The National Water Supply and Drainage Board (NWSDB) has proceeded with the plan to award a multi-million dollar water project in the Gampaha district, first mooted through an unsolicited proposal five years ago by former Economic Development Minister, Basil Rajapaksa, to a controversial firm involved in the building of the constantly malfunctioning Norochcholai Power plant.
The US$ 229.5mn contract for the Gampaha, Attanagalla and Minuwangoda Integrated Water Supply Scheme was granted in August 2016 to China Machinery Engineering Corporation (CMEC), despite serious concerns raised by the Auditor General’s (AG) Department on various aspects including questions over the qualification of the Chinese contractor to undertake such a major project.
“It was observed that while the Memorandum of Understanding entered into originally by Sri Lanka in 2010 was with a company named China National Machinery and Equipment Import and Export Corporation (CNMEI & EC), which presented its list of qualifications, the contract was ultimately signed by the Chairman of NWSDB on May 15, 2013 with a different company named CMEC,” the Auditor General’s Department raised in a query addressed to the Chairman of the NWSDB, dated January 24, 2018.
The Auditor General’s Department has, therefore, called for an explanation as to why the contract was signed with a different ‘sub-contracted company’ and not with the company with which the agreement had been reached originally.
In its query, the Auditor General’s Department makes note of the fact that there was no evidence of even a registration certificate in the set of documents submitted by CMEC related to the contract.
The Department points out that even a letter of recommendation issued by the Chinese Embassy in Colombo in June 2010 to the then Minister of Water Supply and Drainage, had mentioned CNMEI & EC as the contractor while the proposed financier of the project, China Development Bank had also issued their ‘Letter of Intent’ to finance the project to CNMEI & EC.
“Further, as per procurement guidelines, only the Secretary of the respective Ministry has the authority to sign a contract of over Rs. 500 million but in this particular contract, the Chairman of NWS&DB has signed it violating procurement guidelines,” the AG’s Department has highlighted.
The project proposes to provide tap water to around 150,000 households benefiting around 600,000 people in the entire Divisional Secretariat areas of Attanagalla, Gampaha, Minuwangoda and a part of Mahara and Mirigama.
Eighty-five percent of the project is proposed to be funded by a loan from the China Development Bank (CDB) with the balance to be financed by Bank of Ceylon (BOC).
On October 17, 2017, former President Chandrika Kumaratunga whose hometown is Attanagalla, wrote to Prime Minister Ranil Wickremesinghe citing her serious concerns about the decision to proceed with the controversial contractor.
“I am very concerned about the manner in which this project was awarded to a company which is apparently not qualified to carry out such a major project,” the letter which has also been copied to Finance Minister Mangala Samaraweera and Minister for Water Supply and Drainage, Rauff Hakeem states.
Amidst the signing of the agreement with CMEC, which now holds the legal authority to implement the project, it is learnt that four out of 20 tasks mentioned in the qualification list of the project screening report names a third company by the name of Tiajin Water Industry Engineering and Equipment Company Ltd (TWIEE), which is an associate company of CNMEI & EC. The same firm has also undertaken 10 out of 18 tasks classified as foreign construction work.
“As CMEC does not meet the project requirements, it has entered into a partnership with TWIEE and submitted the qualification of TWIEE. However, as the agreement is only with CMEC, TWIEE has no legal tie up with the project. Hence, the contract agreement is not with a party qualified for the project,” the AG’s Department points out.
In addition, the Department has also raised concerns on the suitability of CNMEI &EC as the contractors given that the company has only involved in projects related to energy generation, hydro electricity, telecommunication, radio, and electronic transmission.
Although they had been involved in major projects worldwide, their experience in projects related to water supply and drainage has been limited to about a mere four projects in the past 10 years.
Sources from the Auditor General’s Department said that the department had in 2016 alone raised similar queries on three occasions dated January 6, December 22 and December 31 because there were serious doubts about the suitability of CMEC to undertake the project.
The sources noted that the Strategic Enterprise Management Agency (SEMA) in 2012 had also recommended reconsidering the decision to hand over the project to CMEC given that the Norochcholai coal power plant had broken down about 35 times since it was commissioned in 2011.
“The Ministry of Water Supply and the NWSDB had awarded this contract to CMEC in violation of many Government procedures as stipulated in the Tender Procedure Guidelines, Financial Regulations, as well as Cabinet approvals. There is no justification to continue with this agreement with CMEC, especially by a Government committed to transparency and Good Governance,” former President Chandrika Bandaranaike said in a recent letter addressed to Prime Minister Wickremesinghe, urging the cancellation of the project.
“There is a serious issue regarding the Company to which this contract has been awarded, namely CMEC of China. It is this Company that built the Norochcholai power generation plant. That contract too was awarded, without calling for tenders to CMEC who has doubtful credentials reconstruction of power projects or water supply projects.
“Their technology and financial ability has been questioned as a consequence of the Norochcholai machinery breaking down 38 times in five years, since it was first commissioned in 2011,” she highlighted explaining the gravity of the situation.
It is learnt that although unsolicited water supply projects were suspended with the change of Government in January 2015, a project review committee appointed to inquire into unsolicited water supply projects recommended the continuation of the CMEC contract. Subsequently, the Cabinet granted approval and requested the External Resources Department of the Ministry of Finance to negotiate with China Development Bank to secure funds,” she said.
In February 2016, Cabinet granted approval for a loan agreement between NWSDB and CDB to finance 85 percent of project cost and with the Bank of Ceylon for the remainder.
The Cabinet in August 2016 authorised the Treasury to issue a letter of undertaking to CDB for US$ 146.3mn, which is 75 percent of the loan amount, in addition to a letter of guarantee.
According to the report, lowest estimated rates for the tasks were offered by NWSDB, with the changing in costs being at 11 per cent. Estimates for the treatment plant by CMEC indicated an increase in cost which was at Rs. 1,554.99 million, change in cost as high as 51 percent. Therefore, the NWSDB could have done the project for Rs. 1,554.99 million less.
The report highlights that even though procurement guidelines state that only a maximum of 20 percent can be paid as an advance to a contractor, an advance payment of 34 percent was made to CMEC. A further 50 percent advance was made to sub-contractor NWSDB, in complete violation of the above.
The project is also mired in financial controversy after the Water Board obtained a loan of USD 34.3 million from the Bank of Ceylon that lay in the bank accounts of the CMEC from May 19, 2017 to December 15, 2017 or a seven month period.
However, during that entire period, the Water Board paid interest of Rs 454.4 million for the loan, to the BOC, while the contractor profited from the money in the bank, the AG report highlights.
The AG report also noted that the Contractor CMEC was paid USD 16.2 million on August 11, 2017, purportedly for work conducted from February 10, 2014 to March 31, 2017.
However, this money was only secured through a loan facility only in August and September 2016.
Source : Sunday Observer
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