US $ 1.57 Million Loss in Lakvijaya Coal Deal

COLOMBO (News 1st); During Tuesday's (8) proceedings before the Presidential Commission of Inquiry into Coal Procurement, it was revealed that Sri Lanka incurred a loss of US$1.57 million in the procurement of coal for the Lakvijaya Power Plant during the 2015-2016 period.

The disclosure was made during the testimony of D. Amaratunga, who served as Additional Secretary to the then Ministry of Power and Energy.

During this period, President's Counsel Maithri Gunaratne served as Chairman of the Lanka Coal Company.

How did Sri Lanka lose US$1.57 million?

According to the evidence presented, the loss originated from amendments made to the terms of a contract entered into with Liberty Commodities for the supply of coal to the Norochcholai Lakvijaya Power Plant during 2015-2016.

According to the Auditor General's Department, the loss amounted to US$1,575,630.

These findings are contained in a special audit report prepared by the Auditor General's Department on coal procurement for the Lakvijaya Power Plant covering the period from 2009 to June 2016.

The report states that Liberty Commodities was selected through an emergency procurement process and a contract was signed with the company on August 17, 2015.

The agreement related to the supply of 165,000 metric tonnes of coal.

How was this money lost?

The Auditor General's report states that the price adjustment formula relating to sulphur and ash content, which had been included in the bidding documents, was altered when the final agreement was signed.

What exactly was changed?

One of the altered factors related to sulphur content.

It was revealed before the Presidential Commission that the sulphur percentage threshold, which had been specified as 0.1% in the bidding documents, had been revised to 1% in the final agreement.

Another factor related to ash content.

The report further states that the ash percentage, which had been specified as 1.0% in the bidding documents, had been changed to 10% in the final agreement.

The Auditor General has pointed out that because this disadvantageous agreement was subsequently adopted for the second and fourth spot procurements, the unfavourable conditions contained in the original contract also affected those purchases.

Accordingly, it was revealed that an excess payment of US$173,134 had been made for the first procurement, US$391,192 for the second procurement, and US$1,011,304 for the fourth procurement.

As a result, the total excess payment amounted to US$1,575,630.

Coal Weight and Size Specifications Missing from the Contract?

Meanwhile, although the tender documents for the emergency procurement had specified the size and weight of coal particles, the Quality Price Adjustment section stated that "Size Consists Not Applicable".

These changes had reportedly been made without Cabinet approval.

Did these changes cause financial losses to the country?

Yes.

The Auditor General's report states that if these criteria had not been removed, surcharges amounting to US$758,358 for the first procurement, US$562,763 for the second procurement, and US$409,537 for the fourth procurement could have been recovered from the supplier.

The report further notes that Sri Lanka lost the opportunity to recover those amounts because the relevant specifications had not been included.

It was also revealed that Maithri Gunaratne, who served as Chairman at the time, had acknowledged the loss during the Amaratunga Committee inquiry appointed in 2016 to investigate coal procurement transactions.