The Colombo Port City: dealing with unsolicited proposals

By Ravi Ratnasabapathy

The Colombo Port City has generated a storm of criticism, the latest from the Friday Forum, which has called for systematic reviews of large state infrastructure projects. The Chinese Government is now reportedly weighing in on the side of the developer, The China Harbour Engineering Corporation.

Unsolicited proposals such as the Port City are controversial. How should a government deal with them? What should be done with the Port City project itself?

Public procurement, especially for infrastructure is a complex process. The general procedure is that a project, once identified and screened by the relevant line Ministry (in regard to the economic and financial viability), should be submitted to the Ministry of Finance for preliminary clearance. If Finance Ministry Clearance is obtained it must be submitted to the Cabinet for approval in principle. If this is obtained, the Finance Ministry will appoint a Project Committee to develop a detailed Request for Proposal (RFP).

The RFP is very important, since it is the foundation of the project. It spells out the project needs clearly and sets the framework within which competing bids can be evaluated. The RFP would include the following:

1. Criteria of assessment of technical and financial viability of the project.

2.  Details of specifications

3. Models of relevant Agreements as decided on a case by case basis.

4. Environmental data and information.

5. Any other relevant information.

An unsolicited proposal bypasses this process of vetting, which means a bad project can get through. Therefore, traditionally unsolicited proposals were viewed with disfavour. The United Kingdom for example does not permit unsolicited projects.

Many of the world’s most controversial private infrastructure projects originated as unsolicited proposals, such as the Dabhol Power Plant in India and many independent power generation plants in Indonesia. In some countries private companies submitting unsolicited proposals often did so in an attempt to avoid a competitive process to determine the project developer. If successful, they were then able to finalise project details with the government through exclusive negotiations behind closed doors, which is also the case in Sri Lanka.

Should Sri Lanka bar unsolicited proposals?

There are positive aspects of unsolicited proposals. Sometimes such proposals are based on innovative ideas and it is useful to obtain external input in conceptualising, designing, and developing projects.

The difficulty is in getting the right balance between obtaining innovative project ideas without losing the transparency and efficiency of a competitive tender process.

Therefore a proper written policy is essential. At a minimum, the principle should be that all unsolicited proposals are channeled into a transparent, competitive process where challengers have a fair chance of winning the tender.  

There are two main approaches that have been developed to deal with unsolicited proposals. These are:

1. In a formal bidding process, a predetermined bonus point is awarded to the original proponent of the project. Chile and the Republic of Korea have such a system. Problems may arise with definition of appropriate bonuses which is subjective and potentially open to manipulation.

2. The Swiss challenge system in which other parties are invited to make better offers than the original proponent within a specified time period. If a better offer is received, the original proponent has the right to counter match any such better offer. This system is practiced in the Philippines, South Africa and Gujarat in India. This is the preferred option since it does not require further analysis or subjective decision making.

Either of the above approaches can work with proposals that are still on the drawing board. How do we deal with a project where work has already commenced such as the Colombo Port City where the developer has already spent a substantial amount of funds? It cannot simply be cancelled, despite various contradictory claims emanating from the sections of the Government, nor can be easily be opened to tender.

A Developers fee approach – where the project is opened to tender but development costs to date are reimbursed, either by the government or the winning bidder, could be a solution. There will be difficulties in assessing the costs and it is not certain whether either the Government or another developer would be willing to take it on, but at least opening up for tender will give us an idea of the alternatives available.

The project will initially need to be subjected to an independent technical review to ensure that concerns in areas such as water supply, sewage disposal and power have been addressed. The city of Colombo is already overloaded in all these respects, adding the strain of the port city to the crumbling infrastructure of the capital could take it to bursting point.

The environmental issues are another can of worms, from the supply to sand, to the damage to corals, impact on marine life to altering of tidal patterns that may cause coastal erosion elsewhere. A full independent review is needed.

If both areas of concern can be addressed then it may proceed, after being opened to tender as discussed above.  If the project cannot proceed there is another headache as to what to do with the partially built site-a separate study on the best alternate use is needed.

What is tragic is that all these problems could have been avoided. There were processes and institutions in place to ensure proper procurement, but they were abolished in 2007.

The National Procurement Agency (NPA) of Sri Lanka provided the general framework for handling unsolicited proposals. Written guidelines on unsolicited proposals were in place. All unsolicited proposals were to be dealt with through the Swiss Challenge system.

 Set up in 2004 by then president Chandrika Kumaratunga the NPA was shut down in December 2007. All the more reason that the proposals in hand should be channeled into a transparent, competitive process.