Lakdhanavi responds to Daily FT article over Kerawalapitiya LNG deal

With reference to the Daily FT article on Tuesday titled ‘More bidders cry foul over tender process for second Kerawalapitiya LNG power plant,’ Lakdhanavi Ltd. has sent the following statement:

The above article that appeared on the front page of Daily FT of Tuesday 10 July may require certain clarification for the reader to understand the facts clearly. We have provided below our explanation highlighting misrepresented facts along with the corrections. 

We, respectfully, request you to publish the following clarification in full, giving the same prominence you have given to the above mentioned article. 

According to your article, GCL Windforce and RenewGen has quoted that the winning bidder (Lakdhanavi Ltd.) has considered concessions that were not named in RFP. This is completely false as Lakdhanavi’s bid did not expect any concession from the Government at any time with respect of this tender. We, in fact, followed the instructions given by Standing Cabinet Appointed Procurement Committee (SCAPC) and Technical Evaluation Committee (TEC) during the pre-bid clarification stage and the provisions of the RFP document with respect to VAT and NBT taxes on importation of machinery during construction period. 

According to the VAT and NBT Acts of Sri Lanka ,the taxes of VAT and NBT are exempted for importation of machinery during construction, when such equipment are imported by CEB or any company having an agreement with CEB, similar to this type of power generation projects. We have followed the law of the country as all the bidders were asked to do so by the SCAPC during the tender. As such, all bidders including the same consortium of GCL China, Windforce and RenewGen are also entitled for tax exemption as stated in the VAT and NBT Acts. Therefore, working in accordance with the law of the country is not any special concession for any citizen or corporate person, including for foreign bidders as well. 

The Secretary to Ministry of Power and Renewable Energy who provided incorrect interpretation to Procurement Appeal Board in this regard. Same was subsequently endorsed by PAB as well as Finance Ministry without investigating facts in detail. Despite our firm position on non-applicability of VAT and NBT on machinery importation, Lakdhanavi has very clearly confirmed when asked by the SCAPC, that if such exemption is not available, Lakdhanavi will bear the cost of the same without changing the quoted tariff of Rs. 14.98. Therefore, there is no truth at all in saying that Lakdhanavi expects concession from the Government. Upon awarding this tender to Lakdhanavi, the CEB will pay only 14.98 Rs/kWh irrespective of applicability of VAT and NBT or otherwise.

It is mentioned in the article that Ministry of Finance has said no concessions are available for the said bidder. This is incorrect. The Ministry of Finance has informed the bidder and Secretary of Power and Renewable Energy that exemption is available as per the Acts. 

However bidders are aware of several deviations of GCL Windforce and RenewGen bid from the tender conditions. They have provided supporting documents in the bid only from two banks despite their financing proposal required loan facilities from three banks. Another deviation is their consideration of 14% Income Tax in the financial model of bid proposal whereas applicable income tax rate is 28% as per country’s law. TEC has not rejected GCL Windforce and RenewGen bid proposal despite these deviations. This didn’t come in to light since the tender was not awarded to them due to their higher bid price. 

Windforce and RenewGen representative has further quoted that there is conflict of interest when Lakdhanavi participating in the bid and tries to highlight same as a reason for rejecting Lakdhanavi’s bid. This is not the first bid that Lakdhanavi participated where bidder is CEB and TEC comprised employees from CEB. Lakdhanavi’s mother company (LTL Holdings Ltd.) participated in a bid for ‘New Galle Transmission Development Project – Lot B, tender No. CEB/AGM/TR/NIB/2008/002,’ where PAB decided against awarding to lowest bidder, LTL, citing room for conflict of interest. However the Supreme Court over ruled such PAB decision and re-awarded to LTL. Similarly, when PAB decided against awarding Lakdhanvi’s lowest bid for construction of Uthuru Janani power plant (24MW at Jaffna), Cabinet overruled PAB decision taking in to consideration the court decision. Therefore it is not logical anymore to discuss on “conflict of interest” factor with regard to this tender.

However the Secretary of Power and Renewable Energy had an unofficial meeting with GCL Windforce and RenewGen in January 2018 violating all tender procedures and which raises the question of integrity of the Secretary and his support to GCL China. 

The article discusses about shortcomings in the bidding document. We too agree on the fact that the bidding document did not contain sufficient information on LNG supply specification. This led to major controversy resulting SCAPC deciding to qualify one bidder against recommendation of TEC to qualify six bidders. Since the bid of the single qualified bidder was later rejected due to deviations in financial bid, SCAPC decided to consider bids of remaining five bidders for financial bid opening.

Finally we wish to bring to your notice on erroneous shareholding percentages of GCL Windforce and RenewGen consortium. Article indicate 60% ownership for GCL and balance for Windforce and RenewGen whereas TEC report indicates 70% ownership for GCL and balance for local partners.