9 May 2024 12:00 am Views - 4030
During the procurement process all bidders have to show their financial capabilities before a deal sign and commitment is made to construct a solar power facility. The picture shows a solar power facility
Although the consortium agreed to bring down the tariff rate on par with the lowest bidder, the CEB staff was astonished to understand how this bidder was allowed to increase their semi annuity transmission facility rate from US$ 1.666 million to US$ 2.288 million. This is a mega scam
- CEB Sources
Despite CEB’s move to increase the tariff rate of the consumers- claiming they are incurring losses- questions are raised as to why the same institution offered a tender for the solar project, which has a capacity of 100MW, to one of their ‘preferred’ bidders. This deal has made the government incur a staggering loss of Rs. 8.7 billion.
This ‘preferred’ bidder is none other than a partner of a consortium where most of the top CEB Engineers are offered jobs for higher remuneration once they reach retirement.
The consortium consists of Lakdanavi Limited, Blue Circle Pvt Ltd and WindForce PLC. Lakdanavi is a subsidiary of Lanka Transformers Limited (LTL) where the CEB holds 63% of its shares. It is a known secret that the top most senior CEB Engineers are offered jobs at Lakdanavi upon their retirement. These engineers are alleged to have a ‘duty’ to award tenders to partners of the consortium disregarding the tender conditions.
“The CEB is in ‘debt’ to Lakdanavi as its top most engineers are offered recruitment immediately after retirement; the new employees being granting the best of packages. That is why allegations have been levelled against the CEB for not allowing the lowest bidder of this tender to submit the technical documents they have initially failed to provide. The CEB claims it as a major deviation. If that is a major deviation, how come they allow one of the partners of this consortium- who has not complied tender conditions and not met the required financial capabilities- to win a tender? Isn’t this too a major deviation? It is the Procurement Committee (PC) that states that this is a deviation. Similarly the lowest bidder too should have been given an opportunity to submit the relevant documents and have a chance for negotiation,” a highly reliable CEB official alleged.
According to our sources, ever since both bidders have openly violated the tender conditions, the CEB ought to have re-tendered this procurement to receive suitable bids.
The lowest bidder although has made an appeal to the Procurement Appeal Board (PAB) on May 31, 2023 and the latter- by letter dated June 30, 2023- has recommended to reject the appeal after reviewing the documents submitted by the Ministry of Power and Energy.
“Despite having a case to fight against, the lowest bidder did not take any action as it is alleged that the CEB has given them yet another project to compensate this,” sources alleged.
According to the sources, the lowest bidder is said to have agreed to construct the transmission line free of cost.
The CEB floated this tender (TR/RED&PM/ICB/2022/002/C) on August 22, 2022, for a 100Mw Solar Park Facility at Siyambalanduwa on Build, Own and Operate (BOO) basis for the construction of 132kV Transmission Facility on turnkey basis in line with the government policy.
According to copies of documents this paper is in possession of, two bidders had submitted their proposals by the time the bid was closed on December 2, 2022. The two bidders were M/s Ethimale Plantations (Pvt) Ltd and a Consortium of Lakdanavi Limited, Blue Circle Pvt Ltd and WindForce PLC.
Initially the tariff rate submitted by the lowest bidder was US$ 8 cents per kWh while the second bidder quoted US$ 12.2 cents per kWh.
Unlike in other procurement procedures, in this case, the technical details submitted by the bidders are opened first which is followed by the checking of financial details separately.
Then the lowest bidder is called for a meeting with the Cabinet Negotiation Committee.
“This procedure has not been followed at this tender,” sources added.
The PC in its preliminary examination report states that Ethimale Plantation (Pvt) Ltd is not responsive as it has submitted an incomplete proposal; which is a major deviation.
Therefore the PC has decided not to consider them further for evaluation purposes as per Clause 5.4 of the Volume 1 of the published Request for Proposal (RFP).
The tariff rates submitted by the highest bidder for the solar park facility was US$ 12.2 cents per kWh and US$ 1.666 million for the semi annuity payment of the transmission facility. Meanwhile, the Cabinet Appoint Negotiation Committee (CANC), has conducted negotiations with the consortium and has requested them to submit a breakdown of the tariff for the solar power plant, battery energy storage system and the transmission separately. Accordingly the consortium has submitted a revised calculation, bringing down the tariff rates to US$ 9.894 cents/kWh and the transmission facility rate.
However, after having conducted further lengthy negotiations with the consortium, a flat rate of US$ 8 cents per kWh was decided upon, but for the Solar Park facility, the semi annuity payment was given as US$ 2.288 million for the transmission facility.
“Although the consortium agreed to bring down the tariff rate on par with the lowest bidder, the CEB staff was astonished to understand how this bidder was allowed to increase their semi annuity transmission facility rate from US$ 1.666 million to US$ 2.288 million. This is a mega scam. Knowing that this bidder wanted to have the returns they were expecting from the beginning, the CEB has taken a further step to approve a higher cost for the Solar Facility. The tariff which was US$ 8 cents during the initially calculation is now US$ 80 million. However, considering the recent disclosure by WindForce to the Colombo Stock Exchange (CSE), the cost of the project is US$ 133 million out of which project cost for Solar facility is US$ 100 million; which is much higher than the US$ 80 million, and the transmission cost is of US$ 33 million which was approved,” CEB sources said.
According to sources the consortium was going to make a loss of US$ 29 million during the recovery of the cost of the facility since the tariff was brought down to US$ 8 cents per unit. Therefore to recover the cost of the facility, it was conveniently decided to adjust the transmission cost by about US$ 9 million and the Solar Facility cost by$ 20 million. Hence the CEB, has quickly got the PPA approved by the Project Committee and the legal team and signed the agreements until other agreements were signed.
Did the CEB approve higher transmission costs?
This shows how the CEB approved higher transmission costs than what it was stipulated under the ceiling costs which were stated in the tender documents.
“This approved Transmission costs of US$ 33 million is in breach of the tender condition and exceeds the ceiling cost of US$27 million mentioned in the tender. With this breach, the tender needs to be cancelled and the awarded contract should be disbarred as well as should be excluded from any future tender till this matter is addressed,” sources said.
The transmission cost to the consortium is US$ 33 million (net present value at US$ 2.288 million in 20 installments as per tender formula) is a clear deviation from the tender conditions. On further witnessing the relevant bid documents, the consortium had initially proposed the transmission costs as US$ 24 million, which was the reason they received qualification, but later on during the process of negotiation they have got additional costs approved. With this enhanced cost approved by CEB, the country will be paying an additional US$ 9 million to the consortium of WindForce PLC.
According to the sources, during the negotiations, the transmission rate has increased beyond the ceiling price; which has raised many questions amongst the CEB staff.
“Who made this decision to allow the selected bidder a higher transmission rate which is well above the ceiling price? The CEB has allowed to change the procurement conditions to suit the bidder.
“CEB’s GM is alleged to have approved the Power Purchase Agreement (PPA) whilst working as a Board Member at LTL Holdings. Soon after he went on retirement, this GM was offered a higher post at Lakdanavi. This is a conflict of interest as CEB has a strategic holding in Lakdanavi,” sources alleged.
As per the tender conditions, the Present Value (PV) of the payments for Transmission facility shall be equal or less than the engineering cost estimate of US$ 21 million. Payments for energy cost and payments for Transmission facility are considered to be made in arrears annually for 20 years in case of energy cost and six monthly for 10 years in case of payments for transmission facility starting from the third year.
But this was changed and instead of $ 21 million, the CEB has added yet another 30% for this purpose which amounts to $ 27.3 million.
According to the tender conditions, the bidders should demonstrate their current soundness of their financial position and its prospective long term profitability. As the minimum requirement, the bidder’s net worth calculated as the difference between the total assets and total liabilities which should be for the past five years. However, since the selected bidder was a consortium, all the partners of the consortium should meet this requirement. But it is reported that one consortium partner – Blue Circle Pvt Ltd, Singapore- did not meet this requirement.
“Notwithstanding, all the members of the consortium should demonstrate a minimal annual average turnover of US$ 75 million as per the tender condition. Hence, each member of the consortium shall meet 25% which is US$ 18.75 million of the requirement, while one partner shall meet 40% of this requirement. Then again Blue Circle did not meet this requirement and they demonstrated only US$ 3.319 million annual average turnover.
“The bidder shall demonstrate that it has access to, or has available liquid assets, unencumbered real assets, line of credit and other financial means sufficient to meet cash flow requirements estimated as US$ 11.25 million for the subject contract in addition to the bidders other commitments. The bidder or all the members together shall meet this requirement and each member shall meet 25% of the requirement while one partner shall meet 40% of this requirement. Once again Blue Circle has not provided the relevant proofs of their available financial resources.
CEB officials refute allegations about favoritism
When this newspaper met the Chairman Project Committee of the CEB and the Deputy General Manager Renewable Energy Procurement CEB at their Colombo Head Office to find out why they allowed the consortium to further remain in the procurement process despite one of their partners having failed to show any of the financial capabilities as stipulated in tender conditions, the CEB officials said that it was the decision of the Project Committee and the Cabinet Appointed Negotiation Committee.
“The PC and the CANC took the decision as the other two partners of the consortium have more than the required average annual turnover,” Chairman Project Committee said.
When they were asked why they did not take such a decision and request
Ethimale Plantation to submit the mandatory technical documents, which they have failed to submit initially by giving them a chance to remain in the fray, DGM Renewable Energy Procurement said that they were not responsive as they have submitted only a very few technical documents.
“We can obtain some of these documents after the tender was opened, but not all. Ethimale failed to submit the most important mandatory technical documents,” he said.
Since allegations have been levelled against the CEB for allowing the consortium to increase their transmission rate from US$ 1.666 million to US$ 2.288 million, which is an astonishing loss to the national coffers, the two CEB officials said that it was to allow them to recover the loss they incured by reducing the Solar Facility rate from US$ 12.20 cents to US$ 8 cents.
“Our ceiling price for the transmission cost was US$ 21million, but we did not impose any ceiling for the Solar Facility rate. Keeping the ceiling price for the transmission cost in their minds, they quoted a lesser rate for it and to compensate this loss, they have quoted a higher rate for the Solar Facility when submitting their bid. When the CANC negotiated with them they said why they did so. As a result at the negotiation level it was decided to increase this ceiling price by an additional 30% to the initial ceiling price of US$ 21 million bringing it to US$ 27.3 million,” the officials said.
Although the CEB says that they increased the ceiling price to benefit the successful bidder, they have still allowed the consortium to further increase the transmission rate well above the ceiling price.
When asked whether all these favourations were done because most of the retired top ranking CEB Engineers are given employment by one of the consortium partners, the CEB officials refuted the allegations, but confirmed that few of their former Engineers have joined one of the consortium partner’s business venture.
“Ask the CEB why we were offered the tender”- WindForce CEO Manjula Perera
Speaking to the Daily Mirror Manjula Perera said that this newspaper should ask the CEB why the consortium was awarded the tender if the consortium has failed to meet the tender particulars.“It was not us who evaluated this tender, but by the CEB’s Evaluation Committee. If we did not comply with any tender conditions we would have been rejected. Even if we sent our bids as separate entities we still would have got the tender as we have the financial capabilities to win the tender,” Perera said.
However, Perera did not want to answer any of the questions this newspaper journalist posed to him; claiming that he has to verify to whom he was talking to and wanted this reporter to visit his office with her (journalist’s) National Identity and Media Identity Card.
“The bidder shall also demonstrate that they have adequate financial sources to meet the cash flow requirements on works currently in progress and for future contract commitments. Again, Blue Circle has not provided the relevant data on its present contract commitments,” sources said.
As a result, the evaluation requirement of the bidders, PC notes that non compliances observed in Financial Capabilities of Blue Circle is a deviation.
However, since the other two partners have more than the required average annual turnover according to RFP, the PC recommended to proceed with the detailed technical evaluation of the consortium subjected to verifying the availability of necessary financial resources to carry out this project while evaluating the financial proposal.
When contacted Chairman Ethimale Group and his CEO, Anurath Abeyratne and Nalin Anthony respectively, to know why their bid was rejected and what action they have taken against it, they initially requested this newspaper to visit their Dehiwela office so that they can provide a detailed summary, but surprisingly, when this reporter visited this office in Dehiwela, CEO Anthony, refused to meet or talk to the representative of this newspaper claiming that it was on the request of this newspaper that the appointment was given, but since they are not interested, they do not want to make any comments regarding the matter.
All attempt to contact CEB Chairman Nalinda Illangakoon failed as he did not respond to calls taken by this writer. A text message was also sent to Illangakoon seeking a comment on the allegations levelled against them, but, until this newspaper went for publication, he had not made any response.