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Controversial Gin-Nilwala Project: Billions of rupees still unaccounted for?

14 May 2022

  • Rs. 4 billion unaccounted for since 2015
  • Unsolicited bit and lack of EOI casts cloud over project
  • Mystery flexibility study report vanished, like funds
  • Ministry Secretary breached financial regulations: NAO
  • Funds misappropriated, allegedly used to purchase controversial property
By Maheesha Mudugamuwa Seven years after the country lost over Rs. 4 billion of public funds over a project that had not commenced, authorities are yet to either recover the lost funds or to bring the culprits to book. The alleged misappropriation occurred a few days before the Presidential Election held in early January 2015, with the then Government led by President Mahinda Rajapaksa deciding to make a payment to a Chinese company as a mobilisation advance for the Gin-Nilwala Project, The Sunday Morning learns.   As revealed in a special audit report on the implementation of the Gin-Nilwala Diversion Project conducted by the National Audit Office (NAO), the then Government has made a payment of a total of Rs. 4,011,045,982 (around Rs. 4 billion) to the China CAMC Engineering Company Ltd. (CAMCE) as the mobilisation advance for the Gin Nilwala Diversion Project (GNDP). Accordingly, the payment had been made in three instalments. A total of Rs. 998,576,311 had been paid on 30 December 2014, Rs. 2,009,342,335 on 6 January 2015, and Rs.1,003,136,336 on 7 January 2015 – all during the 2015 Presidential Election period. In addition to the Rs. 4 billion paid as mobilisation advance, reports revealed that the Ministry of Irrigation and Water Resource Management had also spent a sum of Rs. 14,879,722 for this project from the year 2009 to October 2017. Furthermore, the Ministry had agreed with the Mahaweli Construction Bureau to spend a sum of Rs. 20,680,360 on the Environment Impact Assessment (EIA) report, the NAO audit report revealed.  The payment of such a massive sum to a Chinese construction company and failure to obtain the funds in question back to the country even when the Cabinet decided to temporarily suspend the project have raised concerns that there had been an unseen hand behind this controversial deal. The Gin-Nilwala Project has been mired in controversy ever since it was proposed in 2009 as an unsolicited proposal from the Chinese company. In a surprising revelation made by the NAO, it is said that in 2009, the then Secretary to the Ministry of Irrigation and Water Resources Management had entered into a Memorandum of Agreement (MoA) with the CAMCE relating to three projects, namely, the Gin-Nilwala Project, the Yan Oya Project, and the Malwathu Oya Project. The proposal had been an unsolicited proposal as there had been no Expression of Interest (EOI) called, nor was any other recommendation found related to the signed MoA, which did not contain any specific information about the manner in which the Ministry and the construction company would take action with regard to the Gin-Nilwala and the Malwathu Oya Projects in the future. China’s interest The relevant MoA had then been submitted to the Cabinet by the then Minister of Irrigation and Water Resources Management, seeking approval to update the feasibility study and preparation of estimates to assist in obtaining the funds required for the implementation of the project from China, to prepare the detailed designs, and to obtain approval for the construction of the project components. However, as shown in the letter of the then Secretary to the Ministry of Irrigation and Water Resources Management dated 24 February 2014 addressed to the then Secretary to the Ministry of Finance and Planning, the Chinese company had forwarded a feasibility report relating to the Gin-Nilwala Project to the Minister of Irrigation and Water Resources Management in April 2011. But the NAO stressed in its audit report that the Ministry had failed to furnish any information in order to ascertain whether any request had been made to the Chinese company to conduct such a feasibility study or to whom that Feasibility Report had been submitted. It has also failed to furnish a copy of the Feasibility Report for auditing. Subsequently, the review of the Feasibility Report referred to above as prepared by the CAMCE Company in April 2011 and the preparation of the Project Proposal, after taking into consideration the social problems and the requirements of the public in the project area, had been awarded by the Ministry to the Mahaweli Consultancy Bureau (MCB). Accordingly, the report of the MCB had been forwarded to the Ministry. The Secretary to the Ministry had appointed a Technical Evaluation Committee on 12 November 2013 for the review of the Terms of Reference (TOR) relating to the review of the Feasibility Report furnished by the MCB. In addition, when the MCB had forwarded its technical and financial proposals for the recommendation of that Committee, the review of those proposals as well had been assigned to that Committee in that instance itself. Accordingly, as revealed in the report, the Chairman of that Committee had forwarded the TOR to the Secretary to the Ministry on 17 October 2013. The Ministry had awarded the review of the Feasibility Report forwarded by the CAMCE Company to the Ministry and forwarded the Final Report within four months to the MCB. Thereafter, on 2 September 2014 another Cabinet Memorandum indicated that CAMCE had forwarded a complete Feasibility Report in accordance with the approval of the Cabinet granted under Cabinet Memorandum No. cp/09/2425/356/022 dated 18 November 2009 and that the complete Feasibility Report thereof had then been forwarded to the Minister in April 2011. It was further revealed that the Standing Cabinet-Appointed Procurement Committee had recommended the award of the implementation of the Gin-Nilwala Diversion Project for a sum of $ 690,000,000 to the CAMCE Company under an Engineering design, Procurement and Constructed contract (EPC). The project The Gin-Nilwala Diversion Project had been mainly proposed to divert excess water from the upper reaches of Gin and Nilwala basins to the southeast dry zone. The project is considered as a multi-sector development project and was expected to provide drinking water, supply the industrial water requirement of Greater Hambantota Development area, meet the irrigation deficit of Muruthawela and Walawa systems, and introduce commercial agriculture developments. As per the project, once completed, it was expected that water diverted from Ampanagala reservoir to Muruthawela would be used to meet the irrigation deficit of Muruthawela and Kirama Oya systems and balance to be transferred to Chandrika Wewa through the existing LB canal of the Muruthawela scheme up to 13.8 km and a new canal of 17 km. After that the water requirement of Hambantota harbours was to be transferred to the Ridiyagama Tank through the Walawe River and Liyangasthota anicut. In addition to that, the plan was to feed Chandrika Wewa by the Udawalawe Reservoir. Therefore, through this diversion, the volume of water received to Chandrika Wewa from the Muruthawela was to be saved in the Udawalawe Reservoir. The volume saved in Udawalawe Reservoir was to be released to Hambantota Industrial Zone and Mattala Airport. U-turn Following the change of Government in 2015, the then Secretary to the Ministry of Irrigation Gamini Rajakaruna had informed the Chinese company to temporarily suspend work on the project and to return the advances granted to date which had not been used on the project. He had informed CAMCE that the advance would be granted again for the project work after receiving the clearance from the Government as then Prime Minister Ranil Wickremesinghe as the Chairman of the Cabinet Sub-Committee on Economic Affairs had directed that despite spending a sum of Rs. 4,025,925,704 as shown above, in view of the uncertainty existing due to the possible environmental impact emerging from the project, it should be temporarily suspended and a formal investigation carried out before the commencement of the project. However, in its reply the CAMCE informed the Secretary that it would suspend the project work temporarily in future and to consider the expenditure incurred on the project by both parties and the payment of taxes to the Department of Inland Revenue in the context of the contract and the law. Furthermore, as revealed in the Audit Report, the Attorney General had furnished the observations for the Commercial Agreement for the Implementation of the Gin-Nilwala Diversion Project on 31 October 2014. Violation of law As revealed by the NAO, an Advance Payment Guarantee (APG) had been signed with the CAMCE Company Ltd. on 8 December 2014 which was valid up to 9 December 2017 and the performance guarantee had been signed with the China CAMCE Company on 8 December 2014 and that covered the period from 5 December 2014 to 8 December 2020. Further, the NAO revealed that even though provisions of Rs. 1,500,000 from the annual budget estimates for the year 2014 and Rs. 40,000,000 from the annual budget estimates for the year 2015 had been made for this project, expenditure exceeding those provisions had been incurred. Even though the Chief Accountant had informed the Secretary to the Ministry that the provision for this purpose was not available, the Secretary to the Ministry of Irrigation and Water Resources Management had issued written instructions to the Chief Accountant that provision was available and to make payment. As such it was observed by the NAO that making payment despite the Secretary being specifically aware of the unavailability of provision was a breach of the Financial Regulation. As highlighted in the audit query, the expenditure of Rs. 4,011,045,982 incurred contrary to Financial Regulation 94 without formal authority had not yielded any benefits to the Government of Sri Lanka up to date and in view of the questionable nature whether that money can be recovered due to the matters pertaining, it was further observed that the Government resources valued at Rs. 4,011,045,982 being given to an external foreign party for use over a period of about 18 months was tantamount to allowing the misuse of Government resources. As a result, questions have been raised regarding the project and although the funds that had been transferred prior to the Presidential Election had specially been investigated by the then appointed Financial Crimes Investigation Department (FCID), there has been no development or positive outcome from those investigations as yet. During the investigations carried out by the FCID, it was revealed that the payments had been made without following proper procedure and questions had been raised as to who had instructed the Ministry Secretary to release public funds. In October 2015, the Colombo Fort Magistrate issued an arrest warrant against the then Ministry Secretary Engineer K.W. Ivan de Silva for his alleged involvement in the misappropriation of taxpayers’ money. De Silva, who is domiciled in New Zealand, is yet to be summoned before the Court. Nevertheless, in 2020, once again the Cabinet of Ministers approved to expedite the implementation of the Gin-Nilwala Diversion Project to control the floods in these rivers and to use the excess water to avoid the shortage of drinking and irrigation water in the Hambantota District. Again, in 2021, the Secretary to the Ministry of Irrigation Anura Dissanayake in a media statement stated that the Irrigation Department had prepared a project plan to meet the drinking, irrigation, and service water needs of the arid zone in south-eastern Sri Lanka under the GNDP, which was mainly proposed to divert excess water of the upper reaches of Gin and Nilwala basins to South East Dry Zone (SEDZ). The Secretary to the Ministry issued a press release explaining the discussion that had taken place regarding the construction of a storage reservoir of five hectares in the World Heritage Sinharaja Forest Reserve under the project, which was hotly debated on social media. The project proposes to divert excess water of Gin Ganga and Nilwala Ganga basins to Muruthawela tank and finally to Chandrika Wewa through a series of reservoirs, weir and transfer tunnels, and canals. In their reply to the Ministry’s attempts to re-commence the project, environmentalists alleged that the Government was attempting to legitimise the Gin-Nilwala Project by speculating about building lakes inside the Sinharaja Forest Reserve. Speaking to The Sunday Morning, Environment Conservation Trust (ECT) Executive Director Sajeewa Chamikara stressed that there were no plans for constructing lakes inside Sinharaja but plans to expedite the Gin Nilwala Project, which would have a severe impact on the environment if commenced. Chamikara alleged that the Government was attempting to provide water for Chinese development projects through the Gin-Nilwala multi-sector development project, by risking the water necessities of the people. “People alongside the river banks of Gin and Nilwala Rivers are deprived of their right to obtain water because of the Government’s attempt to provide water for the development zone in Hambantota,” he added. However, JVP Leader Anura Kumara Dissanayake in recent revelations on corruption charges against Government and Opposition MPs in Parliament highlighted the Gin-Nilwala Project, stressing that former Irrigation Ministry Secretary Ivan De Silva, who served when Nimal Siripala de Silva was Irrigation Minister, on 24 December 2014 had given Rs. 1,000 million to a Chinese company at a time when an election had been declared, as a result of which all purchases of ministries had been halted except for essential purchases. Highlighting the transactions made on 1 and 6 January, a few days before the election, Dissanayake alleged that the Chinese company had a bank account in Hong Kong. From that account, money had been transferred to the account of a company named Red Ruth Investments, which also had an account in Hong Kong. From time to time, a total of $ 5 million had been released to Red Ruth Investments, which he said belonged to Thirukumar Nadesan. “This company had sent money to an account in a Sri Lankan bank in Colpetty. That money has been spent to buy the land in Malwana owned by Basil Rajapaksa,” he alleged.    

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