Hambantota Port Project Tender And Violating NPA Guidelines
By Sellakapu S. Upasiri de Silva
“The government should commit itself to being a best practice client” — Latham, M.
When the Government of Sri Lanka (GOSL) gives contracts to the Chinese without calling for tenders, it goes against the accepted norms of transparency and good governance. By withholding the use of National Procurement Agency (NPA) Guidelines recommended by President Rajapaksa on January 27, 2006, the government creates a high level of corruption by procuring these multi million dollar “publicly funded” contracts without proper tender procedures.
President Mahinda Rajapaksa expected the Cabinet of Ministers, Secretaries of Ministries, Head of Government Departments, State Corporations and Statutory Bodies, Fully Government Owned Companies and Heads of Local Authorities to play a very important role in procuring contracts ‘large or small’ using the NPA Guidelines in order to have balanced national development and enhance the quality of life of the citizens of Sri Lanka.
Contracts without tenders
But unfortunately Mahinda Rajapaksa as the President of Sri Lanka, his Cabinet of Ministers, Secretaries of Ministries, Heads of Government Departments and Statutory Bodies have violated all these norms by awarding contracts to Chinese contractors (as well as others) without following the established tender procedures as recommended by the NPA Guidelines. Awarding tenders to one individual contractor by violating NPA Guidelines without calling for and evaluating tenders by professionals as specified in the NPA Guidelines to ascertain the builderbility and the cost effectiveness of the project, is a very serious criminal offence punishable by a jail sentence as determined by the Rajapaksa government.
In procuring contracts if the client bypasses or violates tender procedures purposely, according to the unwritten laws in the construction industry there is a possibility that the client or the person handling the contract is trying to ‘create major corrupt practises, and that act will hinder the cost and quality control of the project. These corrupt criminal acts will cause Sri Lankans to believe that the government (Rajapaksa brothers and the family) has adopted corrupt practices and that President Rajapaksa is a party to these corrupt dealings and may have earned a good share of the borrowed money from these contracts.
Not following tender procedures as laid down by the NPA Guidelines and doing away with tender evaluation committees and a Tender Board is the usual path to allowing very serious corrupt practices by the people responsible for procuring these contracts where the funds involved in these projects are “Public Funds”, borrowed from the Exim Bank of China.
Preface to NPA Guidelines
This was what President Rajapaksa wrote as a Preface to the NPA Guidelines on January 27th, 2006, urging all Government Departments and Ministries to follow the guidelines by affixing his seal of approval:
The Government of Sri Lanka has placed the highest priority to ensure that development efforts across all sectors are evenly balanced and distributed to all cross sectors of the society, in order to meet the overall national development and enhance the quality of life of its citizens. To achieve the desired results it is imperative to ensure speed, transparency and integrity in all the development spheres and in regard to which the procurement function of goods, works and services plays a critical role.
The development programmes which are instituted and others in the pipe line include those which are financed by public funds as well as by external funding. Within this context the availability of a set of guidelines on procurement which harmonizes the processes to be followed under the different funding agency procedures has been identified and acknowledged by all providers of development funding as a vital factor.
It is in this context that the National Procurement Agency has been established under Presidential directive. The institution which functions directly under my purview is mandated to study, revise and adopt the procedures and processes in order to govern this vital aspect. The efforts taken by the National Procurement Agency, within a period of one year from its inception, to study the several procedural documents which prevail in the sphere of public procurement and to formulate a single harmonized procurement guideline applicable over the different funding agency procedures is a significant and commendable achievement.
I trust that this publication on procurement guidelines in the areas of goods and works would be made use of by all stakeholders of national development in order that the overall national development goals as well as the individual organisation development objectives are realised on a timely and cost effective manner.
January 27, 2006
Repealed Treasury Circulars on Tender Procedures
It is very important for all Government Ministers, Ministry Secretaries, Head of Departments, State Corporations and Statutory Bodies and Fully Government Owned Companies (like Lanka Logistics) responsible for procuring goods, services and works for the government to realise that the Guidelines on Government Tender Procedure (Revised Edition,1977), Revised Guidelines on Government Tender Procedures for Projects assisted by Foreign Financing Agencies (Revised Edition – 2000) and Treasury circulars pertaining to the Guidelines on Government Tender Procedures issued up to 20.10 2005 were repealed and replaced by the NPA Guidelines as instructed by Daya Liyanage, then CEO and Chairman of the NPA by NPA Circular No : (08) on 25th January 2005.
The Chinese Contractor building the Hambantota Port (Harbour) project is China Harbour Engineering (CHE) and the US $ 336 million Contract (First Phase) was awarded to the CHE without calling for tenders, violating the NPA guidelines as well as the instructions issued by the President of Sri Lanka, Mahinda Rajapaksa. Was this violation of the NPA Guidelines instigated by the President as the Minister of Ports and Aviation or someone else with the full support of the President?
If the Government of Sri Lanka has placed the highest priority to ensure that development efforts across all sectors are evenly balanced and distributed to all cross sections of society, to meet the overall national development effort, then why was President Rajapaksa allowed to procure this Hambantota Port project and many other projects constructed using loans obtained from the Exim Bank of China on ‘commercial terms’, without calling for tenders in accordance with the NPA guidelines, which are still in use and under the authority of the Secretary of the Treasury?
Economics of Public Debt
It is a common situation for the government to borrow money for development projects and it is not necessarily detrimental to the economy of the country. Borrowing money is advantageous for the long term development of the country if the development gives a return (IRR) for the money higher than the interest paid for the borrowing. Borrowing is a means of increasing total savings to enable increased investment. Short term borrowing like what has been borrowed from the Exim Bank can assist in resolving constrains in foreign resources to tide over temporary balance of payment difficulties, if the borrowing is on acceptable interest rates.
But, utilising the public debt borrowed at high interest rates in development without following normal procedures like calling for tenders and negotiating with a single contractor without a proper base is detrimental to the economy and it indicates that corruption is rampant and these hidden corruption issues may hamper the rate of return from development.
Are these projects handed over to the Chinese contractors such as CHE and others, without calling for open tenders coming within the ambit of National Development projects? If they are National Development projects why bypass the use of NPA Guidelines that President Rajapaksa has himself fully endorsed and supported for use by all stakeholders of National Development? Who ordered the Ports Authority to bypass tender procedures? Was the order given by President Rajapaksa or someone else? Did they bypass the Chairman of the Ports Authority, Dr. Wickrama (from Weeraketiya) a stakeholder in this development project? Has he negligently allowed this corrupt practice or was he ordered to do so?
He is the Chairman of the Tender Board of the Ports Authority, as well as the Chairman of the Ports Commission. Who signed these contracts with CHE to engage them as the Main Contractor, bypassing the NPA Guidelines when there were possibilities to get other international contractors to tender for this project and secure a competitive price thereby saving millions of dollars for the citizens of this country?
If the GoSL called for open tenders, there was a possibility of selecting a contractor offering a very much lower price say at least 50% to 70% less than the CHE to construct this Port project. I quote The Sunday Leader of October 31st, 2010, “While Hyundai which is building the Colombo South Port Breakwater quoted Rs. 33.5 billion and clinched the Tender in 2008, China Harbour Engineering (CHE) bid Rs. 58.2 billion i.e. Rs 24.7 billion more than the lowest tender from Hyundai (sic, lost the tender)”.
For instance the ADB (Asian Development Bank) loan of US $ 300 million to build the Colombo South Harbour (CSH) breakwater is payable in 25 years (beginning from 2007, the year in which the contract was signed) and carries an interest component of six month Libor (London Interbank Offered Rate) plus 0.6%. At present Libor is less than 1%. The terms of the loans obtained from the Exim Bank of China are not disclosed to the public, and according to information received from people having access to the “borrowing”, the interest rate payable varies from 5.8% to 7.2% payable in 10 years.
Now it is not a secret that the Government owned Sri Lanka Ports Authority (SLPA) which is the implementing agent of the Hambantota project where Dr. Wickrama is the Chairman, is expected to award the second phase of this project which includes the building of container terminals, again to the same Chinese contractor CHE, without calling for open tender for a cost of US $ 800 million, in the coming months.
It is not a secret that the GoSL is now negotiating with the Exim Bank to obtain a Commercial Loan for this amount and the interest rate will be not less than 7.2%. If the GoSL is borrowing money from the Exim Bank on commercial terms then it comes under Public Funds and if Public Funds are utilised to construct this container terminal the correct procedure is to call for open tender under NPA Guidelines.
Most professionals are questioning the wisdom of constructing a harbour without a feasibility study to verify the builderbility of this harbour. The former Deputy Governor of the Central Bank, W.A Wijewardane, a very experienced officer, has expressed his concerns over the construction of this Port at a seminar organised by the Organisation of Professional Associations.
President Mahinda Rajapaksa, if he is an honest leader will question the officers and others who procured for the Hambantota Harbour project without calling for open tender and bypassing his instructions and request the Attorney General to prosecute these officers to prove that he is a fair and reasonable leader.
Who is the minister responsible for awarding contracts for the 953 km road network in the North to the Chinese without calling for open tender? The total costs of these contracts are not in the public domain but insiders of the Ministry of Highways assume that Rs. 100 million + 25% contingency sum i.e. Rs. 125 million may cost around Rs. 120 billion. If this total funding cost is obtained as a loan from the Exim Bank at 5.8% interest, it becomes Public Funding and as per the former Treasury regulations and the NPA Guidelines the Chairman of the RDA should have called for open tenders to get the best available cost effective contract to complete all these works, as the ordinary people of Sri Lanka are supposed to repay this money in few years time.