• More import delays predicted

The second attempt by Lanka Coal Company (LCC) to import coal on a 180-day credit payment term failed last week, The Sunday Morning learns.

The failure risks creating further delays in securing the required number of coal shipments before the mid-April unloading season comes to an end, thereby undermining the ability to provide an uninterrupted supply to Lakvijaya Coal Power Plant, the largest thermal power supplier to the national grid.  

The Sunday Morning last week reported that the Bank of Ceylon (BOC) had opened Letters of Credit (LCs) worth around $ 172 million on 27 January. 

It is learnt that the supplier has initially agreed to supply coal on a six-month credit payment period, but had requested opening up of LCs for all 12 shipments at once. It is noted that Arista Mitra is not a registered supplier of the LCC.

Even though the company had not requested any security to provide coal on credit, it had later requested LCC to provide an LC for all shipments, but to effect the payments one by one from the day of unloading, after completion of the credit period.

Thereafter, to fulfil the requirement requested by the company, BOC had opened an unconfirmed LC, but on Tuesday (31 January), the BOC had received a notification from the respective bank in Jakarta that it was unable to process and move forward due to an internal policy of the bank, which it did not disclose, and hence it was closing its files on the matter. Therefore, the LC had been returned to BOC.

A highly-placed source close to the matter told The Sunday Morning yesterday (4) that the Indonesian company had failed to perform due diligence with regard to the agreement between the company and LCC and therefore the LCC would not go ahead with the Indonesian supplier and that plans were underway to take the necessary legal action against the supplier.

Therefore, the agreement between the Indonesian company and LCC is at risk of being cancelled. Further, the LCC will select one from the second, third, or fourth selected bidders to avoid further delays, sources said.

In the Cabinet paper approving the Indonesian bidder for the tender award, it has been mentioned that in the event the first responsive bidder fails to supply coal and honour the agreement, to consider the second, third, and fourth most responsive bidders to supply coal.

Nevertheless, as learnt by The Sunday Morning, the process will again be delayed by another several weeks, as LCC is seeking to import coal on credit payment terms.

As of now, LCC has secured 17 coal shipments by paying 30% of the total payment for each shipment. As noted by LCC Chairman Shehan Sumanasekara, the shipments are said to be sufficient for February and March.

“We have already unloaded the 11th vessel. The 12th vessel is supposed to come on Monday or Tuesday. We have paid advance payments for up to 17 shipments as of now (4 February),” he said.

Highlighting the LC issue on the coal tender, he said: “There is an issue with the establishing of LCs from their (Indonesian supplier) bank due to an issue on their side. What we have done is effected the agreements as per the LCs; BOC did all the relevant proceedings and the LCs were opened on 27 January. There is no issue from our side.”

Sumanasekara also said LCC had sought advice from its legal officers regarding the Indonesian supplier and that it would seek advice from the Attorney General’s Department on the matter tomorrow (6).

“Once we receive the necessary advice from the Attorney General’s Department, we will proceed with the tender as per the instructions given by the Cabinet,” he stressed.

Sri Lanka will terminate the agreement with Indonesia’s Arista Mitra company immediately and continue to seek a supplier with the other three selected companies from Hong Kong, Australia, and the UAE, The Sunday Morning learns.

Also, it is learnt that Sri Lanka will look for a performance bond too from the next eligible supplier, unlike with the agreements with Indonesian companies.

The Indonesian contract was the second contract of such a nature awarded to an international supplier following the cancellation of the previously-finalised $ 1.4 billion worth contract which was awarded with the approval from the Cabinet to Russia’s Suek AG/Black Sand Commodity that offered $ 328.22 per MT (including freight charges) – the lowest bid to supply nearly 4.5 million MT of coal to Lakvijaya for three years on a six-month credit period. This was cancelled by the Government a few months ago.

Meanwhile, when contacted by The Sunday Morning, Power and Energy Ministry Secretary M.P.D.U.K. Mapa Pathirana said the matter regarding the coal issue would be discussed today (5).