CEB's shocking tender benders

By Frederica Jansz

A multi million rupee tender for aluminium cables to be supplied to the Ceylon Electricity Board has been recommended to be awarded to Kelani Cables PLC despite the company bid being higher than the lowest offer by a massive Rs. 34 million.

Out of five selected bidders Kelani Cables was the fourth highest in price but nevertheless has been recommended the award by both a Technical Evaluation Committee and a Cabinet Appointed Procurement Committee.

The exact difference in price between Kelani Cables and the lowest bid tendered by Alucop Cables Ltd., is Rs. 34,856,635.

The Ceylon Electricity Board on November 6, last year floated a tender for the "Supply and Delivery of Conductors of All Aluminium (FLY)."  The amount required is 1400 metric tonnes.  Aluminium conductor cables are a specific type of high-capacity, high-strength stranded cable used inoverhead power lines. The outer strands areof aluminum, chosen for its excellent conductivity, low weight, and low cost. The centre strand is ofsteel, providing extra strength.

Tender for aluminium cables

The tender for 1400MT of aluminium cables closed on December 3, 2008.  At the closing, the results of the tender were; Alucop Cables Rs. 382,934,005, APAR Industries Ltd (India) Rs. 385,255,787, ACL Cables PLC Rs. 402,177,155, Kelani Cables PLC Rs. 417,790,640, and PEC Ltd. (India) Rs. 477,433,551.

On January 22 this year, the Ministry of Power and Energy informed the shortlisted bidders that the Cabinet Appointed Procurement Committee (CAPM) had recommended the award to be given to Kelani Cables PLC despite the fact that Kelani Cables was the fourth highest amongst the tenderers. The price for the large quantity of 1400 metric tonnes of cable quoted by Kelani Cables at Rs. 417,790,640 is even higher than that offered by its sister company, ACL Cables PLC.

 Interestingly, Alucop Cables were awarded the tender for the identical requirement in August 2007 and successfully completed their supply over the required time frame of nine months.  The company however was rejected this time despite having submitted the lowest bid.

Managing Director, Alucop Cables, Shamendra Panditha said the company had no complaints of any kind from the CEB during the entire nine months it supplied aluminium cables after being awarded the tender in 2007.  "Why we were not chosen this time too since we were not only the lowest in price but have previously supplied and successfully completed the tender last time I don't understand," Panditha said.

Appeal against the tender

Panditha has been told by Ministry Secretary J. M. K. Jayasekera that if they wish to make any appeal against the tender being awarded to Kelani Cables they can do so to the Procurement Appeal Board.

This Shamendra Panditha did.  On January 26, he wrote to the Procurement Appeal Board complaining that "the abysmal failure to adduce reasons to even pro forma justify the purported decision to award the said tender to M/s Kelani Cables Limited, whose bid was Rs. 34,856,644 higher than the bid submitted by us, clearly demonstrates the fact that the said purported decision was not in fact supported by any legitimate and/or rational reasons."

Panditha further asserts that Alucop had previously supplied substantial quantities of the said product to the CEB, from time to time, during the past 25 years. "The said supplies were effected on previously awarded tenders, subject to the terms, conditions and specifications stipulated in the said tenders, to the entire satisfaction of the CEB," he said.

Managing Director of the chosen bidder, Kelani Cables PLC, Hemantha Perera responding said, "Alucop Cables may have been the lowest in terms of pricing but probably they failed in some form or another as far as specifications or other required documentation was concerned.  Which is why we were chosen."

Also cheaper in price

Asked why Kelani Cables had been chosen even over their sister company, ACL Cables, which was also cheaper in price, Perera said he did not know.

The irony is that a mere one year ago, Perera himself was a disgruntled man - complaining that he and his company Kelani Cables had been unfairly muscled out of a bid calling for the manufacture of single phase electricity meters.

Exactly one year ago in January 2008, the Ministry for Power and Energy riding roughshod over the CEB secured cabinet approval to bring in a Chinese company to function as a joint venture partner with LECO to manufacture locally,  electrical meters for the CEB. 

The Chinese company was given the green light for the manufacture, supervision and purchase of these meters which the CEB is now compelled to buy for the next 20 years. A complete monopoly for the supply of a minimum of 500,000 electrical meters per year, to the CEB and LECO.  At the time other tenderers including Kelani Cables were unceremoniously given the pushover despite the fact that their offer was cheaper.

Meanwhile, Senior Assistant Secretary (Tenders), Ministry of Power and Energy, J. M. K. Jayasekara when contacted and asked on what basis Kelani Cables was chosen at a cost of Rs. 34 million more than the lowest offer from Alucop said he could not even remember signing a letter dated January 22, 2009 which was sent to four other shortlisted tenderers informing them that Kelani Cables had been recommended for the award. 

When The Sunday Leader spoke with  Jayasekera it was less than a week since he had signed the letter in question concerning a tender award running into over Rs.400 million.  "I sign so many letters in a week - I simply cannot remember this one," he said. We reproduce below this letter.

Bid for Supply and Delivery of Conductor All Aluminum (fly) 7/3,40mm - 1400 MT

Bid No: R3/P&D/ICB/C/2008/53-C

I wish to inform you that the Cabinet Appointed Procurement Committee (CAPC) has recommended to award the above bid to M/s Kelani Cables Limited, P.O.Box 14, Wewelduwa, Kelaniya.

Any representations against this recommendation of the CAPC could be made to the Procurement Appeal Board (PAB) established at the Presidential Secretariat, within one week, in accordance with Clause 8.3 of the Procurement Guideline 2006 (Good & Works) of Sri Lanka with copies to General Manager, CEB and Secretary, Ministry of Power and Energy.

J.M.K. Jayasekera

Senior Asst. Secretary (Tenders)

For Secretary

Ministry of Power & Energy

This is just the tip of the iceberg as to what goes on at the CEB. Here are some of the other multi billion rupee scams that have surfaced in the CEB and the Ministry of Power & Energy in the last year.

Kerawalapitiya

The Ministry of Power and Energy together with the Ceylon Electricity Board (CEB) in this instance ignored all procurement guidelines by the National Procurement Agency (NPA) of which statute President Mahinda Rajapakse no less is a signatory, and dipped its fingers into EPTF/ETF funds to finance the multi billion rupee combined cycle power plant at Kerawalapitiya.

In addition to ignoring the NPA, the Power and Energy Ministry also bypassed tender procedures and offers of inward investment, and instead granted the project to Lakdhanavi Ltd., which is a local subsidiary of Lanka Transformers Ltd, which in turn is a subsidiary of the CEB.

Bankrupt, yet ignoring investment offers, lobbying instead for a local partner company, the government not only dipped its fingers into EPF/ETF funds to the tune of Rs. 6,480 million, (USD 60 million) but also borrowed a whopping Rs. 2.2 billion (USD 206 million) from a private bank to fund the multi billion rupee Combined Cycle Power Plant at Kerawalapitiya.

Laxapana

In this case, the Power and Energy Ministry fiddling with yet another power project pushed for a multi billion rupee contract with a German hydro power manufacturer which has jumped estimates by over Rs. 2 billion.

Against all norms of tender procedures and national procurement agency guidelines the Ministry chose to get a single source proposal from VOITH Siemens to rehabilitate Old Laxapana for a price that is approximately 64% higher than the estimated cost. In rupee terms the difference in cost amounts to over Rs.2 billion.

The price received by the Ministry for the project from Voith Siemens (after the discount) is approximately Euro 25.8 million.  However, the Technical Evaluation Committee (TEC) is of the view that the cost of rehabilitation should be in the range of Euro 17.2 - 18.5 million.  In fact, the TEC advised the Cabinet Appointed Negotiating Committee (CANC) that VOITH Siemens price is 53% - 64% higher than the estimated cost.  Estimates were arrived at based on a study done by the Japanese International Cooperation Agency (JICA). 

Voith Siemens is also not the original equipment manufacturer of the Old Laxapana Power Station.

The Old Laxapana Hydro Power Complex comprises of a hydro power plant of 25MW commissioned in the early 1950s, Wimalasurendra Hydro power plant of 50MW commissioned in the early 1960s and the New Laxapana Hydro Power Plant of 100MW commissioned in the early 1970s.  It is the first hydro power complex in Sri Lanka which provides an annual average energy supply of 1432 Gwh. 

Due to the obsoleteness of these three plants, reliability has become an issue.  Maintenance of the plants has become difficult and expensive. Which is why, a study done by the Japanese International Cooperation Agency identified urgent and major rehabilitation needs.

Galle power project

Meanwhile reproduced below is a letter addressed to the Minister of Power and Energy W.D.J. Seneviratne by Head of Mission, Embassy of Sweden, Borje Mattsson pointing out a conflict of interest in deciding an award of tender.  The letter and the  sequence of events below speak for themselves.

Embassy of Sweden Colombo

22 October, 2008

Hon. W.D. J. Seneviratne

Minister of Power & Energy, Ministry of Power & Energy, Government of the Democratic Socialist Republic of Sri Lanka.

Re: New Galle Development Project, Ceylon Electricity Board

Lot A: Construction of a 3x31.5 MVA 132/33kV Grid Substation at Galle

The Swedish Embassy in Colombo has been informed by AREVA T&D, a Swedish Company, that the said company has made a representation regarding the captioned project to the Procurement Appeal Board in a letter dated 16th October and copied to you Hon. Minister. (I attach the copy for your ready reference).

The project is financed by the Nordic Investment Bank (NIB). In the appeal AREVA T&D raises a number of issues against the recommendation of the Cabinet Approved Negotiation Committee (CANC).

Among the issues raised by AREVA T&D are: Item No. 2 in Annexure 3 of the representation referring to "Bidder shall be preferably from the NORDIC/BALTIC countries. If the bidder is not from NORDIC/BALTIC countries the main part of the supplies (not less than 50% of content) need to be sourced in the NORDIC/BALTIC countries. NORDIC/BALTIC countries are Norway, Sweden, Finland, Denmark, Estonia, Iceland, Latvia and Lithuania." And Item No. 3 in Appendix 3 of the representation "Lanka Transformers Limited is a subsidiary of Ceylon Electricity Board (CEB, the Employer) with CEB having the majority of 63% and thus should issue the Parent Company Guarantee. This is a clear conflict of interest."

With this letter I would like to draw your Ministry's attention to AREVA T&D's representation to the Procurement Appeal Board.

Yours sincerely

Borje Mattsson

Head of Mission

Embassy of Sweden

This three billion rupee project hangs in the balance with billions of rupees pledged by a foreign investment bank to the government on hold in the backdrop of a possible scam.

The project is to be funded by the Nordic Investment Bank. Tenders were invited by notice published last year on June 19. The closing date for bids was  September 17, 2008.

The Procurement Committee (PC) having evaluated the bids received recommended to the CANC the award of the tender to Lanka Transformers Limited (LTL). The report of the PC stated that the LTL bid was in conformity with all tender conditions and specifications. Accordingly the CANC recommended the award of the tender to LTL.

The procedure with regard to tender awards require that the concerned Ministry should inform all unsuccessful bidders of the decision of the CANC to award the tender to the selected bidder and for the unsuccessful bidders to submit appeals, if any, to the Procurement Appeal Board (PAB) set up in the Presidential Secretariat, within seven days of the date of letter.

Informed the unsuccessful bidders

J. M. K. Jayasekera in this instance too in his capacity as Senior Assistant Secretary (Tenders) of the Ministry of Power & Energy by his letter dated October 3, 2008 informed the unsuccessful bidders of the recommendation of the CANC to award the tender to LTL. This letter however was received by unsuccessful bidders only on October 15, 12 days after it was signed on the 3rd.

The unsuccessful bidders responded to these letters stating that they were received only on October 15 and that they would submit their objections to this recommendation to the PAB within seven days ending October 22, 2008. Their main objection was that LTL was not in conformity with tender conditions and specifications.

Having considered the appeals of all unsuccessful bidders, The Procurement Appeal Board informed the cabinet of ministers that it rejects the recommendation of the CANC to award the tender to LTL as LTL is ineligible to bid at this tender and therefore the bid is unresponsive.

The PAB amongst many shortcomings found that LTL being a subsidiary/affiliate of the CEB is not eligible to bid in this tender in terms of Section 8 of Volume 5 of Tender Conditions.  The CEB holds a share of 63% in LTL.

Also that LTL has not met the minimum requirement of Nordic/Baltic input in excess of 50% in terms of Clause 3 and 4 of Section 1 of Volume 1, Instructions to Bidders.

That the 31.5MVA power transformers offered in Lot A and ACSR Zebra Conductor offered in Lot B by LTL are not in conformity with the tender specifications and requirements.   

Not in conformity

Most importantly, LTL did not have at the time of the tender closing on September 17, 2008 the ISO 9001:2000 certificate for the scope of work of the project (Lot A and B) which is mandatory under the tender conditions.

The PAB also recommended to the Cabinet of Ministers to direct the CANC to add two independent and competent officials unconnected to the CEB to the Procurement Committee and to consider the bids received with the assistance of the PC and to make a suitable recommendation.

This the cabinet of ministers on November 19, 2008 agreed to do with the recommendations of the PAB and directed the Ministry to take action in terms of the PAB recommendations. 

However LTL on December 1, 2008 filed a fundamental rights (FR) application under Articles 17 and 126 of the Constitution of Sri Lanka that its fundamental rights had been violated by the directive of the cabinet of ministers on the recommendation of the PAB.

This FR application was called before the Supreme Court (SC) on  December 4, 2008, and the court ordered the suspension of the decision of the cabinet giving effect to the recommendations of the PAB and directed the secretary to the Ministry to take steps to award the tender to LTL, calling on the respondents at the same time to file answers within four weeks, with LTL counter affidavit to be filed two weeks thereafter.

Does not conform to specifications

Meanwhile in view of the controversy and the fact that LTL indeed does not conform to specifications indicated in the bid document including conditions stated by the funder Nordic Investment Bank - the bank, The Sunday Leader learns has indicated that it is considering withdrawing the pledged funding of Rs.3 billion to the government. 

The Supreme Court in its order of 4.12.2008 has stayed the cabinet decisions on an application made by LTL and directed that steps be taken to award the tenders to LTL.

Meanwhile the Nordic Investment Bank Board  is to meet later this month with this fresh information and decide on the procedures to be adopted in taking this project forward since it has been delayed for more than two years..