|Mineral sands and an indigenous administration|
Mineral sands are the main known source of wealth the NorthEast contains that can be sold on the international market and turned into hard currency. When it is charged that the Sinhalese South has been able to appropriate for itself "undisputed control over the country’s wealth," the ability to mine and sell these mineral sands is firm evidence of this control. Reading the below article shows in concrete terms exactly why an indigenous administration for the benefit of the inhabitants of the Northeast is vital.
Not only that, external aid is much less necessary if an area has something to sell that the world wants. That is, unless this wealth is put into private pockets through corruption.
Mining at Pulmoddai was impossible until the ceasefire. Now it seems to be back to business as usual. Note that the customer for the mineral sands in the deals discussed below, China, was also given fishing rights in the Northeast by the central government after the ceasefire. How does the the central government have the authority to make these decisions, which have such an impact on the well-being of the inhabitants of the NorthEast, without their approval? [ed.]
Mineral tender bender
The Sub Committee on Tenders led by Finance Minister K. N. Choksy at the request of Environment and Natural Resources Minister Rukman Senanayake has unearthed a scandalous attempt by another government minister to favour two companies when recommending the award of a tender for the selling of mineral sands.
The suspect minister together with the chairman and general manager of a state owned institution have engaged in a game of what appears to be wheeler dealing to suit a local business magnate, depriving the state of millions of rupees as they collectively used a natural resource in Sri Lanka for reasons best known to themselves.
The minister in question, Rauf Hakeem, on April 1 this year submitted a cabinet memorandum on the selling of mineral sands by Lanka Mineral Sands Ltd. (LMSL) for local processing and value addition.
Hakeem is minister for port development, shipping as well as for eastern development and Muslim religious affairs. Lanka Mineral Sands Limited is governed by the Eastern Development and Muslim Religious Affairs Ministry. LMSLis a fully government owned company. The functions of the company are to do mining, separation, refining and preparation of mineral sands. The processing plant of the company is located in Pulmuddai in the eastern coast.
In his cabinet paper on April 1, Hakeem introduced two companies, namely, Alchemy Heavy Metals Pvt. Ltd. (AHMPL) and its sister company Alchemy Boulders Pvt. Ltd. (ABPL), the former of which had not even tendered for the sale of 60,000 tonnes of crude zircon.
In this cabinet memorandum, Hakeem also stated that 60,000 metric tonnes of crude zircon is to be awarded to Wheels Lanka Pvt. Ltd. (WLPL) in terms of the recommendations made by a Cabinet Appointed Tender Board (CATB).
What is stupendously shocking in this instance is that Hakeem has approved this award to the three companies which have one single individual as chairman — namely T. L. M. Nawash. We repeat that one of Nawash’s companies — Alchemy Heavy Metals Ltd. never even submitted a bid when this tender was called, but was yet nominated by Hakeem to buy 90,000 metric tonnes of crude zircon from LMSL.
Hakeem's manoeuvre has been done in association with a close friend and confidant, Muhammad Nassar, who was appointed chairman, Lanka Mineral Sands Limited by Hakeem.
Documentary evidence in the possession of The Sunday Leader proves that Nassar has illegally sold 8000 metric tonnes of crude zircon sand to eight different companies — six of which are international companies without following proper government tender procedure. (See box for details)
According to Nassar’s own admission he did so with full Ministry approval.
Even in this instance, Nassar is alleged to have influenced the Technical Evaluation Committee (TEC) to favour Wheels Lanka, Alchemy Heavy Metals and its sister company Alchemy Boulders.
There has been a rapid growth recently in zircon demand as a component of glass used in television and computer monitor tubes. Similarly, the use of zircon as a feedstock for the production of zirconia and zirconium chemicals has also increased rapidly, particularly in the last five years.
The use of zircon for glazes on ceramic items such as floor and wall tiles, sanitary-ware and tableware, accounts for almost 50% of total zircon consumption and has been the most rapidly growing end-user over the last two decades.
If this tender is awarded, the sale of the mineral sands to these three local companies will result in a multi million rupee loss for the government.
Depending on the quality of the crude zircon, international market prices for the mineral vary. If 150,000 tonnes of crude zircon is sold at approximately US$ 87 per tonne to Nawash, Lanka Mineral Sands would earn only US$ 13.5 million. If on the other hand this same quantity is sold for US$ 112 per tonne, the earnings for Lanka Mineral Sands would be in the region of US $ 16.8 million. The difference in revenue is over US $ 3 million.
If, , Lanka Mineral Sands and Rauf Hakeem had the commitment to upgrade this crude zircon to a more refined product they could earn for the state between US$ 350 to US$ 400 per metric tonne of zircon. (See box for international market prices)
An attempt by the previous regime to do just this at Warakapola was stopped by Hakeem when he came into office. Since then, no attempts have been made by this government to utilise machinery and equipment owned by Lanka Mineral Sands at Pulmuddai which can upgrade crude zircon to a more polished variety and thus, be sold at world market prices.
For example, if 150,000 tonnes of crude zircon is upgraded by Lanka Mineral Sands they would be left with an estimated 45,000 tonnes of processed sand. This could be sold for at least US $ 350 per tonne.
After Hakeem presented his paper to cabinet, the matter was placed before the Sub-Committee on Tenders and Budgets. Rukman Senanayake is a member of this committee as well, and voiced his suspicions regarding this sale to Finance Minister K. N. Choksy. Dr. R. M. K. Ratnayake, who is secretary to this sub committee as well as additional secretary to the Fomamce Ministry, was later instructed by Choksy to initiate a full-scale inquiry at the behest of Rukman Senanayake who suspected foul play.
Dr. Ratnayake on May 21, requested R. J. De Silva, who is chairman, Geological Survey and Mines Bureau (GSMB) to conduct an in-depth investigation.
De Silva’s investigation unearthed a can of worms. He found that members of the Technical Evaluation Committee had fraudulently amended the tender documents without approval from the CATB or cabinet.
Not just that, but the tender documents never even carried specifications of the products on offer. It however demanded that all offers must include an FOB and C & F price. It is interesting to note how TEC manipulated this tender demand when one of their favourites quoted without FOB.
In a scathing and very incriminating report to Dr. Ratnayake handed over on May 27, the GSMB Chief has based his findings on the file related to this tender that was handed over to him by Director General , GSMB, Dr. N. P. Wijeynanda. The latter was a member of the TEC for this sale of mineral sands.
Following his superior’s shocking findings regarding the tender, Dr. Wijeynanda resigned from his post as Director General at the bureau on Friday, June 6.
A curious aspect with this whole sorry scenario is that the Technical Evaluation Committee consisted of only two individuals who are technically qualified to evaluate a tender of this nature. They were Dr. Wijeynanda and General Manager, Lanka Mineral Sands Ltd, S. A. Nandadeva.
The other two members on TEC were Additional Secretary, Eastern Development and Muslim Religious Affairs Ministry, A. C. M. Razik, and Director, External Resources Department, P. H. Sugathadasa. Razik was nominated as chairman of TEC despite him possessing no technical knowledge on mineral sands. Sugathadasa also has no technical knowledge in this department. Yet, they were both appointed to the TEC.
On November 26, 2002, Muhammad Nassar in his capacity as Chairman, LMSL, wrote to Dr. Wijeynanda to provide adequate publicity to the tender. A copy of the tender notice was supposed to have been sent for circulation among “international tender organisations.” This in effect means that this notice must be sent to all embassies and missions abroad. That this was not done is another serious omission on the part of Lanka Mineral Sands Ltd. and the Eastern Development and Muslim Religious Affairs Ministry.
The tender advertised in January this year was for the sale of 60,000 metric tonnes of crude zircon sand, 60,000 metric tonnes of illmenite sand and 1000 metric tonnes of rutile sand. Ten offers were received.
The original offer by Alchemy Boulders Pvt. Ltd., for 60,000 tonnes of crude zircon sand was for US $ 95 FOB per tonne. Wheels Lanka Pvt. Ltd. offered for the same quantity US $ 135.12 C& F per tonne while Shenyan Astron Mining Corporation of China offered US $ 108 FOB per tonne. These three out of 10 companies offered this price for crude zircon and illmenite sand. Note that Wheels Lanka Pvt. Ltd. quoted US $ 135 C & F for only 30,000 tonnes of crude zircon. This was later increased to 60,000 tonnes and the price amended to suit Wheels Lanka at an FOB rate.
Breach of tender procedure
On examination of the schedule there is a hand written scribble by Dr. Wijeynanda to negotiate with Alchemy Boulders. De Silva charges that such negotiation could only include the price and this is a serious breach of normal tender procedure. A member of TEC has no authority to recommend to Lanka Mineral Sands to negotiate prices.
De Silva asserts that both the CATB and TEC in this instance were in breach of tender procedure by negotiating with selected tenderers, leaving the other tenderers out. This was done apparently on the pretext of value addition.
In a letter to the CATB on February 17, 2003, TEC has once more acted strangely by indicating that CATB should negotiate with Wheels Lanka Pvt. Ltd., and get them to increase their offer by an additional US $ 1. This letter also states that if CATB fails to obtain this price they may then negotiate the price with Shenyan Astron Mining Corporation. It is pertinent to note here that TEC had by this time already recommended negotiations with Alchemy Boulders first, whom had made a lower offer than Shenyan but interestingly is a sister company of Lanka Wheels.
A confusing aspect of these price negotiations is that Wheels Lanka Pvt. Ltd. initially quoted US $ 135.12 per tonne, which was C & F. TEC however determined that they should be told to quote US $ 111.12 FOB and get them to increase this quote by an additional one dollar. Wheels Lanka Pvt. Ltd. in their original bid never quoted a price inclusive of FOB. Later TEC recommended the award to Wheels Lanka at an undetermined ex factory price — which in effect would bring down the selling price from US $ 112 to maybe US $ 87 which had been the sellers price in the previous tender. Since the price was never determined by either TEC or the CATB it is not yet known for how much Lanka Mineral Sands Ltd. would finally negotiate and sell a total of 150,000 metric tonnes of crude zircon to Nawash and his conglomerate of companies.
When we asked Dr. Wijeynanda why this was done he said the parties concerned were allowed this very lucrative benefit on the presumption by TEC that “if problems arose with the LTTE — they (the buyers), would not be able to ship the sand out of the country and would then need to process the sand in Sri Lanka.
Which, according to Dr. Wijeynanda, is why ABPL and AHMPL were considered (despite the latter not even having made a bid) due to a supposed processing plant to have been established by the company at Dambulla.
On February 20, 2003, exactly three days after TEC had made their recommendations to the CATB, Chairman, Alchemy Boulders, T. L. M. Nawash, (the strongman behind the three companies already favoured in this bid) wrote to the Chairman, CATB, P. W. Seneviratne who is also Secretary, Irrigation Ministry.
In this letter, Nawash informed Seneviratne that Alchemy has set up a plant and machinery to process crude zircon and had already purchased 1179 tonnes from Lanka Mineral Sands. His letter stated that the plant is situated at Dambulla and that the processing of crude zircon will be done in two stages.
Our investigation found that Nassar did in fact sell 1179 tonnes of crude zircon to Nawash at a price of US $ 87 per tonne. All this without adhering to any form of proper tender procedure.
Later, the General Manager, Sumitomo Corporation on February 14, this year, in a letter to Nassar strongly protested against this sale. He pointed out that Sumitomo Corp. has also participated in this internal tender (LMS/MKT/TDR/02/01) according to the conditions set forth by LMSL. However they subsequently found out that Shenyan Astron of China had been granted 1,628 metric tonnes of zircon instead of 814 metric tonnes, shipped to Sumitomo and six other buyers.
The Sumitomo GM goes onto state in the same letter, “we understand that a Sri Lankan trader named Alchemy Boulders has been offering 1179 metric tonnes of zircon to Chinese buyers with conditions completely different from the tender conditions. We are of the opinion that such a contract between LMSL and Alchemy is unfair and violates the ethics of the tender system.
When questioned on this aspect, Muhammad Nassar said Shenyan had been favoured because they had offered the highest bid in this instance and so were given a bonus of an additional 814 metric tonnes. He added that none of the other bidders including Alchemy Boulders had qualified for this internal tender, but were granted 814 metric tonnes of crude zircon and in Alchemy’s case 1197 metric tonnes “in order to maintain good relationships."
On March 4, 2003, S. Dissanayake, Secretary, Eastern Development and Muslim Religious Affairs Ministry also wrote a letter. His letter was addressed to TEC and states that Alchemy Boulders had brought to the notice of the CATB that they are in the process of establishing a plant at Dambulla to purify and upgrade crude zircon to premium grade in collaboration with a Chinese counterpart — namely, M/s Jiangxi Kingan Hi-Tech Co. Ltd of China.
In what appears to be double quick time following this letter, the very next day on March 5, a committee comprising of K. Shanmugalingam, who is additional secretary to Hakeem’s Ministry, Dr. Wijeynanda and S. Nandadeva, GM for Lanka Mineral Sands, visited the Alchemy site at Dambulla. Their visit revealed that the site had yet to receive the required machinery and processing equipment. We learn that even as late as May this year, the Dambulla plant belonging to Nawash remained empty of any upgrading and processing equipment.
On March 19, members of the CATB and TEC invited Nawash who is chairman of all three companies and one M. S. M. Ali, who is a director at Alchemy Boulders and discussed the sale. Nawash had agreed to the TEC price of US $ 112.12 FOB. However the committee also confirmed to Nawash that the purchase of crude zircon was to be at an ex-factory price at Pulmuddai which as we have already pointed out would mean the selling price is much lower. This was not even determined but left for Lanka Mineral Sands Ltd. to negotiate after the tender is awarded. And this, Rauf Hakeem, approved in writing.
Needless to say, that the CATB did not negotiate or determine the ex-factory price is a blatant violation of normal tender procedure.
The Geological Survey and Mines Bureau Chairman has stated in writing thus; “I am of the view that TEC has in a very dubious manner manipulated this tender and got Wheels Lanka to purchase 60,000 tonnes of crude zircon from their original offer of 30,000 tonnes at an adjusted price of US $ 112.12 per tonne. This is a very serious matter and the entire Technical Evaluation Committee should be called for their explanation by the authorities concerned."
Meanwhile, paragraph seven of Hakeem’s cabinet paper states that “The Cabinet Appointed Tender Board (CATB) negotiating with the highest bidder as per TEC recommendation has decided to award 60,000 tonnes of crude zircon to M/s Wheels Lanka (Pvt) Ltd., at US $ 112.15 FOB per tonne converted to ex factory price."
We have already pointed out how TEC manipulated the earlier price quoted by Wheels Lanka to reflect an FOB price of US $ 112.11 per tonne and had also got the tenderer to increase the quantity of crude zircon from the initial quotation of 30,000 tonnes to 60,000 tonnes.
Para 10 of Hakeem’s cabinet paper states that in October, 2002 Alchemy Boulders were awarded a quantity of 1190 tonnes of crude zircon. It is also stated that the consignment of zircon was removed by the company and is now at the plant site at Dambulla. However, there are no records at the Geological Survey and Mines Bureau that transport permits were obtained.
On this occasion, Lanka Mineral Sands Ltd. sold the zircon to Alchemy for a mere US $ 87 per tonne which is far below market price — estimated at US $ 140 per tonne. The difference between the FOB price and ex factory price per tonne of crude zircon is US $ 25.12.
Hakeem's argument for favouring Alchemy appears to be based on the fact that Alchemy promised to upgrade the raw mineral to premium and ceramic grades. De Silva maintains that merely on the cover of value addition companies should not be treated in a preferential manner. He asserts that if Alchemy was genuinely interested in upgrading crude zircon to premium and ceramic grades, a well structured project proposal should have been prepared.
Hakeem's cabinet paper is in fact inconsistent with the sequence of events that followed since this tender was called
Hakeem's camp is now accusing Nawaz Hadjiyar a
close confidant of Rukman Senanayake of trying to cancel the tender in
order to award it to a favoured party.