YAHAPALANA AS A PUPPET REGIME Part 6A
Posted on January 10th, 2019

KAMALIKA PIERIS

Yahapalana government decided in 2016 to use the Swiss Challenge procedure for government tenders. A Swiss Challenge is a method of bidding, used in public projects, in which an interested party initiates a proposal for a contract or the bid for a project. The government then puts the details of the project out in public and invites proposals from others interested in executing it. On the receipt of these bids, the original contractor gets an opportunity to match the best bid. A Swiss Challenge grants advantage to the initial proposer with an opportunity to match whatever anybody else tenders.

At its meeting held on 09.08.2016, the Cabinet of Ministers  recommended and the Department of Public Finance in consultation with the National Procurement Commission of Sri Lanka,  decided that when dealing with unsolicited proposals presented by private proponents on their own initiative without tenders being called by the Government, such ‘Unsolicited Proposals’ should be dealt in accordance with the Swiss Challenge” procurement method which requires the Government  to publish a Request for Proposals (RFP”) and invite counter proposals from interested parties.

The Department of Public Finance thereafter issued its Guidelines on Swiss Challenge procedure for government tender procedure”. This repealed the earlier guidelines of 12.05.2011.  The   new guidelines said, the Swiss Challenge” Procurement Method shall be used in Sri Lanka by all Ministries, Government Departments, Public Corporations, local Authorities, any business or other undertakings vested in the Government and Companies registered or deemed to be registered under the Companies Act No. 7 of 2007 in which the Government, a public corporation or any local authority holds more than fifty percent of the shares in accordance with these Guidelines”..

These Guidelines shall apply to all government institutions in reviewing and evaluating development proposals presented by the private investors which are of strategic nature from an economic development viewpoint and need to be expedited in the national interest. Projects which are generally not of a strategic nature and can be managed through the conventional procurement procedure as well as procurements of a general nature should not be considered under these Guidelines.

The ‘guidelines’ then went on to say that the Special Committee functioning under the Cabinet Committee on Economic Management (CCEM Special Committee”) was empowered to endorse the Unsolicited Proposal and to make recommendations in relation to the said proposal. The CCEM Special Committee is empowered to negotiate with the original proponent.

This Cabinet Committee on Economic Management (CCEM) was established on September 23, 2015 through a Cabinet decision.  It was chaired by Prime Minister Ranil Wickremesinghe. CCEM was empowered to make decisions on all economic matters, including military procurements. It was the central authority for all key economic policy decisions. All economic decisions first went to CCEM and thereafter to the Cabinet. In March 2017, the CCEM was given the right to engage directly with line ministries and the Board of Investment to fast track investment projects. In March 2018, however, President Sirisena got the CCEM scrapped.  Its powers reverted to the Cabinet.

A tender was called in November 2018 for supply of liquefied natural gas (LNG), pipeline, floating storage and regasification unit (FSRU) for Sri Lanka.  This is Sri Lanka’s largest single Government tender, worth an estimated US$ 10bn in LNG orders alone.

An unsolicited bid had been submitted for this by the South Korean Government-backed SK E&S Company and presented to the Cabinet in December 2017 by President Maithripala Sirisena. The Cabinet memorandum said. A company backed by the Government of South Korea has agreed to provide an LNG terminal free of charge subject to the condition that compulsory purchase of 500,000 MT per annum during the first 5 years and 1,000,000 MT per annum during subsequent 20 years under the prices prevail in the international market.”

The Swiss Challenge was advertised on November 5, and international bidders were invited to match this   unsolicited Korean proposal .The industry was given five weeks to bid, extended by a mere seven weeks after media exposure. Experts in the subject, with decades of experience in their respective fields, criticized the tender.

The rationale for a Swiss Challenge was repeatedly questioned.  Swiss Challenge is quicker, but at what cost, they asked.  For the Swiss Challenge to even work, the Korean proposal should have been vetted by competent technical consultants for all aspects of viability. It is not clear who did this and it appears not to have gone through a valid process,” said one critic.”

In any case, why does the long-term supply of LNG to Sri Lanka need to be an unsolicited proposal. Such a strategic procurement, with high ramifications to our energy security and long-term economic development, should be structured professionally and tendered globally along conventional lines,” critics said.

Why doesn’t the Government simply call for competitive bids for an ‘X’ amount of natural gas at this maximum price, for this long, starting from this date, and leave the industry to work out how to make it happen?” one critics asked. What we need is gas, not an FSRU!

The tender documents were not drafted by the Power and Energy Ministry, said critics. A properly executed tender would take a year to prepare and six to 12 months to respond to.   In this case, the Korean company drew them up at its own cost.

The tender was therefore devised to favor the SK E&S Company. An unusual” condition of this Swiss Challenge is that US$ 10mn is mandated to SK E&S (for having submitted an unsolicited proposal with limited technical information) should a competitor’s bid be accepted.  The invitation to tender has mostly instructions on how and when this US$ 10mn payment has to be made, immediately and guaranteed to SK&E and the Government of Sri Lanka.

An important element of the Korean contract is the supply and operation of an offshore FSRU. But SK E&S has no experience of ever running one. Because of this, the tender also does not seek the same from other bidders. It merely asks if the ship-builder has experience.”This is pure madness from our side,” he said. We have become guinea pigs for some operator to experiment if they can operate an FSRU while dumping their expensive gas into our country at high price.” Not only are we over-prescribing this tender, we are playing to someone else’s music.”

There was universal criticism about the proposed mode of purchase. The contract they are said to be negotiating is a disastrous one—take-or-pay. Even when our hydro, wind and solar are good and demand does not grow, we have to pay for unused gas in their tanks, said critics.”

The tender envisages the purchase of LNG at a price indexed to oil. Professionals say this is deeply problematic. Having a price indexed to crude oil will prevent Sri Lanka from taking advantage of world spot market in future, when the country’s demand has stabilized and procurement practices have matured.

The proposed contract will lock Sri Lanka for 20 years to an uneconomical price with a glut in the LNG market,” a critic warned. Soon, 50 percent of LNG will be sold in the spot market to which Sri Lanka will not have access. But the same deal provides for SK E&S to procure the gas in the spot market and sell to Sri Lanka on take-or-pay terms. I expect the loss to be in the billions.”

The country’s LNG requirements have not even been identified, though Sri Lanka is planning to into a long-term take-or-pay LNG supply contract, observed critics. Sri Lanka needs LNG as a common, lower cost and relatively environmentally benign” energy source. But any gas procured must power not only electricity generation but industrial thermal needs and transport. This has not been taken into account.  Also, there must be an open-technology solution where the infrastructure investors derive their return in a predictable manner, such as tolling charges for use of the facility. It must not be tied to the supply of gas.

A lot of focus is on the FSRU being free of charge,” said one expert. This is a false narrative on multiple counts. There is a tolling agreement specified, but not included in the tender documents or Korean proposal, which will be negotiated later. So any claims of a free FSRU is premature, to say the least.”

Also, the FSRU cost (approximately US$ 300mn) is insignificant—less than five percent—when compared with the size of the supply contract. Since we believe the pricing contract to be unfavorable to Sri Lanka, even if they throw in the FSRU for free, we will pay more,” critics pointed out. We are merely avoiding the capital cost of the FSRU upfront. That could have been done with a standard lease agreement.” As with all complex oil and gas transactions, in which companies pass on as much risk as possible to unsuspecting host Governments, the devil is in the detail, critics observed.”

The Cabinet Appointed Negotiating Committee (CANC) and Technical Evaluation Committee (TEC) for this project comprise well-meaning but unqualified Sri Lankan officials”. There are no Petroleum Resources Development Ministry (PRDM) or Ceylon Petroleum Corporation (CPC) officials represented in the two bodies. There is no qualified business consultant to safeguard Sri Lanka’s interests.

The project, several inside sources revealed, is being pushed from the highest levels, ignoring the concerns raised”. Serious   implications in the original proposal were pointed out by government officials, but these have been ignored. A TEC and a CANC of non-relevant professionals are responsible for making an untutored recommendation based on what is, at best, a hazardous procurement practice never before undertaken in this country,”    critics warned.

Critics also noted that CANC and the TEC were not briefed by the tender preparers. The documents were merely handed over. The notes pertaining to the preparation of these documents need to be made public, as well as the selection process and experience of the preparers,” Everything must be thoroughly vetted by the PRDS said critics.

Lastly, there has been no environmental impact assessment (EIA) despite the proposed facility requiring pressurized, highly-explosive, gas pipelines to run under densely populated areas. Natural gas lines are in a different league in terms of hazards,” critics warned. Even minor leaks result in major fatalities and many projects are delayed through public protest in affected areas, despite land being acquired.”

The proposed location–about 9km outside the Colombo Port beyond an exclusion zone defined by the Sri Lanka Ports Authority–has not been reviewed against all hazards. A navigational simulation was done to define the exclusion zone but there has been no comprehensive safety study. There have also been no ocean studies, soil studies or pipeline route surveys. It usually takes six months or more to choose suitable location. The full impact of the monsoon will also be felt on the offshore FSRU, critics said.  (Source. Sunday Times 16.12.18 p 12.)

One Response to “YAHAPALANA AS A PUPPET REGIME Part 6A”

  1. Hiranthe Says:

    Thank you Kamalika for exposing this.

    Now what is the situation? Is this mad project still going on? What was the JO doing all this time?

    Timeline
    1. This Cabinet Committee on Economic Management (CCEM) was established on September 23, 2015 through a Cabinet decision. It was chaired by Prime Minister Ranil Wickremesinghe.
    2. In March 2017, the CCEM was given the right to engage directly with line ministries and the Board of Investment to fast track investment projects.
    3. An unsolicited bid had been submitted for this by the South Korean Government-backed SK E&S Company and presented to the Cabinet in December 2017 by President Maithripala Sirisena.
    4. In March 2018, however, President Sirisena got the CCEM scrapped. Its powers reverted to the Cabinet.
    5. A tender was called in November 2018 for supply of liquefied natural gas (LNG), pipeline, floating storage and regasification unit (FSRU) for Sri Lanka.
    6. The Swiss Challenge was advertised on November 5, and international bidders were invited to match this unsolicited Korean proposal.
    7. The industry was given five weeks to bid, extended by a mere seven weeks after media exposure.

    If the Tender was issued on Monday 05 November 2018, Total 12 weeks tender period including the extended 7 weeks will finish on Friday 25th January 2019.

    That means it is coming soon and who is the mastermind behind this? My3 submitted the unsolicited bid from the South Korean company to the Cabinet in December 2017.

    “The project is being pushed from the highest levels, ignoring the concerns raised”. Was it My3 this time???

    What is going on here? This is only second to the Bond scam. This is another disaster similar to FTA with Singapore.

    What was JO doing. Now MR being the Opposition Leader the country expect him to stop this rubbish!!

    Let’s keep our eyes open Patriots!!!

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