22 April 2022
Statement by Lanka Infrastructure Development Corporation (LIDC) on Central Expressway Project – Section 3 (Rambukkana to Galagedara)
Lanka Infrastructure Development Consortium (LIDC) represents Access Engineering, Maga Engineering, ICC, KDAW and NEM Construction, five of the leading construction companies of Sri Lanka, with a long-standing history in being responsible corporate entities. Together, these five companies sustain the livelihoods of over 25,000 employees together with their families, whilst annually contributing over LKR 100 Billion to Sri Lanka’s GDP. On 18 March 2022, LIDC issued a Press Release with respect to their bid for section 3 of the Central Expressway Project (see link below).
LIDC wishes to stress that like all organizations and citizens of Sri Lanka, the member companies and the wider construction industry are severely impacted by the current economic crisis. We are committed to overcome the present challenges while continuing to support our team members and their families. We are also deeply cognizant of the immediate needs facing our nation at this time, and the requirement for prioritizing these immediate needs. In this regard, we note that the bidding process for this project began in July 2021, before the recent unfolding of events.
In light of the recent information circulating in the media and in the interest of presenting the truth to the public, the following seeks to factually respond to allegations levelled against LIDC’s bid:
1. Bids for the Section 3 of Central Expressway Project (CEP) were called on 22 July 2021 by the Ministry of Highways, on Design, Build, Finance, Operate, Maintain & Transfer (DBFOMT) basis. Drawing from the experience of successfully completing Section 2 of the Central Expressway, LIDC was formed by top highway construction companies of Sri Lanka, and its bid was submitted on 04 October 2021.
2. Traditionally, large-scale expressway and highway projects in Sri Lanka have been financed by the Employer (i.e. Government of Sri Lanka). Section 3 of the Central Expressway is one of the first infrastructure development projects where the contractor was to both finance and construct the expressway, with costs to be repaid over a 15-year Operation & Maintenance period, after the completion of the Design & Construction period of 2 years. This was also the first time (with the exception of Central Expressway Section 2), where a consortium of local Contractors could propose a locally financed solution, including an investment of our own equity of 20% to construct the expressway. This is in contrast to most other Sri Lankan expressways that had been built by foreign Contractors with foreign loans.
3. LIDC became the only successful, technically qualified bidder for Section 3 of the Central Expressway. At the opening of the financial bid of the project on 03 February 2022, LIDC came to understand that bids of the two other bidders, China State Construction Engineering Corporation (CSCEC) and MCC International Incorporation (MCCI) had been disqualified on technical grounds. Soon after, a letter was circulated amongst the media by MCCI, purporting to explain the blunders in their bid in order to justify its qualification and validity.
4. Our press release issued on 18 March 2022, summarises the information gathered on the reasons for disqualification of MCCI’s bid, which include four ‘major deviations’ under standard international Procurement Guidelines that resulted in disqualification of its bid. These include; (a) not submitting a valid Bid Security as stipulated in the bid document; (b) submitting financial details and specific experience of the parent company MCC (a separate legal entity) without this parent company being a legal part of MCCI’s bid; (c) lack of sufficient experience to carry out a project of this nature, as MCCI had not completed any expressway projects previously; and (d) MCCI’s bid requesting payments to be made in USD for the required period of 15 years, despite the bidding document stating that payments can only be made in Sri Lanka Rupees.
5. Thereafter, controversy has arisen around the cost of the project. Since MCCI’s bid was disqualified, their price is not known to the public. However, MCCI’s letter claims a price of USD 1050 Million. In comparison, LIDC’s price, quoted in Sri Lanka Rupees, was LKR 345 Billion – this price denotes the total cost of the project across its 17-year lifecycle.
6. In order to compare the USD price claimed by MCCI (despite it being an unverifiable statement), against LIDC’s rupee price over the entire project lifecycle of 17 years, one could consider an exchange rate of LKR 545.1 (assumed as the 17-year average over the future repayment period: a conservative forecast based on the average depreciation of LKR during the last 17 years, as per the exchange rates published by the Central Bank).
7. Based on the above, the price claimed by MCCI is LKR 572.4 Billion (i.e. 1050 x 545.1), compared to the price of LIDC which is LKR 345 Billion. Therefore, it is evident that MCCI’s claimed price is in excess of 65% (or LKR 227.4 Billion) beyond LIDC’s price over the project lifecycle, with the potential to be even higher. This is notwithstanding the fact that repayment to a foreign contractor will have to be done using invaluable foreign exchange.
8. Furthermore, LIDC’s price of LKR 345 Billion denotes the total cost of the project across its 17-year lifecycle, and does not reflect the time value of money and future depreciation of the rupee. In other words, if you apply a discount rate of 10% to account for same, the present value of our bid (and the total cost to GOSL in today’s rupee value) is LKR 144.5 Billion – This cost is to Design, Build, Finance, Operate & Maintain the expressway over a period of 17 years.
9. The component of LIDC’s price assigned for the construction of the expressway yields a price per kilometer of LKR 5.6 Billion. In comparison, the average price for CEP Section 2 (completed by local contractors in 2021) was LKR 3.6 Billion per km, and the average price for CEP Section 1 (presently being constructed by MCC) is USD 27 Million per km. LIDC’s kilometer price for Section 3 reflects its challenging mountainous terrain including a tunnel section, and is notwithstanding the fact that the price of key construction inputs such as materials, labour and machinery have escalated on average by more than 50% since completion of CEP Section 2.
10. In this context, MCCI’s sole aim has been to sabotage an active public procurement process (which they have also taken part in and failed), and instead urge the GOSL to entertain an unsolicited proposal for the project (as is evident from their letter), based on an unsubstantiated claim or narrative.
11. In closing, LIDC rejects the baseless and false claims circulating in the media, while stressing the importance of the role played by Sri Lankan media in investigating, verifying, and reporting on such allegations with the principle of fairness and accuracy at their core. It is noteworthy to add here that ill-informed and false claims can unjustly jeopardise the future of local industries and the local construction sector, which has been engaged in a decade-long battle to wrestle our industry away from the stranglehold of foreign participants.