Cabinet approves borrowing of Rs. 31.7bn to kick start first stage of Central Expressway

The Sunday Times: The Highways Ministry and the Road Development Authority (RDA) have received Cabinet approval to borrow more than Rs 31.7bn from foreign or domestic sources to kick start the stalled construction of the first section of Central Expressway (CEP I).

Amidst the curfew, there are also negotiations—sanctioned by the Cabinet—with handpicked parties canvassing for the third and fourth sections of the same expressway (CEP III and IV), the Ruwanpura Expressway from Kahathuduwa to Pelmadulla (via Ratnapura) and the Eastern Expressway from Mattala to Pottuvil.

Only selected Ministry and RDA officials are privy to the details or even know such discussions are ongoing. The hundreds of kilometres of new roadways will require heavy borrowing, both local and foreign. The majority of projects will be Chinese-funded, according to the relevant Cabinet paper which the Sunday Times obtained.

While the relevant Cabinet memo and approval say expressions of interest (EOIs) will be called for CEP III and the second section of the Ruwanpura Expressway, authoritative internal sources said this was “just window dressing”. The parties have already been identified.

Any projects that do go through the pipeline now will be based on feasibility studies that are either outdated or will be carried out at a time of global unpredictability when even the International Monetary Fund (IMF) is forecasting the worst recession since the Great Depression of the 1930s.

The Rs 31.7bn to be raised for CEP I—from Kadawatha to Mirigama—is the mobilisation advance, without which that phase has been stuck. In 2015 and 2016, two contracts were awarded for this section to the M/s Metallurgical Corporation of China (MCC) Ltd. The agreement for a loan of more than US$ 990mn was signed with the Exim Bank of China in March last year. But the project was stalled as the Government could not raise the mobilisation funds.

The second section, CEP II—from Mirigama to Kurunegala—is being built by four local construction consortiums comprising 15 companies. It is funded through the national budget and several local banks. Around 80 percent of physical progress has been completed at the cost of Rs 96.6bn.

However, a further Rs 40bn is required to complete the project by August this year. The RDA, in consultation with the Finance Ministry, is now looking to raise funds through bonds or debentures. And Cabinet approval has been granted to approach local banks to bridge any deficit.

The third section, CEP III—from Pothuhera to Galagedara—was awarded to Japan’s M/s Taisei Corporation Ltd in 2018 on the understanding that Mitsubishi UFJ Financial Group (MUFJ) of Japan would lend 100bn Yen for it.

Talks between MUFJ, Nippon Investment and Export Insurance (NEXI) and the Sri Lanka Government started in 2015 but remained inconclusive as the Attorney General’s (AG) Department in Colombo and the Finance Ministry’s External Resources Department (ERD) could not agree to certain clauses of the proposed agreement. For example, the AG did not clear the anti-corruption provisions, saying they were not compatible with Sri Lankan laws.

With its complicated terrain and land acquisition requirements, the 32.5 kilometre CEP III is tipped to be one of the most expensive road initiatives undertaken in recent times. More than 1,162.5 acres occupied by 2,069 households (8,465 people) in 97 villages will be hit, requiring permanent relocation for 857 of them.

Now, four other parties have shown interest. They are Roughton International Ltd, a consultancy firm registered in the UK but now owned by a Sri Lankan named Ranjith Gunaratne, the Managing Director of MG Consultants Pvt Ltd; M/s China Chemical Engineering Second Construction Corporation (CCESCC); M/S China National Aero Technology (AVID-ENG); and M/s Beijing Urban Construction Group Co Ltd (BUCG).

But Roughton has since “agreed” to shift its interest to CEP IV instead of III, official sources said, indicating that deals were being struck behind the scenes. The Cabinet paper also said, “But later they offered this facility for Section 4 instead of Section 3.”

Meanwhile, neither CCESCC or BUCG has submitted assurance of financing or term sheets. This leaves just CATIC or AVIC-ENG in the running and, the sources pointed out, “It smacks of a fix.”

Cabinet has now granted approval to cancel the agreements with Taisei and the financial negotiations with MUFJ/NEXI. It has authorised the Highways Ministry to call for EOIs from all prospective contractors with 100 percent financing for the total contract price of CEP III.

But no EOIs have yet been called for and internal sources said talks are ongoing with CATIC/AVIC-ENG. Local contractors also expressed fear that conditions will be tailored into a bid—should it be floated—to ensure that only a specific party will qualify.

The fourth section—from Kurunegala to Dambulla—was awarded in 2016 to China’s Gazhouba Group International Engineering Co Ltd for a cost of Rs 161bn (excluding VAT). But there was no funding source.

Roughton International has submitted a preliminary proposal, pledging funding from UK Export Finance. “They propose to entrust the entire construction works to local construction companies,” the Cabinet paper says.

Additionally, CCESCC and CATIC (AVIC-ENG) submitted proposals but without financing or term sheets. The Cabinet has, therefore, agreed to the ERD evaluating Roughton’s financial terms on the grounds that the Highways Ministry requests a detailed technical proposal from the company and evaluates it through a Cabinet Appointed Negotiation Committee and a Technical Evaluation Committee.

The Ruwanpura Expressway is currently divided into three sections. The Highways Ministry has proposed to start construction of the 52.5km from Kahathuduwa to Ratnapura via Ingiriya and the remainder based on funding availability.

In 2016, the Cabinet split the Ruwanpura Expressway into four and chose one Chinese party for each leg: China National Technical Import and Export Corporation (CNTIC); CATIC-ENG; Hunan Construction Engineering Group Corporation (HCEGC); and China Harbour Engineering Company Ltc (CHEC). But a request for proposal was only invited from CNTIC, not for the other sections.

The Cabinet has now given approval for the Highways Ministry to request M/s CNTIC to 100 percent financing for the cost of Ruwanpura Section I; authorised the ERD to pursue funding for Section II; and sanctioned the Highways Ministry to invite competitive EOIs from all prospective contractors for 100 percent financing for the total price of Section II.

In terms of the Eastern Expressway (Mattala to Pottuvil), the ERD has been authorised by the Cabinet to pursue funding for feasibility study, preliminary and detailed designs, and construction, in consultation with the National Planning Department.

Attempts to contact Highways Minister Johnston Fernando and Highways Ministry Secretary R W R Pemasiri failed.