Award of LNG tender to higher bidder PAB chairman admits his recommendation was outside his discretion

• The way the tender process was managed by the Ministry of Power and Energy has become a subject of criticism from many quarters

By Yoshitha Perera   

In what appeared to be a dramatic turn of events, Chairman of the Procurement Appeal Board (PAB) K. A. S. Gunasekera admitted that his office recommended the tender for the proposed LNG power project to be awarded to a higher bidding Chinese Company disregarding lower - bidding local company Lakdhanavi, it was not a matter to be inquired by his office at all.   

Appearing before the Presidential Commission of Inquiry (PCoI) probing corruption and fraud in state institutions, he said the PAB recommended the tender to be awarded to the higher bidder overturning the decision of the Tender Board to award at much lower cost.   

The PAB report was instrumental in awarding the tender for by the Ceylon Electricity Board (CEB) to a Chinese company. Based on a decision made by the Procurement PAB, the Power & Energy Minister Ravi Karunanayake obtained the Cabinet approval to award this project to a Chinese company.   

The award of 300MW LNG Project for Kerawalapitiya to a Chinese company has now been challenged in the Supreme Court. The way the tender process was managed by the Ministry of Power and Energy has become a subject of criticism from many quarters.   

Mr. Gunasekera, giving evidence on PAB’s reasons for rejecting much cheaper bid recommended by the tender Board, informed the commission that the Tender concerned is a BOOT (build, own, operate and transfer) project and that PAB has no jurisdiction to investigate in to the Tender Board decision.   

When asked then why did PAB investigated it and in fact overturned the decision to cause Rs. 50 Billion loss to the Country, he said he did not know that it is a BOOT Project and that none of the parties informed him so. Then the Commission asked him to read the introductory para of his report which identified it as a BOOT Project.   

Answering another question on PAB’s conclusion that the lowest Bidder, fully Sri Lankan company Lakdhanavi, is not eligible for VAT exemption, Gunasekera admitted that PAB solely relied on a confidential letter written by Ministry Secretary Dr. B. M. S. Batagoda to PAB informing that Lakdhanavi is not eligible for tax concessions and by invoking such exemptions has violated tender conditions. Lakdhanavi is an institution coming under the very Ministry of Power and Energy where Dr. Batagoda is the Secretary. Commission then asked why PAB ignored the undertaking Lakdhanavi had given to tender Board to carry out the project even without tax exemptions and without passing any additional burden to government, Mr.Gunaekera chose to be silent.   

Commission said the PAB determined that the Heat Rate (fuel consumption rate) of the power plant assumed by Lakdhanavi is too low and is out of industry norm. Commission asked whether there was anybody in three - member PAB who knew about the matter. Gunaekera said none of the PAB members know about Heat Rate. Commission then asked whom should PAB get advice in such situation. Gunaekera said it is the Technical Evaluation committee (TEC). When asked whether PAB did so, Gunasekera said TEC’s respone was that Lakdhanavi’s Heat rate is the correct one. Commission asked then why did PAB determined it is too low to which Gunasekera arising another hilarious reaction from those present said they compared it with other bidders Heat Rates and found to be different.   

The other reason cited by PAB for its decision was the project cost proposed by Lakdhanavi which was US $ 175M which PAB said was too low. When the Commission inquired about this from Mr. Gunasekera he only could say that PAB said so because in another project 10 years ago Lakdhanavi had quoted US$ 225M project cost and had to spend US$ 330M to complete it. He said PAB thought the same will happen in this instance also. Therefore, PAB thought it is better to award to Chinese company which had proposed US$ 307M. Commission admonished Gunasekera for basing conclusions on unsubstantiated and non-related hearsay.   

Commission members were highly critical about the lighter manner PAB has treated this important tender causing a huge loss to the country and said as Chairman he should have declined to investigate this appeal made by the Chinese company which by his own admission was beyond PAB’s jurisdiction. Commission said PAB has wittingly or not has colluded with a foreign company to cause an irreparable loss to the Country. Gunasekera concluded by saying he is considering retiring from his post. The Commission will call Dr. Batagoda for further investigations.   

Appearing before the Presidential Commission of Inquiry (PCoI) probing corruption and fraud in state institutions, he said the PAB recommended the tender to be awarded to the higher bidder overturning the decision of the Tender Board to award at much lower cost.   

The PAB report was instrumental in awarding the tender for by the Ceylon Electricity Board (CEB) to a Chinese company. Based on a decision made by the Procurement PAB, the Power & Energy Minister Ravi Karunanayake obtained the Cabinet approval to award this project to a Chinese company.   

The award of 300MW LNG Project for Kerawalapitiya to a Chinese company has now been challenged in the Supreme Court. The way the tender process was managed by the Ministry of Power and Energy has become a subject of criticism from many quarters.   

Mr. Gunasekera, giving evidence on PAB’s reasons for rejecting much cheaper bid recommended by the tender Board, informed the commission that the Tender concerned is a BOOT (build, own, operate and transfer) project and that PAB has no jurisdiction to investigate in to the Tender Board decision.   

When asked then why did PAB investigated it and in fact overturned the decision to cause Rs. 50 Billion loss to the Country, he said he did not know that it is a BOOT Project and that none of the parties informed him so. Then the Commission asked him to read the introductory para of his report which identified it as a BOOT Project.   

Answering another question on PAB’s conclusion that the lowest Bidder, fully Sri Lankan company Lakdhanavi, is not eligible for VAT exemption, Gunasekera admitted that PAB solely relied on a confidential letter written by Ministry Secretary Dr. B. M. S. Batagoda to PAB informing that Lakdhanavi is not eligible for tax concessions and by invoking such exemptions has violated tender conditions. Lakdhanavi is an institution coming under the very Ministry of Power and Energy where Dr. Batagoda is the Secretary. Commission then asked why PAB ignored the undertaking Lakdhanavi had given to tender Board to carry out the project even without tax exemptions and without passing any additional burden to government, Mr.Gunaekera chose to be silent.   

Commission said the PAB determined that the Heat Rate (fuel consumption rate) of the power plant assumed by Lakdhanavi is too low and is out of industry norm. Commission asked whether there was anybody in three - member PAB who knew about the matter. Gunaekera said none of the PAB members know about Heat Rate. Commission then asked whom should PAB get advice in such situation. Gunaekera said it is the Technical Evaluation committee (TEC). When asked whether PAB did so, Gunasekera said TEC’s respone was that Lakdhanavi’s Heat rate is the correct one. Commission asked then why did PAB determined it is too low to which Gunasekera arising another hilarious reaction from those present said they compared it with other bidders Heat Rates and found to be different.   

The other reason cited by PAB for its decision was the project cost proposed by Lakdhanavi which was US $ 175M which PAB said was too low. When the Commission inquired about this from Mr. Gunasekera he only could say that PAB said so because in another project 10 years ago Lakdhanavi had quoted US$ 225M project cost and had to spend US$ 330M to complete it. He said PAB thought the same will happen in this instance also. Therefore, PAB thought it is better to award to Chinese company which had proposed US$ 307M. Commission admonished Gunasekera for basing conclusions on unsubstantiated and non-related hearsay.   

Commission members were highly critical about the lighter manner PAB has treated this important tende

r causing a huge loss to the country and said as Chairman he should have declined to investigate this appeal made by the Chinese company which by his own admission was beyond PAB’s jurisdiction. Commission said PAB has wittingly or not has colluded with a foreign company to cause an irreparable loss to the Country. Gunasekera concluded by saying he is considering retiring from his post. The Commission will call Dr. Batagoda for further investigations.