Controversy looms over Kerawalapitiya LNG plant tender awarding

By Nishel Fernando
The Procurement Appeal Board (PAB) has rejected the 300MW Kerawalapitiya Liquefied Natural Gas (LNG) power plant tender contract to the lowest bidder, Lakdanavi Ltd, a subsidiary of LTL Holdings, and instead recommended the contract to be awarded to the second lowest bidder, GCL Windforce & RenewGen, triggering a potential loss of Rs.42.5 billion to the country over a 20-year period, industry sources told Mirror Business. 

According to government sources, the necessary Cabinet paper awarding the contract to GCL Windforce & RenewGen has already been prepared and is signed by the Power and Renewable Energy Minister, and is due to be presented to the 
Cabinet tomorrow.                                                                                                                                       
The PAB chaired by K.A.S. Gunasekara and two other members, A.D.S. Gunawardene and S.P.Wellapili has decided to award the contract to GCL Windforce & RenewGen after accepting nine out of two issues raised by the petitioner, GCL Windforce & RenewGen. 

The two main concerns were conflict of interest and financial viability, Mirror Business learns.  
GCL Windforce & RenewGen had argued at the PAB hearing that Lakdanavi Ltd would not be able to complete the project at US $175 million as the company was expecting an exemption of VAT and NBT for steam turbines, gas turbines and other auxiliary items, which account for 22 percent of the project cost.

Lakdhanavi Limited offered the lowest tariff rate of Rs. 14.98 per unit, while GCL Windforce & RenewGen offered a tariff of Rs.15.97 per unit, calculating the project cost at US $ 299 million.
The Power and Renewable Energy Ministry presenting a letter from the Fiscal Policy Department of the Finance and Mass Media Ministry had noted that Lakdanavi would be liable for VAT and NBT for the equipment. 

However, Lakdanavi had informed the PAB that the company was ready to infuse Rs.4 billion worth company funds into the project, if the VAT and NBT exemptions were not granted by the Finance and Mass Media Ministry.  

GCL Windforce & RenewGen had also argued that Lakdanavi’s proposal wasn’t viable as it wouldn’t be able to complete the project at US$175 million, pointing out that the company has demanded a  US$330 million loan for the project from Germany-based, KfW Development Bank. 

However, Lakdanavi officials noted that it was customary to request a higher loan amount from a bank as it is up for negotiations, and affirmed that KfW Development Bank was one of the banks that they were considering for financing. 

However, experts pointed out that if the PAB was concerned about financial viability, it could have increased the bid bond for Lakdanavi.

Interestingly, the Power and Renewable Energy Ministry had agreed with GCL Windforce & RenewGen’s arguments, when the PAB called for ministry’s observations. 

Speaking to Mirror Business, the Power and Renewable Energy Ministry Secretary Dr. B.M.S Batagoda said PAB has rejected several other tenders during past few weeks along with Lakdanavi’s bid.

Dr. Batagoda asserted that he was merely answering the queries of the PAB, providing his observations such as to whether the Lakdanavi’s bid was lower than the estimated project cost, whether there were other bids of Lakdanavi that were rejected at the PAB level earlier etc.

He also noted that Lakdanavi’s bid was rejected by the 13-member Technical Evaluation Committee (TEC) at different stages of the evaluation process and that he had to reveal about it to the PAB.
Different PABs have earlier rejected two tender awards to LTL pointing at conflict of interest as CEB is the major shareholder of LTL. However, the decisions were reversed at the Cabinet level and by the Supreme Court. 

The Supreme Court reversed the decision of the PAB to re-award the New Galle Transmission Development Project- Lot B to LTL and the Cabinet reversed the decision of the PAB to award the 24MW diesel power plant in Jaffna to LTL.

Proposals for the 300MW Kerawalapitiya LNG plant was called in November 2016, and following several controversies the SCAPC finally decided to award the contract to Lakdanavi last month. 
However, Samsung JV Korea Group and GCL Windforce & RenewGen appealed to the PAB to reverse the decision. GCL Windforce & RenewGen was headed by Chairman Ali Asghar Akbarally and Vice President Yu Xiaodong.

According to energy experts, Sri Lanka is likely to face a major energy crisis by 2020, as the government has failed to commission any large-scale power plants to meet the increasing energy demand of 70-80 MW per annum.