Sri Lanka coal deal turns sour
Sri Lanka’s coal tender deal is getting murkier every day as new revelations show that the state-owned Lanka Coal Company Pvt Ltd (LCC) has given a 50 per cent premium on the individual index market price to the awardee Black Sands LLC. But LCC entirely disputes this saying that they decided on a composite Index and had arrived at the ‘best price’.
The Black Sands bid at US $ 295.22 per metric tonne is $115 per MT more than the highest Russian coal price standing at $180. This shows that the transaction is overpriced by 50 per cent or more than $500 million.
Having scanned various documentation and after discussing with different parties, the Business Times learned that the coal price for a MT could have been $102 -$110 lower than that of Black Sands LLC bid as per the Russian Coal Index.
These suppliers have supplied during July for the following destinations at the following prices (according to the Argus Coal Index) to Morocco at $159 to $168, South Korea at $180, Turkey at $140, and India at $160. All these are what are called ‘high calorific coal prices’.
When asked LCC General Manager Namal Hewage told the Business Times on Thursday that the Technical Evaluation Committee (TEC) produced an average Composite Index for the coal prices after requests from all coal suppliers. He explained that the 9-member TEC gave a Composite Index comprising all four indices, namely the Russian, Indonesian, South African, and Australian indices. “Without a Composite Index, we cannot predict how the market will react. It is a volatile market and there are instances when prices go down. In Colombia in 2020, the going price for a coal MT was between $42 and $52. But now it is at $300.”
He also added that had an individual index – for example, the Russian index being quoted the supplier will need to bring it down from Russia and not from anywhere else. The individual index needs to match the region coal is coming from.
Mr. Hewage added that the Composite Index was decided after 2019 when determining the best process. The Ministry of Power and Energy at the time decided to send the tender bid document to the National Thermal Power Corporation in India for ideas on how to become more competitive in ‘our’ tender bids and they suggested a Composite Index. He also mentioned that earlier than this, in 2015, a 3- member committee under the ministry had then decided on a Composite Index as they needed to represent all four regions to be fair.
A. Navamani, Chairman TEC told the Business Times on Thursday that not getting a Composite Index will see the suppliers’ level allegations against LCC for favouring one particular supplier from a region. “The payment is made on the average one month Composite Index prior to the bill of lading, multiplied by the multiplication factor from the bid price offered.”
The price is high, Mr. Hewage admitted but pointed out that this is the best option. Mr. Navamuni also said that this was the best option that TEC had after trying several options in the earlier bids.
However, industry analysts say that despite the base price being low, the profitability of the transaction is very high.
It was also mentioned that Black Sands LLC was granted a 6-month credit to the LCC, but the Business Times found out that the credit of six months is the industry norm, and most coal companies grant this.
On August 25 LCC wrote to Black Sands LLC, requesting them to submit a performance bond and a coal supply agreement, according to the tender specifications but the Business Times learns that as of Wednesday, it still has not been provided. Mr. Navamuni added that they still have time to submit it.