Rejected company re-enters through influence.

A Japanese Government advisor pressured Sri Lanka directly, including in writing, into giving a disqualified Japanese company a stake in the 134.9 billion rupee (nearly US$ 1 billion) third section of the Central Expressway (CEP III), a trail of documents show.
Earlier this year, Taisei Corporation was selected for the contract by a project committee (PC) and the Cabinet-appointed negotiating committee (CANC). This was approved by the Cabinet.

But in a decision taken in July, the Cabinet also decided to allow a second Japanese company named Fujita Corporation to form a consortium with Taisei to implement the project. Fujita was twice rejected by the PC and the CANC for not fulfilling basic, mandatory bidding criteria.

The Cabinet decision to permit a consortium was consequent to a letter from Shigeru Kiyama, Special Advisor to the Japanese Cabinet and Ambassador for Economic Cooperation on Quality Infrastructure Investment Promotion, to Sri Lanka’s Highways Minister backing Fujita for the project.

Throughout documents related to the project–including Cabinet memoranda, minutes of CCEM meetings, reports and other official letters seen by the Sunday Times–it is emphasised that the arrangement to involve Fujita in CEP III is due to the strong recommendation of “the Japanese Government”.

But confusingly, Kenichi Suganuma, Ambassador of Japan to Sri Lanka, also wrote to Prime Minister Ranil Wickremesinghe in May saying: “The Government of Japan fully respects the Sri Lankan rules and procedures for tenders carried out by the Government of Sri Lanka, including for the Third Section of the Central Highway, and is in no position to raise objections to the results of a lawful tender procedure.”

Fujita’s offer had earlier been deemed non-responsive by technocrats. Bidders were required to have participated in at least one contract that was “successfully or substantially completed” within the past five years; that was similar to the proposed project; and where the value of the bidder’s participation exceeded US$ 600 million (Rs 91 billion). But, there was none worth the specified amount among projects Fujita had completed in the preceding five years. Its last project of more than US$ 600 million was finished in 1989.

The CEP III bidding documents mandated contractors to have been involved in eight key construction activities during the past five years: excavation, filling, rock blasting, aggregate base course, asphalt, concreting, two-lane viaducts and two-lane tunnels. Fujita only provided proof of three of these; that, too, not from a project completed during the past five years, as required.

The company failed to pass muster at, not one but, two evaluations with the PC even stating in the second instant that weakening criteria after submission of bids to qualify a certain bidder or bidders “is not acceptable since it affects the transparency and consistency in the evaluation and selection procedure and hence will lead to criticism”.

This newspaper reported in January that a large delegation from Japan, headed by an adviser to the Japanese Prime Minister, was in Sri Lanka to push through the CEP III tender. Information about other stages of the bidding process, including details of negotiations for more favourable lending terms, was also published at various times.

The tender for CEP III has been chaotic from the outset, with Road Development Authority (RDA) officials confessing anonymously that the Government insisted on “rushing it through”. The Highways Ministry eschewed transparent, competitive tenders from the outset and, on CCEM instructions, chose limited bids from Japanese companies claiming this was a prerequisite to securing concessional terms from Bank of Tokyo-Mitsubishi UFJ Ltd (BTMU). Such tenders are not advertised and other bidders typically do not know when they are floated.

Then, instead of opening the project out to all Japanese firms, the Highways Ministry asked the Japanese Embassy to nominate contractors. The Embassy came back with just three: Taisei Corporation, Penta Ocean Construction Co Ltd and Wakachiku Construction Co Ltd. It said they were recommended by the Japanese Chamber of Commerce and Industry in Sri Lanka but did not reveal selection criteria. It is not clear why the Embassy did not ask the Overseas Construction Association of Japan which, with 50 members and 43 associate members, promotes international cooperation and construction abroad.

In the first round, only Taisei Corporation submitted a bid. Penta Ocean Construction specialises in marine works and land reclamation, not road building. Wakachiku Construction has mostly been involved with bridge work in Sri Lanka. But Taisei’s bid was rejected because it had neglected to submit the mandatory bid bond.

The Japanese Government expressed displeasure to its Sri Lankan counterpart at the cancellation of the bid. Prompted by the CCEM, the Highways Ministry then wrote to the Japanese Embassy requesting preselected companies to submit fresh bids within two weeks, complete with bid bonds. It was in this round that Fujita Corporation and Taisei submitted proposals.

There are other concerns about CEP III, which runs 32.5 kilometres from Pothuhera to Galagedara. The Central Environmental Authority (CEA) has approved implementation of the project without waiting for the outcome of a series of vital geological surveys and tests. Consent was expedited due to the Government’s focus on speed over caution.

The Environmental Impact Assessment (EIA) for CE III clearly states that, while bore-hole tests were done during feasibility studies, further studies on geological and soil conditions around three proposed tunnels were necessary prior to implementation. There are 93 conditions attached to the CEA’s licence.

CE III will be four-lane carriageway with four interchanges, 12 main bridges and 17 viaducts across the floodplains of three major rivers—Rambukkan Oya, Kuda Oya and Kospothu Oya. It will have 106 culverts, 23 underpasses, 14 overpasses and three tunnels. Certain sections run through steep mountain slopes while others run across paddy fields and low-lying areas.

More than 1,162.5 acres occupied by 2,069 households (8,465 people) in 97 villages will be hit, requiring permanent relocation for 857 of them. The CEA has instructed the RDA to compensate for the loss of buildings and private lands, and to determine the entitlements of persons on a project-specific entitlement matrix based on the National Involuntary Resettlement Policy. The RDA has not followed the NIRP in recent years, opting to take over lands under emergency procedures that leave affected parties without compensation for years.