REVEALED: USD 69 COAL SOLD FOR USD 104
- Chairman Cscl: “Taurian did not provide performance bond”
- Secretary: “Ministry not involved. we asked for reports after Leader article”
By Faraz Shauketaly
The Sunday Leader has obtained copies of invoices showing that the sub-standard, low quality coal that was discharged in Sri Lanka which originally the government paid nearly USD 10 Million for, (USD 104 per ton) was replaced with coal worth just over USD 69 per ton. In an astonishing move it has been revealed that yet another Sampling and Analysis test would be carried out – although three other such certificates exists. An industry insider said, “it is like they keep hoping that the analysis will bring out results that are favourable to Lanka Coal Company (LCC) and the Ceylon Electricity Board (CEB)”. Be that as it may, the most galling act in this fiasco can be revealed by The Sunday Leader: although the value of the so-called ‘distressed cargo’ amounted close to USD 10,000,000 and Taurian Iron & Steel ‘assisted’ by taking control of that shipment, in effect USD 10 Million, there was no performance bond in place.
Secretary Ministry of Power & Energy R. Ferdinando told us,”why do you ask us? This matter is an operational matter for Lanka Coal and CEB. You ask them”. However when we pursued our enquiry on the lines that Lanka Coal was listed under the Ministry of Power & Energy and asked Mr. Ferdinando where the accountability was, he relented and told us that these organizations seek the assistance and co-operation of the Ministry on various matters including the evaluation process and the tendering process. Mr. Ferdinando admitted that after seeing the articles in the Sunday Leader, the Ministry has sought explanations from Lanka Coal and the CEB. These reports he said would be available soon. “If there is any wrongdoing we will hold those officers to be accountable.”
We pursued Mr. Ferdinando by asking why there was a need for yet another Testing and Sampling analysis. His response was that, “this is something that has to be addressed by CEB and Lanka Coal”.
We sent an e-mail to Chairman Ceylon Shipping Corporation Limited (CSCL), Kanchana Ratwatte – reproduced elsewhere in this publication – and enquired after several matters. One that has been constantly been in focus was exactly what steps CSCL took to secure the financial security of the near USD 10 Million worth of a commodity that had already been paid for – (apart from relying on the word of the ‘saviour’ in this instance Taurian and or their local associate in Sri Lanka). We specifically asked him about the ‘Performance Bond” – standard fare for a whole array of imports.
Ratwatte was upfront in his response. There simply was no Performance Bond. CSCL however were in a bind at the time. With a cargo that was on the high seas and in grave danger of catching fire – coal is very combustible – the need at the time was to immediately resolve the issue which meant it was all about making a decision of off-setting the risk of fire and the resulting liability against the inevitable cost of demurrage. Industry sources told us that a concerted effort had been made to resolve the issue and communication had been made with a number of suppliers with an interest only from Taurian. Although CSCL had insisted on a Performance Bond with time being of the essence, it was decided that no Performance Bond would have to be the only way. Mr. Ratwatte explained that although the CSCL had insisted on a Performance Bond, Taurian did not supply one, citing difficulties with the Indian Reserve Bank. The fact of the matter is that now the replacement shipment from Taurian is under-spec or substandard, the CSCL and LCC have their work cut out to obtain financial recompense from Taurian. Taurian may well cite the Indian Reserve Bank as part of their difficulties in compensating CSCL and LCC.
Questions are now being asked as to how the Technical Evaluation Committee (TEC) prequalified a company like Taurian in the first instance. No matter what the merits the fact is that Taurian supplied a consignment of coal which has been found to be under-spec or substandard for the requirement in Sri Lanka, and two separate Certificates of Sampling and Analysis proves it to be so. Under the agreement between CSCL, Taurian and LCC a discrepancy will be resolved by resorting to yet another testing process. In the event that this is upheld, Taurian will be paid for the consignment at a reduced rate relying on world prices for lower calorific value coal.
The problem highlights how when out of the umbrella of accountability, rules and standards imposed on state corporations, state-owned companies are run within the whims and fancies of those involved. Consultants are hired on the basis of their so-called ability to help, when in actual fact the consultant in this instance appears to have helped anyone other than the CSCL and LCC. At the end of the day Ratwatte and his Board may well now feel the meaning when it is said, “there’s no such thing as a free lunch. Except of course there was no free lunch – with a potential loss looming in case of a fire with no fire insurance in place for the cargo the CSCL had to clearly make decisions quite literally ‘on the move’.”
Although the Minister of Power & Energy has stated in parliament that Taurian as the supplier will be blacklisted, it has become clearer that Taurian being blacklisted is not the case. It is more like Taurian will be placed on hold whilst the final testing takes place. In the longer term whether Taurian is permitted to continue with the role of supplier and saviour to LCC and the CEB is a matter that will be keenly followed by the power sector in Sri Lanka. Kanchana Ratwatte states that under ‘the back to back agreement’ between Taurian Iron and LCC and CSCL when a discrepancy is found a further testing certificate has to be obtained. In the meantime reliable sources say that Taurian have been put on hold or blacklisted by the Ministry until at least, these issues are resolved. It is only after that they say, will the financial losses – if any of course – be estimated and a mechanism worked out to obtain funds out of Taurian. (firstname.lastname@example.org)
Responsibility with Ceylon Shipping Corporation
1. Clearly the responsibility was given to Ceylon Shipping Corporation Limited (CSCL) to resolve this issue. Was the coal that could not be unloaded ‘sold’ or ‘re-exported’?
2. Now that the consignments (three lots) have been found to be under spec., what will you do?
3. Will you ask the supplier to take the under-spec coal back or are you negotiating to keep the coal, blend it and then supply to CEB for use? If your negotiation is to keep the coal are you able to say how much per ton you will pay for the under-spec coal?
4. What was the agreement with Taurian to ensure that the specified quality of coal was sent? Did CSCL have an agreement with Taurian and or any other supplier?
5. How will you recover the financial loss incurred because the so-called replacement coal is not of the same quality as was taken by Taurian when they ‘assisted’ with the consignment that was not unloaded and which was supplied by Noble?
6. Did you not ask or receive a performance bond from the supplier?
Timeline To A Deal That Was Cast Adrift
April – May 2012 Noble Commodities having won a tender, attempts to make delivery of coal. However due to inclement weather conditions, unloading could not take place.
LCC facing a crisis as huge costs begin to accumulate in terms of the vessel being unable to discharge its cargo due to poor weather conditions. Cost of detaining a vessel can go over USD 35,000 per day.
LCC seeks the assistance of many including their consultant at CSCL who in other dealings is known to Taurian. Noble give LCC a lead of an Indian company who may well take this consignment off their hands. According to sources CSCL did not pursue this valuable lead. Other sources indicated that Noble did not assist.
LCC appoint their partner and agent CSCL to resolve the issue of the cargo on the basis that there is little option but to sell the cargo as ‘distressed cargo’. This is like selling scrap and attracts similar lowly figures.
A proposal to utilise Taurian in which they would take control of the distressed cargo and then replace it with the same quality and quantity once the weather improves is reached as a rather happy medium.
The prime consideration given was to reach a quick agreement given the highly combustible nature of the cargo, no fire insurance in place and the rising demurrage.
It is also agreed that due to their help, Taurian through CSCL would be mitigated in terms of their additional expenses incurred in the novel sale/export transaction. It is decided to award CSCL/Taurian an additional 3 consignments to compensate for their loss.
October – Dec 2012 Replacement shipments of coal begin to arrive in Sri Lanka. However the Sunday Leader highlights a seeming anomaly: the certification by the Indonesian government approved SUCOFINDO is at odds with the certificate issued by GEO-CHEM. Information becomes available that GEO-CHEM is named in a legal battle in the Indian courts and two of their directors are refused anticipatory bail. The charge is that false certification was used, making the industry in Sri Lanka to raise alarm bells that GEO-CHEM certification may not be above board.
Minister of Power & Energy admits in parliament that there is a discrepancy and further testing will take place. He does not name the Sunday Leader but takes issue that ‘some newspapers’ are abusing the freedom of the press. The Sunday Leader continues to highlight issues of national importance and concern.
The industry watches as Lanka Coal and the Ceylon Electricity Board (CEB) deliberates on how best to move forward given the discrepancy in the analysis of the coal in place in Sri Lanka.
The most likely scenario is that Taurian will be paid on the basis of the lower calorific value they have supplied and instead of making a cash refund are likely to send even more coal to compensate for the lower financial value.
The CEB will have little option but to burn the lower calorific value coal; the quantity involved is unlikely to make an impact on the power generation equipment and environment on the scale of registering on the ‘radar’.
The question remains as to who exactly has made the commissions on this transaction. The Sunday Leader invites further information that will be treated in confidence. (email@example.com)