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Compensation payment for LRT project: Government yet to decide on Rs. 5 b JICA claim 

26 Jun 2021

  • JICA has only sent Notice of Intent to Claim, nothing further  

  • Cabinet sub-committee awaits full reports from JICA 

  • Former Megapolis Ministry violated government regulations: NAO 

 By Maheesha Mudugamuwa    Concerns have been raised over the claim made by Japan International Co-operation Agency (JICA) of over Rs. 5 billion in compensation for the cancellation of the Colombo Light Rail Transit (LRT) project. Nevertheless, the Government has not yet finalised whether it would make the said compensation payment. Speaking to The Sunday Morning, Western Region Transport Development Project (WRTDP) Deputy Project Director Eng. P. Dissanayake said the claims had been made in December last year and JICA had submitted a Notice of Intent to Claim but had not yet submitted the full reports as requested by the cabinet-appointed committee on this matter.  “In a cancellation of an agreement, depending on the agreement conditions, any party can claim damages, but whether those damages should be paid or not would be decided following an evaluation and in some cases, through an arbitration procedure,” he explained.  According to him, the Government was informed of their intent to claim but the claim had not yet been made. He added that seeking the damages would not always justify that those damages would be paid as expected. Dissanayake also stressed that there were several other similar incidents, while some cases were already in the arbitration process. He, however, assured that the Government had not yet made or decided to make any such compensation payment as yet.   Any alternative?   When asked whether there was any possibility of covering up those damages through a new project or via any other mechanism, Dissanayake added that the damages should be paid, as it was mentioned in the conditions. Meanwhile, the Auditor General’s (AG’s) Department revealed that, as the Cabinet of Ministers had decided to terminate the project on 6 October 2020, by closing the project office and settling all liabilities by taking into consideration the demerit facts such as high project cost, huge compensations payable, less attraction of alternatives made transport for travelling, and heavy operational costs furnished by the Minister of Transport relating to further continuation of the projects, the Government would have to incur over Rs. 5 billion as compensation due to cancelling the loan agreement signed with JICA. It is noteworthy, however, that the project had been continued up to the end of January 2021.  The project was aimed at establishing a network of LRT systems running over towers, as a long-term solution to the heavy traffic congestion on the main roads of Colombo and as an express public transport system considering the need for an efficient public transport model, and Japanese donations had been utilised for this purpose.   National Audit Office report   The National Audit Office (NAO) has revealed that a total of Rs. 2,364 million comprising of Rs. 1,791 million of JICA funds and Rs. 573 million from the Treasury’s provisions had been incurred for this project by the end of 2019 for the acquisition of lands, environmental activities, utility variability, passing an Act in Parliament, establishment of an institution for implementation and maintenance of social activities, operating the Project Management Units, planning the project, and obtaining procurement assistance for supervision of construction that had been targeted by the project for 2019.  Since it was decided to terminate the project by the end of last year, the expenses incurred were unproductive, it is further revealed.  The report by the NAO has further revealed that a sum of Rs. 2,267,377 had been incurred for the public awareness programmes by the line ministry – i.e. the Ministry of Megapolis and Western Development – without considering the objectives of the project. This situation, as highlighted by the NAO in its report, has violated government regulations and such action had led to fraud and misuse of public funds.  In the audit, it was revealed that according to Section 5 of the Term of Reference (TOR) for the recruitment of consultants, the qualifications of key experts should be evaluated. However, without evaluating such qualifications, key experts were recruited during the year under review.  Out of the total allocation of Japanese yen (JPY) 30,040 million, equivalent to Rs. 43,037 million, made by the lending agency, only a sum of JPY 1,250.45 million, equivalent to Rs. 2,029.47 million, representing 4% had been utilised as at 31 December 2019 after a lapse of eight months from the commencement of activities of the project. Furthermore, out of the allocation of Rs. 4,375 million through the annual budget estimate for the year under review, only a sum of Rs. 2,476 million, equivalent to 57%, had been utilised during 2019.    Compensation condition not in bilateral agreement?   While cancelling the project, then Urban Development, Water Supply, and Housing Facilities Ministry Secretary Dr. Priyath Bandu Wickrema said the bilateral loan agreement between the Sri Lankan and Japanese Governments had no conditions on compensation or penalties to be paid in case of delay or cancellation of the project.  When contacted by The Sunday Morning, State Ministry of Urban Development, Coast Conservation, Waste Disposal, and Community Cleanliness Secretary Sirinimal Perera said a cabinet-appointed committee is currently negotiating with JICA on the penalty fees.  The 15.7 km LRT system with 16 stations from Colombo Fort to Malabe via Battaramulla, involving an elevated railway track, elevated stations, a train depot, the procurement of LRT trains, and the installation of electrical, communication, and signal systems, was expected to reduce travel time from Colombo Fort to Malabe to approximately 30 minutes.  The loan agreement was signed between Sri Lanka and Japan in March 2019. Accordingly, Japan had extended a loan of around Rs. 48 billion to Sri Lanka for the Colombo LRT project.  The loan for the project was offered on highly concessional terms and conditions, including a 40-year repayment period for funds obtained for consultation services with a grace period of 12 years, a 0.1% interest rate per annum for civil work and equipment, and a 0.01% interest rate for engineering services.  Accordingly, in the project, the preliminary base cost estimated during the feasibility study was $ 1,374 million and accommodated price escalation, contingencies, and interest, for which Sri Lanka and JICA had estimated the loan amount as $ 1,850 million.   


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