Sri Lanka pays USD 295 per MT of coal while Russian companies sell it at USD160! 

by a Special Correspondent

As per the latest Argus publication, several Russian companies including Suek AG, have sold high calorific coal to all over the world at much discounted value than the selected bidder of the disputed coal tender.  Black Sand Commodities, which is said to be a sister company of Suek AG, quoted 295 USD per metric ton and won the tender and Black Sand Commodities was the only bidder in the tender which gave a price proposal. Tender was to procure 4.5 million metric ton of coal, enough to run the Norochcholai coal power plant for the next two years.

During the July-August period, Russian companies have sold coal to India at USD 160 per metric ton, Turkey at USD 140, Morocco at USD 159, and South Korea at USD 180 at FOB price. These prices are significantly lower than the price of 295 USD per metric ton offered by bidders selected the Lanka Coal Company (LCC), which will at least be paying 500 million USD over and above the market value to Black Sand Commodities for the said supply of 4.5 million metric ton of high calorific coal.

Argus publication of coal indexes and Russian coal data are the most reliable data and information as far as Russian coal is concerned. These data can be obtained by any interested parties through argusmedia.com website.

Recently-concluded coal tender of LCC was the country’s largest ever commercial tender and it was for a value of USD 1500 million. Tender was awarded to the only responsive bidder, Black Sand Commodities. Whole bidding process through which this tender was awarded has now become a huge controversy since the LCC Chairman admitted that one week prior to tender closure, LCC had changed the qualification criteria for tender. Even though it is claimed that the said changes were made to attract more bidders for the tender they have not attracted any new bidders; they only helped Suek AG, which was already in the bidding process to bid through a different front. Industry analysts say that if the said change of qualification criteria had been made to attract more bidders to the process, that should have been done prior to the commencement of the tender process, not just six days before the closing date, and enough publicity should have been given thereto. They point out that changes effected just six days prior to tender closing date, after pre-bid meeting, will not attract any new bidders to the process but will benefit the targeted bidder, which in this case is Suek AG, which now claims that it did bid through Black Sand Commodities.

Interestingly, Black Sand Commodities was unable to give a bid bond in its own name, and the bid bond given was in the name of Suek AG! The said bid bond was issued by People’s Bank. As per internal LCC sources, how TEC accepted a bid from a party without a valid bond in its name itself and how Special Standing Cabinet Appointed Procurement Committee (SSCAPC) asked to the Cabinet to proceed with the said bidder who even did not have a bid bond in its name, is another huge controversy. The SSCAPC is headed by former RDA Chairman/Secretary to the Ministry of Highways R. Pemasiri.

Even though Minister in charge, Kanchana Wijesekera, and LCC Chairman, Jagath Perera, have claimed that they gave the deal to the lowest bidder, it was a suppression of facts as Black Sand was the only responsive bidder in the tender. Accordingly, it has not been awarded to the lowest bidder; instead, it has been awarded to the only bidder which has bid almost 65% more than the market price! Market price and the bid price gap in the whole deal is more than 500 million USD, which is enough for 10 shiploads of diesel or petrol.

Their claim that Black Sand gave six months credit without interest is also a manipulation of facts as per industry analysts. As per the transaction details, Black Sand has not given six months credit to LCC. What it has offered is to make the supply based on six months irrevocable LC (letter of credit) to be issued from People’s Bank. Supply on credit and supply on LC are completely two different terms and it seems these terms have been used to mislead the public and the Cabinet of ministers. To purchase on 180 days LC, the Lanka Coal Company must have at least 300 million USD in cash or a credit facility with People’s Bank at this moment! As per banking source this is not the case! The strategy of these elements has been to enter into the transaction first by making misleading statements and thereafter seek funds from the Treasury citing urgency and warning of 12-hour blackouts.

Senior employee of LCC said: “What we should do now is to put this smelly deal on hold, opt for a spot tender for a lower quantity for the immediate requirement of the country and then go for a long-term tender to attract the best prices. That way we could easily save hundreds of millions of dollars,” he said.