Purchasing of generators to generate power Allegations and violations mar tender proceedings

Site in Thulhiriya with locally modified generators

• It has come to light how the Power and Energy Ministry has paid 85% of the bidding price to the bidder in question
• More than 20 generators are yet to be commissioned and connected to the transmission grid

Following our recent expose ‘Deals and Deals Behind Procuring Emergency Power’, facts that have now emerged reveal how another deal had taken place in the power sector unscrupulously. 

The Ceylon Electricity Board (CEB) floated a tender in 2016, for the supply, installation and commissioning of 50 diesel generator units, 25 step-up transformer/switchgear units and 25 diesel fuel tanks to be installed in ten locations in the country in order to add emergency power to the National Grid. Despite of the Technical Evaluation Committee’s (TEC) repetitive recommendations to the Standing Cabinet Appointed Procurement Committee (SCAPC) to award the tender to the technically compliant and lowest commercially responsive bidder, for a reason better known to the SCAPC members, it had been awarded to a rejected bidder who was technically and commercially non-compliant. 

Although approvals have to be obtained from the Public Utilities Commission of Sri Lanka (PUCSL), which is the regulator for the electricity industry in the country for any capacity addition under approved generation plan which is stipulated in Section 43 of Sri Lanka Electricity Act, the PUCSL hasn’t been informed nor were approvals taken when awarding this tender, according to PUCSL.

As of now, it has come to light how the Power and Energy Ministry has paid 85% of the bidding price to the bidder in question even though the bidder has failed to supply the units as per the tender specification. 

Questions have been raised as to why the SCAPC, which approved the draft bid document and other related documents on November 11, 2016, of the said procurement, recommend the awarding of the tender to a bidder whose bid submission was in total violation of the procurement conditions laid by themselves.

Meanwhile, a Deputy Auditor General, on condition of strict anonymity, told the Dailymirror  that the SCAPC cannot ignore TEC recommendations. “According to the new Audit Act, the SCAPC has to take responsibilities for any losses incurred to the country due to their wrong decisions,” the Deputy Auditor General said.

 The TEC has twice rejected this bid on the grounds that its submission was technically and commercially non-compliant. But ignoring the TEC’s important observation-‘technically non-compliant’, the SCAPC recommended the rejected bidder to award the tender, claiming that they are the lowest commercially responsive bidder. 

This act has deprived not only the bidders who had complied with bid conditions of an opportunity to secure the tender, but also to incur a huge loss to the country. 

According to CEB inside sources, the tender had been awarded to the ‘successful’ bidder on July 31, 2017 and 85% of the total value had been paid by December 16, 2018. But more than 20 generators are yet to be commissioned and connected to the transmission grid. It is also alleged that less than five generators are now in operation. The long delay in commissioning these units is alleged to be due to many defects in the generators supplied .

Although, Power, Energy and Business Development Minister Ravi Karunanayake in his Cabinet Memorandum dated April 7, 2019 states that the 50 units of 1MW generators purchased by the CEB have to be installed and connected to the transmission network as early as possible, the supplier as of now has failed to supply the specified units to the CEB. Neither the CEB nor the Power and Energy Ministry is now ready to divulge any detail into the losses the country has incurred.  

Accusations have been levelled against a few high ranking officials at the Ministry of Power and Energy for allegedly influencing fellow SCAPC members to offer this tender to the unsuccessful bidder overriding the TEC reports. 

Members of this SCAPC were G.S. Withanage – the then Secretary Ministry of Foreign Employment, Dr. B.M.S. Batagoda- Secretary Ministry of Power and Renewable Energy, A.K. Samarasinghe-the then General Manager, CEB, K.A. Vimalenthirajah- the then Director General, Department of Trade and Investment Policy and G.R.I. Wasantha – the then Director (Finance), Sri Lanka Air Force. 

However, later Chairman SCAPC, G.S. Withanage stepped down from his position while committee member Director (Finance) Sri Lanka Airforce G.R.I Wasantha has resigned on behalf of SCAPC. Although the reasons for  these two officials to step down from the Procurement Committee are not known, it is alleged that they were related to the decision taken by the Power and Renewable Energy Ministry official to offer the tender to this rejected bidder despite this committee being appointed by the Cabinet to ensure transparency in the procurement process.  

Be that as it may, in terms of tender specifications of this questionable tender, “bids with deviations shall be rejected and shall not be taken for further evaluation as those bids will be considered to be substantially non-responsive.”

By the time the tender was opened on February 8, 2017, eighteen bidders had submitted their bids, and the TEC examined to look into general compliance as per given in the general and special conditions of bidding documents and rejected 11 bids that had not fulfilled tender conditions. As per Section 7.8 of the National Procurement Authority (NPA) guidelines, if the bidder is not qualified under Stage 1, such a bid should be rejected and excluded from further consideration. 

Following the standard evaluation procedure, the eight member TEC, in its evaluation report dated May 17, 2017, recommended to award the Supply, Installation and Commissioning of the above tender to Senok Trade Combine (Pvt) Ltd of No: 3, R.A.de Mel Mawatha, Colombo 3 for being the lowest evaluated substantially responsive bidder.

However, on June 5, 2017, the SCAPC instructed the TEC to re-evaluate two bids from South Korea and India which were rejected on the grounds that the installation and commissioning cost had not been quoted. 

“The Indian bidder has not only failed to include the installation and commissioning cost in their submission, but has not provided vital technical details and supportive documents which were the reasons for the rejection initially” reliable CEB sources told the Dailymirror  on grounds of anonymity.

However, after the re-evaluation, the TEC in an addendum to their initial report once again rejected the said two bids and recommended the same bidder whom they recommended initially.
According to the addendum, the Indian bidder Sterling and Wilson has not fulfilled the major commercial conditions and technical parametres given in the bidding documents, therefore the bidder had to be rejected as per Section 7.8 of the NPA guidelines.

• The TEC has twice rejected this bid on the grounds that its submission was technically and commercially non-compliant

Issue with Sulphur content

The TEC in its report dated July 12, 2017, also highlighted a major drawback in the Indian bid which was the Sulphur content in auto diesel in Sri Lanka. According to the TEC report, the Sulphur content in auto diesel in Sri Lanka is very much higher than the recommended value of the engines the Indian bidder has offered. 

The TEC report further states ‘The Sulphur content in auto diesel in Sri Lanka is very much higher than the recommended values of the Indian engines. As per the recommended diesel fuel for maximum engine performance and service life, the Sulphur content shall be less than 0.2%. In Sri Lanka, these engines will operate in the range of 0.3% Sulphur. This will lead to excessive engine wear and unexpected failures due to corrosion reducing the engine performance and service life. 

‘This bidder’s engine manufacturer hasn’t specified the limitations in the letter declaring compatibility for 0.3% Sulphur. The TEC noted that in the maintenance manual of the offered engine model, possible consequences are specified. This contradicts to the letter of compatibility submitted by the manufacturer. TEC is of the view it isn’t possible to accept the letter of the manufacturer as he hasn’t provided vital details intentionally or unintentionally. 

‘TEC is also of the view that this engine will not perform successfully under local fuel specification. There is the possibility of unexpected failures and forced outages and de rated running which will increase the annual heat rate depreciation. The bidder has not supplied model numbers of the offered engine generator containerized models to vary with product offered in this tender within the last 10 years as per clause 23 (a) of the bid document and has only supplied two similar capacity engine generator units for the last five years outside the country of origin although the requirement is, should have supplied 50 units within the last five years as per clause 23(b) of the bid document.   

‘Accordingly, Sterling and Wilson has not fulfilled the major commercial conditions and technical parameters given in the bidding document. Therefore the bid was rejected’. Meanwhile it is surprising to note how the then Minister of Power and Renewable Energy Ranjith Siyambalapitiya, dissuaded the cabinet of ministers to obtain approval to offer the tender to the rejected bidder.

Siyambalapitiya in his cabinet memorandum, dated October 16, 2017, without declaring that the TEC had twice rejected the Indian bidder as its bid submission was technically and commercially non-complaint, has stated that the rejection was because of not including local transportation and commissioning cost.

The cabinet memo states, ‘The TEC has rejected some of the bidders on the grounds that local transportation and commissioning cost had not been included. The SCAPC having considered the rejected bids, instructed the TEC to consider the rejected bids for the evaluation process considering the unquoted price component as zero.

‘After that the SCAPC considered the report submitted by the TEC and further studied the reasons for rejecting the bidders who have quoted low prices.

‘According to that there were no acceptable reasons for rejecting the bids because they were from commercially responsive low price bidders. The SCAPC decided M/s Sterling and Wilson Private Ltd, India as the substantially responsive lowest quoted responsive bidder. Therefore it was recommended to award the tender to them. Senok bidding price was around Rs.1.3 billion more than the price quoted by the Indian company.

Meanwhile, it has also come to light how the CEB has called a separate tender in November 2018 for the supply and installation of 50  fuel mass flow metres to measure engine fuel consumption for the 1MW generators supplied by Sterling and Windsor although it was a mandatory required item stipulated in the original tender specification.  

According to Clause 4.1.25. of the tender specification on engine instrumentation, fuel mass flow metre with Min 1% accuracy to measure engine fuel consumption shall be provided.  
Although the supply of flow metres installation was part and parcel of the supply scope of the above tender, calling for a new tender (No: PMU/50MW/ BID/ G/ 04) is a serious violation. Further it is also an additional expense that CEB has to incur at public cost. Meanwhile, it is learnt how the supplier has failed to supply the generators with the required sound levels - 65dba at 10 m.

In order to arrest this issue, the CEB is carrying out modifications to the generators by installing sound attenuators and silencers out of their own funds at CEB Thulhiriya premises.

Sound pollution

“The generators that have been supplied do not have the devices to arrest the sound pollution which was a mandatory requirement in the original tender specification. The tender was called for 20ft containerized generators for easy transportation and handling for emergency power in various locations in the country. By mounting additional sound attenuators and silencers to the 20ft containerized generators, the dimension of the desired size of the generators has now been increased and is not in a position to transport them as and when there is a requirement for emergency power in any part of the country,” sources added.  

Following the tender notification in a national newspaper on November 8, 2018, for the supply for 50 numbers of fuel flow machines, Senok Trade Combine by letter dated November 12, 2018 to the General Manager, CEB has informed that they will initiate legal action against the CEB for adopting unlawful and unethical business practices.

The letter states, ‘We Senok Trade Combine Pvt Ltd, was the recommended bidder as the lowest substantially responsive bidder. However, we were deprived of this tender being awarded to us and it was arbitrarily awarded to M/s Sterling and Wilson of India who was a non-eligible and non-responsive bidder by the SCAPC overruling the TEC recommendations.

‘Under these circumstances, we hereby urge that this is a clear violation of tender procurement guidelines. Therefore we are compelled to make an official protest and have sought legal opinion to take legal action against the new tender, unlawful and unethical business practice adopted by the CEB for calling tenders for the supply of 50 numbers of fuel flow meters as we insist that this has to be part and parcel of the initial tender’. 

Although this letter was dispatched to CEB in November 2018, the CEB is yet to respond to Senok.

After considering my appeal, the President’s office has sent a letter to look into the matter. As the Ministry Secretary was one of the members in the SCAPC and is alleged to have influenced in awarding the tender to the Indian bidder, how could we expect justice from him?
Reeza Rauf

“We are awaiting a response from the CEB. As they know they have violated the tender guidelines they are speechless,” Director, Senok Trade Combine Pvt Ltd Reeza Rauf said.    
It is also learnt that the lubricant that is used for these machines are imported to the country from India although there are 13 licensed lubricant blenders, producers and sellers in the country. 

“The lubricant that is needed for these units is imported from India by the same company. The lubricant consumption of these engines are extremely high and this too has cost the country dearly,” the CEB sources further added.

According to the sources, although the then Minister Siyambalapitiya stated that the difference between Senok and the Indian bidder was around Rs.1.3 billion, had the SCAPC considered the prices of the exhaust emission treatment, the installation and transport cost for the units, the cost for the fuel flow metres and the higher cost to import lubricant from India etc; the lowest evaluated substantially responsive bidder would have been Senok- the bidder that was recommended by the TEC.

“Although the Indian bidder had given a price for the emission controlling units, it has not reflected as part and parcel of their final bid. When considering the bid submitted by this bidder, as the lowest responsive bid, the price quoted by the bidder for exhaust emission treatment has not taken into consideration by the SCAPC. They have also not quoted for the cost of installation and commissioning and not supplied the fuel flow metres in its bid therefore have failed to meet mandatory bid requirements . Had the SCAPC considered these prices, Senok’s prices would have been lower than what the Minister has shown in his Cabinet memo,” sources claimed. 

Meanwhile, the sources further claimed that as per the tender specification clause 11.2(b), the lowest unit cost of energy will be the indicator used to determine the award, once substantially responsive bids were short listed.

“When evaluating the actual cost shall be for power plants such as these, it is prudent to use energy cost over a period as stated in the tender specification. It is necessary to ascertain whether SCAPC has taken into account the lowest unit cost of energy. The fuel cost will play a major role in determining the energy cost. According to the specifications, the fuel cost will be calculated over a period of ten years at 1200 running hours per year and for ten years at 12, 000 running hours. Based on published information, the fuel consumption of Sterling and Wilson’s Perkins product is approximately 255 litres/hour while the TEC recommended Senok’s Cummins product is 249 litres/hour. Taking into account of the fuel consumption of these two products over the 10 year period, the product of Sterling and Wilson will cost Rs.342 million more than the Senok product,” sources said.  

According to Clause 23 of the bid document, worldwide delivery of the offered engine generator containerized units should be minimum 150 numbers and should be sold by the Principal within the last ten years across the world. The list of such details with documentary support shall be provided to prove the sales along with supporting documents from clients.
Although Senok has provided a list of 485 such units during the past five years and has provided the requested documentary proves, the SCAPC recommended bidder- Sterling and Wilson has failed to comply with the specification.

Making an appeal to the Procurement Appeal Board (PAB) on the decision taken by the SCAPC to offer the tender to the rejected bidder who has violated several bid conditions, Director, Senok Trade Combine Pvt Ltd Reeza Rauf had sought the PAB to verify the facts with the TEC and to award the tender to the most responsive bidder.

“We appealed to the PAB in writing, and highlighted the clauses the Indian bidder has violated and how the SCAPC unilaterally decided to award the tender to them. All attempts had fallen on deaf ears and the PAB too, took the SCAPC stand and recommended the Indian bidder to be awarded the tender,” Rauf told the Dailymirror .

Rauf further accused the PAB for recommending the same bidder the SCAPC recommended without verifying the facts. “I then wrote to the President and Prime Minister seeking their intervention. After considering my appeal, the President’s office has sent a letter to the Secretary Power and Energy Dr. B.M.S. Batagoda to look into the matter. As the Ministry Secretary was one of the members in the SCAPC and is alleged to have influenced the fellow members in awarding the tender to the Indian bidder, how could we expect justice from him?” Rauf alleged.

This has led Rauf to lodge complaints with the Committee on Public Enterprises (COPE), Bribery Commission and the Human Rights Commission.

“We filed a legal suite in the Supreme Court, but we were not granted leave to proceed,” Rauf told this newspaper.

According to Rauf, Senok could have submitted a very low price bid had they too were allowed to violate the same procurement which Senok claims that Sterling and Wilson have violated.  

Meanwhile questions have been raised as to why the CEB has installed the 50 generator units in three locations - Thulhiriya (1MWx 10), Kolonnawa and Mathugama (1MWx 20 each) instead of installing in 10 places as stated in the tender specification.  

According to Siyambalapitiya’s cabinet memorandum, in order to avoid small deficiencies in electricity generation, the CEB has decided to procure 50 contained stored 1MW/1.25 MVA diesel generators, 25 container stored transformers and 25 container stored fuel tanks and have selected Kotugoda, Biyagama, Kiribathkumbura, Kurunegala, Pallekele, Galle, Ukuwela, Habarana, Hambantota and Kolonnawa for the installation and the estimate cost of Rs.3000 million.

However, sources pointed out how the CEB and the Ministry of Power and Energy have violated their own tender conditions by installing the 50x 1MW generators only in three locations although tenders were called to supply and install generators in 10 locations in order to supply emergency power to the grid.

 “The bidders have submitted their prices considering the transport and installation cost for 10 different locations. If the CEB said that these 50 units will be installed in three locations in and around Colombo, the bidders would have quoted lower prices for transportation and installation,” sources added.

Clear violation

According to the sources, the main objective of getting these 20 foot containerized generators was to transport it wherever in the country as and when there is a requirement. These generators that have arrived are not in compliance with the required sound levels and the CEB is carrying out modifications to these units by installing sound attenuators at their own cost. This has exceeded the permissible dimensions, thus it is impossible to transport them on the road unless Road Development Authority approval is obtained. Therefore the CEB has now installed them in three permanent locations, which is a clear violation from the initial tender requirement.

Although the Power and Energy Media Spokesman said that the CEB does not intend to install these generators in these three locations permanently, a Senior CEB officer confirmed this newspaper that these generators have been permanently fixed in three locations and are not used as mobile units though in the tender specifications it had been clearly stated that these 50 generators are to be set up in 10 different locations.

Refuting allegations Sulakshana Jayawardena, Spokesman for the Ministry of Power, Energy and Business Development said the reason to instruct the TEC to re-evaluate the rejected bidder was that the SCAPC has found that the TEC was not correct in rejecting the Indian bidder. “SCAPC has found the reason to reject the bid was not correct. The TEC has rejected many bids on a wrong basis. According to tender guidelines, SCAPC has the power to amend, accept or reject the TEC recommendations. If SCAPC should accept the TEC recommendations, there is no reason to have SCAPC.  The SCAPC must correct any wrong decisions by the TEC. SCAPC decision to accept this bid has been confirmed by the PAB, Cabinet and the Supreme Court. The Supreme Court has rejected the petition against the SCAPC decision,” Jayawardena has stated in his response to the questions sent by this newspaper. 

When asked as to why the SCAPC recommended Sterling and Wilson which was technically and commercially non-compliant, Jayawardena said that the Indian bidder was both technically and commercially responsive according to SCAPC and the final authority to decide whether bid is technically and commercially responsive is vested with SCAPC, but not with the TEC. 

According to Jayawardena, though the TEC observed that the Sulphur content in auto diesel in Sri Lanka is very much higher than the recommended values of the Indian engines, and that would lead to excessive engine wear and unexpected failures due to corrosion reducing the engine performance and service life, the SCAPC has found the TEC observation on the Sulphur content is wrong. “The bidder has submitted the proposal according to the technical specification on Sulphur in the bid document. The TEC or the tender board cannot change specifications. The engine proposed by the bidder is within the Sulphur specification approved by the TEC and SCAPC. When the bidder submitted the proposal within the tender specification the bid cannot be rejected,” Jayawardena said. 

When asked as to what made the SCAPC to recommend the Indian bidder who didn’st give the cost for the installation and commissioning, refuting the allegation, Jayawardena said that the bidder has met the conditions in the tender document on installation and commissioning. “This is why SCAPC recommended the bidder and for the PAB and the Supreme Court to agree with the decision,” he added. 

Though the bidders had to submit their prices including the transportation cost for the 10 locations as per the tender specifications, when asked as to what made the CEB to install the 50 generator units only in three locations instead of the 10 places given in the bid document, the Spokesman said that the CEB could install the generators anywhere in the country as they were purchased as a mobile unit to take to any place as required. 

The SCAPC must correct any wrong decisions by the TEC. SCAPC decision to accept this bid has been confirmed by the PAB, Cabinet and the Supreme Court. The Supreme Court has rejected the petition against the SCAPC decision
Sulakshana Jayawardena

Although the main objective of getting these 20ft containerized generators was to transport it to wherever in the country to meet any requirement and because the CEB is installing sound attenuators at their own cost which has exceeded the permissible dimensions. As a result it has become impossible for these generators to be transported, said Jayawardena adding that the allegation levelled are incorrect. 

“These generators can be transported. Anyway the technical teams handled by the AGM who made the factory visit has confirmed that the equipment meet tender specifications and that they do not have any plans to install them in permanent location,” added Jayawardena. 

When asked for the reason behind importing the lubricant, that is used for these units, from India without purchasing them from the local market, Jayawardena made no response. However when asked as to why the Indian company failed to supply fuel flow metres which were part and parcel of the supply scope of the tender and what was the reason for the CEB to call for a fresh tender in November last year to supply these metres, which is an additional cost to the Board, Sulakshana Jayawardena said that the Indian company has supplied 50 Nos of fuel flow metres at the delivery side of the tank to be used to measure the fuel. 

Meanwhile, PUCSL Spokesman and Director Corporate Communication, Jayanth Herath when contacted to inquire as to why the PUCSL granted permission to award this tender to a rejected bidder, said that this was never referred to PUCSL for approval.

“If it is a capacity addition under an approved generation plan, even though it may be an emergency purchase, CEB has to obtain the approval of the PUCSL. This requirement is stipulated in section 43 of the Sri Lanka Electricity Act. This provision allows PUCSL to ensure energy purchases and or capacity additions are in compliance with the least cost principle,  An addition of 50 MW generators has not beensubmitted to PUCSL for its approval,” Jayanath Herath said. 

Ravi acknowledges allegations

Minister of Power, Energy and Business Development Ravi Karunanayake meanwhile told the Dailymirror  that he agrees with the allegations levelled against the particular tender and added that since malpractices had taken place when offering this tender, he had instructed CEB officials not to use state funds to modify the generators and other units at tax payers cost. 

“Except for supplying fuel to generate power, I have instructed my officials not to use state funds to fix any additional parts to these generators at tax payers’ money. If the CEB has called for fresh tenders to purchase fuel flow metres and fix sound attenuators etc, it would have been financially viable if the tender was awarded to the bidder who was initially selected,” Minister Karunanayake said.     

If the CEB has called for fresh tenders to purchase fuel flow metres and fix sound attenuators etc, it would have been financially viable Ravi K.