully organic” was taken without the standard being updated. Consequently, the nano-nitrogen fertiliser that was urgently imported from India was urea-based, not organic.
“Given that all organic fertiliser contains living organisms, and our local standards say there shall be no living organisms, whatsoever, it would not have been possible to import organic fertiliser to Sri Lanka, notwithstanding the Government’s policy decision in 2021,” an official source said, requesting anonymity.
Qingdao Seawin was hastily contracted in June last year to supply 96,000 metric tonnes of 10 percent nitrogen seaweed organic granular fertiliser to CFCL and CCFL on the recommendations of a special procurement committee and a technical evaluation committee.
A dispute erupted when advance samples of its first fertiliser consignment were found by Sri Lanka’s National Plant Quarantine Service (NPQS) to contain harmful bacteria, a claim that was contested by Qingdao Seawin. By then, the shipment was already en route to Colombo without an import permit.
Through action in the Colombo Commercial High Court, CFCL and CCFL obtained a stay order on the payments due to Qingdao. The spat turned nasty with the Chinese Embassy in Sri Lanka tweeting that the People’s Bank which issued the letters of credit, had been blacklisted.
Over the following weeks, the Chinese mission was deeply involved in talks with the Sri Lanka Government, applying pressure to release the payments. With the intervention of the Attorney General, the Justice Minister and the Agriculture Minister, a settlement was drafted under which the two Sri Lankan companies agreed to release 75 percent of the consignment value for a new first shipment. This amounted to a total of US$ 6.87mn.
Qingdao undertook to provide a fresh consignment that will be free of pathogenic organisms, “though it may contain harmless organisms” (which requires amendments to existing laws). The legal challenge was withdrawn but the procurement remains in limbo.
The matter now had to be tackled carefully to preserve international ties, Minister Amaraweera maintained. Among Sri Lanka’s options was to take delivery of the promised fertiliser shipment or a refund.
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