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Controversial organic fertiliser shipment: Audit calls for accountability

18 Sep 2022

  • Actual loss of transaction much higher than expected: NAO
  • Negligence by fertiliser companies, Agri and State Agri Ministries
By Maheesha Mudugamuwa   The National Audit Office (NAO) has recommended taking action against the officials responsible for the controversial organic fertiliser transaction between Sri Lanka and a Chinese company that caused the cash-strapped nation a loss of $ 6.9 million, equivalent to Rs. 1.38 billion. This was revealed by the NAO in its latest special audit report on the procurement of 96,000 MT of organic fertiliser from Qingdao Seawin Biotech Group Co., Ltd. of China. The NAO has recommended recovering the loss to the Government due to the failure to encash the relevant securities before their expiry, or extending the tenure of the securities and releasing funds without any security in case of advance payment, and proceeding with legal action to obtain compensation for attempting to send a stock of unsterilised fertiliser containing destructive bacteria to the country. According to the NAO report, the actual loss of the transaction is believed to be even higher, as the economic loss due to the loss of harvest has not been calculated yet. The loss in terms of expected compensation for attempting to bring in a stock of fertiliser containing destructive bacteria and if the Government has to pay any sum in the future on the basis of the agreement made for the supply of organic fertilisers too has not been calculated. “The Government had to incur a calculable loss of $ 6,900,000, equivalent to Rs. 1,382,720,494, and an even greater loss, which has not been calculated yet,” NAO stated.  The report further revealed that although an advance of Rs. 1,382,720,494 had been paid to the supplier by the Treasury Operations Department on 7 January 2022 for 20,550 MT, an advance security bond had not been obtained. The payment that has to be accounted as an advance had been incorrectly debited as an expense of the State Ministry of Agriculture. “The letters of credit relating to the transaction expired on 12 March 2022 and the performance bond expired on 24 March 2022. As a result, the possibility of reimporting the fertiliser stocks as per the terms of settlement in relation to the amount of Rs. 1,382 million paid by the importer to the exporter has been lost. It was further observed that the parties who have not validly maintained the Letters of Credit (LCs) and the performance bonds i.e. the officials of Ceylon Fertilizer Company Limited, State Ministry of Agriculture, and Ministry of Agriculture had neglected their responsibility, which should have to be in line with the decision of Colombo High Court on 3 January 2022,” the NAO revealed. From May 2021, the import of chemical fertilisers was banned by a special gazette issued by the Ministry of Finance to save foreign exchange amounting to $ 221 million spent for the import of chemical fertilisers in 2019 and to accustom farmers to the use of organic fertilisers. Accordingly, following an expedited procurement method and timeline, Qingdao Seawin Biotech Group was selected by a Cabinet-appointed tender board for the import of organic fertilisers. While testing the company’s fertiliser samples, the National Plant Quarantine Service had observed that they had not been sterilised and contained harmful bacteria. Ministry of Agriculture Secretary Rohana Pushpakumara told The Sunday Morning that discussions were currently ongoing with the Chinese company to obtain chemical fertiliser for the value of the transaction.  


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