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Central Expressway Project Stage III: Highway Ministry keeps mum on BOT allegations

12 Mar 2022

  • CEP III officials claim procurement process ongoing
  • LIDC replies to MCCI allegations
  • All road tenders handled by Ministry of Highways: RDA
By Maheesha Mudugamuwa  Questions have been raised over the application of the costly Build, Operate and Transfer (BOT) method for the construction of Central Expressway Project (CEP) Stage III, with experts alleging that the method could result in a massive loss to the Government. According to the engineering estimate, the total construction cost of the 20 km-long road stretch of CEP Stage III from Rambukkana to Galagedara is expected to stand at $ 545 million at the end of 15 years of the loan repayment period. Moreover, if the project is awarded at a 20% higher cost than that of the engineer’s estimate, the total cost is expected to be around $ 654 million, it is learnt. However, according to the estimates, if the project goes ahead under the newly-introduced BOT method, the country will have to spend around $ 1,872 million at the end of 15 years. Therefore, under the proposed BOT method, Sri Lanka would incur a loss of around $ 1,218 million at the end of 15 years.   A senior Government official close to the project told The Sunday Morning on terms of anonymity that even though there were many benefits of applying a BOT method for projects of this nature, the BOT method that was to be followed by the Government for the construction of CEP Stage III was a different and costly method that would result in massive losses to the taxpayer.  It is learnt that under the proposed BOT method by the Government, the project should be completed within three years, after which the project would be continued as a usual loan-funded project, which was not the initial intention of the BOT method.   When contacted by The Sunday Morning, CEP Stage III Project Director Eng. A. Hettiarachchi said Stage III of the CEP was still at the procurement stage and the tender for construction was yet to be awarded.  He said that once the procurement was completed, the decision would be sent to the Cabinet, which would take the final decision. He stressed that the BOT method implemented for Stage III was no different from the usual BOT method. However, the Project Director refrained from commenting further on costs as the project was still at procurement stage.   According to the official, the then Secretary to the President Dr. P.B. Jayasundera, in a letter to the Highways Ministry and Board of Investment (BOI), had instructed the Highways Ministry and Road Development Authority (RDA) to call for fresh proposals for the New Kelani Bridge to Athurugiriya and to also accept bids for section III and IV of the Central Expressway in 2020. The letter stated that the Government would not encourage debt-funded projects annuity (a series of payments made at equal intervals) payments to meet revenue shortfalls or guaranteed traffic as these options were not affordable. It further stated that several parties had submitted letters of intent or interest to the BOI for the two initiatives on a BOT basis. Most of them were largely of an unsolicited nature.  By the time the then Secretary had issued the instructions, the RDA was to finalise the awarding of the construction contract for the long-delayed Stages III and IV of the CEP. Accordingly, the construction contracts were to be awarded to a Chinese company for the construction of Stage III of the CEP while the construction of Stage IV of the CEP was to be awarded to a UK-based contractor.  While Stage IV is to receive a foreign loan, the construction of Stage III was begun by the RDA with local funds until a suitable contractor was finalised.  Construction of the Central Expressway was planned to be carried out in four stages; Stage I – a 37 km section from Kadawatha to Mirigama; Stage II – a 40 km section between Mirigama and Kurunegala; Stage III – a 33 km section from Pothuhera to Galagedara, and Stage IV – a 60 km section from Kurunegala to Dambulla.  The construction of Stage I of the project was undertaken by a Chinese company, but this has been suspended for more than two years due to the delay in releasing the funds (a loan amounting to $ 1.1 billion) by the Chinese EXIM Bank.  Both Stages I and II have thus been delayed as a result of funding delays. Stage II is now being constructed by a local consortium with the funds obtained (through a loan) from local banks at higher interest rates. Stage II of the expressway has been undertaken by four private consortiums of 16 local companies, with financing from the Bank of Ceylon (BOC), People’s Bank, National Savings Bank (NSB), Sampath Bank, and HDFC Bank. The total loan amount for Phase II of the project is around Rs. 137.098 billion.  There was controversy around the long-drawn-out nature of Stage III of the CEP due to the inability of the two parties, Sri Lanka and Japan, to come to an agreement with regard to the loan conditions. It was also mired in further controversy as the Highways Ministry, instead of following the competitive bidding process, proceeded with Stage III as a Government-to-Government project as per the instructions given by the Cabinet of Ministers back then. The 33 km-long Stage III from Pothuhera to Galagedara was to be constructed by a Japanese contractor at an estimated cost of around Rs. 135 billion with a loan obtained from Tokyo Mitsubishi Bank (TMB) Japan. However, after the new Government came into power this year, Japan has been removed from the CEP Stage III and the authorities have once again shifted into a competitive bidding process by calling tenders for construction.  In such a backdrop, the alleged attempts of the Ministry of Highways to award the construction of the CEP Stage III has been criticised by another bidder who claimed that the project was to be awarded at a higher price than what was proposed by them.  It is alleged that arrangements are being made to award the project to a local consortium at a price higher by $ 822 million than its competing bid. The offer from a recently-formed local consortium named Lanka Infrastructure Development Consortium (LIDC) to build the CEP III is priced at $ 1.87 billion – significantly higher than the offer made by China’s Metallurgical Corporation of China (MCC) at $ 1.05 billion. This was exposed to the public when MCC’s parent company, MCC International Incorporation Ltd. (MCCI), recently decided to appeal to President Gotabaya Rajapaksa regarding irregularities in the manner in which LIDC was selected for the project.  However, in its response to the allegation levelled by MCCI, the LIDC in a letter to Voice Against Corruption Convener Wasantha Samarasinghe highlighted the reasons for the MCCI’s disqualification. The LIDC, comprising five leading construction companies in Sri Lanka – Access Engineering PLC, MAGA Engineering Ltd., International Construction Consortium (ICC), K.D.A Weerasinghe & Co. Ltd. and NEM Construction Ltd. – alleged that the tenders submitted by MCC and CSCEC did not qualify due to technical errors when the tenders were opened on 3 February 2022 as both companies had failed to follow the Government-approved procurement process.  Furthermore, it is alleged that the MCC had failed to submit a bid security in the proper way, while the lender’s commitment had addressed the MCCI instead of the bidder MCC. Meanwhile, RDA Chairman Chaminda Athaluwage told The Sunday Morning that the tender procedures of all road development projects were handled by the Highways Ministry and therefore they were not involved with the selection process. According to him, the construction of the Stage III commenced by the RDA was still ongoing.  “Once the tender process is completed, the Ministry will inform us about the selected company and it is only then that we start working with them. Right now, everything is handled by the Ministry,” he said.  Attempts to contact Highways Minister Johnston Fernando and Ministry Secretary Ranjith Premasiri regarding the CEP Stage III were futile.   


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