Despite the International Monetary Fund’s (IMF) Governance Diagnostic Assessment on Sri Lanka warning about the risks of unsolicited proposals and projects without competitive tenders, the Government is persisting in approving such initiatives.
Recent instances include granting approval to Sinopec for the Hambantota Oil Refinery, Adani’s 500 MW renewable energy project in Mannar, and entrusting visa operations to VFS Global by the Public Security Ministry, all without open tender processes.
The IMF’s assessment highlighted the deficiencies in Sri Lanka’s governance framework, particularly in Public Financial Management (PFM), citing issues such as limited budget coverage, lack of transparency in managing commitments, and poor investment planning and management.
The report specifically noted that the acceptance of unsolicited capital investment proposals in non-transparent and non-competitive processes had led to a proliferation of problematic projects and heightened corruption risks.
Furthermore, the IMF noted the Government’s inconsistent treatment of unsolicited capital investment proposals, which undermined effective governance and exacerbated corruption concerns.
Despite these warnings, the Government has persistently disregarded IMF recommendations, choosing to proceed with unsolicited proposals in a manner that bypasses transparency and competition.
Opaque decision-making
VFS Global, chosen by the Cabinet on 11 December 2023 to operate the visa issuance process, was selected without competitive bidding as the company had presented an Unsolicited Proposal (USP) to the Ministry of Public Security.
The Public Security Minister justified bypassing the tender process by citing VFS Global’s market dominance and the assumption that no competitors would challenge them.
Similarly, Sinopec was selected to construct an oil refinery in Hambantota without a competitive bidding process, raising concerns about transparency. The Ministry of Power and Energy called for Expressions of Interest (EOIs) after receiving unsolicited proposals from various investors. In response, seven companies submitted EOIs leading to the initiation of the project.
Additionally, the proposed 500 MW wind power project by India’s Adani was also an unsolicited proposal. The project, spearheaded by Adani Green Energy Ltd. (AGEL), aims to establish renewable energy plants in Mannar and Pooneryn, with an investment valued at $ 442 million. Despite ongoing price negotiations between India and Sri Lanka, the project remains the sole large-scale investment currently undergoing processing by the Sri Lankan Government.
In addition to the controversial approvals granted to VFS Global, Adani, and the Sinopec refinery, a slew of other unsolicited proposals have received the Government’s nod in Sri Lanka. These projects, lacking competitive tenders and transparency, underscore a broader pattern of decision-making that raises concerns about governance and corruption risks.
Despite warnings from the IMF’s Governance Diagnostic Assessment, the Government’s willingness to greenlight unsolicited proposals without proper scrutiny perpetuates a culture of opaque decision-making.
This trend not only highlights the urgent need for reforms in public financial management but also underscores the importance of establishing a robust framework that promotes transparency, competition, and accountability in the approval process for major projects.
Process for unsolicited proposals
Responding to The Sunday Morning, Ministry of Finance Department of Public Finance Director – Procurement Anushka Wimalajeewa stated that any public or private company had the opportunity to submit unsolicited proposals to the Government.
“These proposals are processed according to the regulations outlined on page five of the Guidelines on Private Sector Infrastructure Projects,” she said.
According to section 237 of the Private Sector Infrastructure Projects (BOO/BOT/BOOT Projects) Revised Edition – January 1998, the processing of unsolicited proposals by line ministries, agencies, and the Bureau of Infrastructure Investment (BII) of the Board of Investment (BOI) should adhere to procedures applicable to solicited proposals.
An unsolicited proposal must include essential information to assess the economic and financial viability of the project, such as technical details, financial justifications, and commitments from financial institutions and consortium members.
Once the necessity is established, the relevant line ministry is required to advertise and call for proposals on similar lines, incorporating the project’s actual objectives. The original party submitting the proposal should be given an opportunity to enhance it during the bidding process if significant changes are made to align with the agency’s needs.
This process applies to all Build-Own-Operate (BOO)/Build-Operate-Transfer (BOT) proposals, public asset sales, or grants of exclusive rights for State-sponsored ventures. Importantly, decisions based solely on unsolicited proposals without inviting public bids through advertisement are prohibited.
In cases of urgent and exceptional circumstances requiring deviation from the prescribed procedure, specific Cabinet approval is necessary. These regulations highlight the importance of transparency, competition, and proper governance in the evaluation and acceptance of unsolicited proposals for infrastructure projects.
However, as emphasised in the IMF’s diagnostic report, while the Guidelines on Government Tender Procedure – Part II permit unsolicited proposals for Public-Private Partnership (PPP) projects, they explicitly state that decisions should not be based solely on such offers without inviting proposals or bids through public advertisement.
The report highlights, however, that the PPP process operates independently of the public investment process, allowing for significant discretion, particularly regarding the obligation to conduct competitive bidding.
Additionally, there is a notable absence of a requirement for cost comparison between traditional procurement and PPP procurement, giving policymakers considerable leeway in determining the financing method and subsequent procedures.
Despite these guidelines, the Cabinet has the authority to deviate from the rule in cases of urgent and exceptional circumstances, further underscoring the need for improved transparency and accountability in the PPP procurement process, it is stated.
Monitoring activities
Nevertheless, the IMF has issued a recommendation for the Finance Ministry and the National Procurement Commission (NPC) to develop an enhanced regulatory framework for the treatment of unsolicited proposals, including the process for receiving and evaluating such proposals.
In such a backdrop, NPC Chairperson Sudharma Karunaratne emphasised that unsolicited proposals fell under PPPs, and that, therefore, the NPC lacked the authority to monitor PPPs as a separate secretariat under the Ministry of Finance was responsible for regulating them.
Referring to the VFS, Sinopec, and Adani projects, the NPC Chairperson noted that they did not handle such proposals since the proposals went directly to the National Agency for Public Private Partnership (NAPPP).
“The NPC is currently working on the recommendations given in the IMF Diagnostic Report and its progress was reviewed during the last IMF meeting,” she said.
“The NPC’s duties involve policy, regulation, and monitoring. We are empowered under the Constitution. We prepare all procurement guidelines. We are currently working on several guidelines that are in the pipeline and one has already been submitted to the Cabinet,” she explained.
The NAPPP was established under the Ministry of Finance, Economic Stabilisation, and National Policies as proposed by the Interim Budget 2022 presented in Parliament on 30 August 2022.
The NAPPP consists of an Advisory Board of Directors chaired by Ananda W. Atukorala and includes E.A. Rathnaseela, B.N. Gamage, Deshal de Mel, Aroshi Nanayakkara, P.A.S.A. Kumara, and A.L. Goonaratne. The staff comprises Chairman Ananda W. Atukorala, Chief Executive Officer (Acting) Ranjith Wimalasooriya, and Senior Project Officer Nandana Gunaratna.
Attempts made by The Sunday Morning to contact NAPPP Chairman Atukorala as well as other Directors and the CEO were futile.