The new port of Hambantota cost the government US$ 360 Million and the new airport in the South is costed at US$ 310 Million. Both these projects had a long and detailed procurement process complete with the usual checks and balances, as is the norm when the government embarks upon spending vast sums of monies. Neither of these projects was left to be decided upon by one, solitary man.
Ambiguous Cabinet Paper
The Ministry Secretary, Titus Jayawardena prepared the Cabinet paper 05/2011 dated 6th April 2011. It was not exactly the most originally laid out paper seen by the rather large Sri Lankan Cabinet of Ministers. The Secretary states that “ENOC submitted their offer …” without stating the basis upon which ENOC did so.
The Cabinet of Ministers did not authorise negotiations with any one party. Was it because they were not clearly told that the value of this transaction was likely to be between US$ 450 – US$ 510 Million? Had they been informed, it is almost certain that the matter would have been referred to the Special Standing Cabinet Appointed Procurement Committee (SSCAPC)
Not Competitive Price
The Secretary persuaded the Minister and his colleagues in Cabinet that to go for the 5-day average of Singapore Platts would be the most economical. In fact however, due to the vagaries of politics in the middle east, an average of 30 days is far more prudent for the cash strapped CPC.
We spoke to sources with a long history of working with and at the CPC and it was their concurrence that in present market conditions where the political situation in the Middle East is relatively stable, a 30-day average of Singapore Platts should have been the preferred choice of the CPC. Instead they appear to have gone with the 5-day option which was recommended by the supplier ENOC Singapore.
Cost of 1,800,000 barrels = US$ 253,386,000 (Rs 27 Billion+) without interest.
Petroleum industry sources in Athens, Dubai and Singapore spoke to The Sunday Leader and suggested that for a term contract of 6 months, the CPC may well have been able to negotiate a premium of a maximum USD 1.00 over Singapore Platts. Had this been the case the CPC would have been able to reduce their outlay by at least USD 2 Million or Rs 220 Million. These glaring discrepancies are usually not lost on a SSCAPC or a Technical Evaluation Committee or a Cabinet Appointed Negotiation Committee (CANC).
Secretary Titus Jayawardene compares the spot tender price for a single cargo of 300,000 barrels against a six-month term contract of 1,800,000 barrels. A senior former Chairman of CPC told us that it was like comparing oranges with apples.
ENOC Offer at odds with CPC Terms
ENOC Singapore specifically wanted to have a laytime period of 48 hours. The effect of this is that for each delivery made to Muthurajawela and Dolphin Pier, the CPC would almost always incur 2 – 3 days of demurrage. Each day will cost approximately US$ 25,000 or US$ 75,000 for three days. Each such ‘small’ discrepancy adds to the final bill.
War Risk Insurance
Contrary to CPC Standard Terms and Conditions, in this instance the CPC has agreed to pay for War Risk Insurance on Hull and Machinery and Crew war bonuses. Yet, the Secretary maintains that ENOC has agreed to all standard CPC Terms and Conditions. The offer by ENOC is certainly at odds with the Secretary’s statement.
Government to Government Basis Flouted
For this purchase to strictly come under the G2G basis, there must first be a credit line in place from the country that is supplying the product, on a soft loan basis, usually repayable in twelve years and an attractive rate of interest. These creditlines are usually negotiated by the External Resources unit of the Treasury. None of the mechanisations gone through in this purchase comes remotely close to this procurement being done on a government to government basis.
At the time of going to Press, Titus Jayawardena had not responded to our query sent by e-mail.
Questions we asked Titus Jayawardena, Secretary MPI
1. What is the total value of the 6 month contract likely to be based on current Singapore Platts and the US$ 1.60 premium and the interest premium of LIBOR + 2.96% for 150 days (180 – 30 days)?
2. Is it likely that the entire order for 3.6 m barrels is likely to be around US$ 450 – 500 Million at current rates?
3. On what basis did ENOC Singapore make their offer? Was this offer in response to an enquiry made by the CPC? Which other company did CPC formally approach for this same order? Did the Cabinet of Ministers authorise such an invitation?
4. Given the high volume of this order – in excess of USD 450 Million, why did you not call for the involvement of a) TEC, or b) Special Standing Cabinet Appointed Procurement Committee c) CANC d) CATB
5. The Hambantota Port costs are comparable to the value of this order. That was not decided upon by a single public servant. How do you respond to the charge that you acted upon your own accord with the concurrence of the Minister perhaps and that by disregarding established purchase procedures and guidlines your actions are ultra vires and tantamount to a fraud perpetrated against the republic of Sri Lanka?
6. The Cabinet Paper states that ENOC agreed to all standard CPC terms and conditions. Why is it then that the laycan period requested in the ENOC offer is quite different?
7. Did you see any conflict of interest in Mr. Dolloswella playing a role in this procurement from ENOC Sigapore where he had previously worked? Did Mr.Dolloswella notify you and or the Chairman of CPC of this potential conflict of interest or at least to put you and/or the Chairman on notice as such?
8. Why did you not see a need to consult the AG’s department for an opinion considering the colossal size of this order – almost as much as the Hambantota Port and more than the new airport in the South?
9. Why do you compare the ENOC price with the price quoted by registered suppliers for a one off single supply of cargo?
10. Does not a term contract in the main obtain better prices for the CPC?
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The hypothetical case of a supply of the first shipment is likely to look like this:
4th April Average US$ 137.77
5th April 137.86
6th April 139.09
7th April 139.57
8th April 141.56
5 Day Average US$ 139.17 per barrel
Premium 1.60 per barrel
Total Price US$ 140.77 per barrel excluding interest on 1st 30 days