Quick-fix tenders, short-cut to development

 by FS

(November 07, Colombo, Sri Lanka Guardian)  Quick-fix tenders and the short cut to development is the route Sri Lanka is taking in the post-war era in an effort to leap-frog into a modern version of Singapore, South Korea or Thailand. A development phase which would normally take 30 years (the period in which Sri Lanka has been upstaged by conflict) is now being quickened, and fast, to reach the goalposts in 3-5 years. While such, rapid development is not alien in the world and in Sri Lanka for that matter – take the Mahaweli for example when a 30-year project was completed in three years – questions abound about the way such development is taking place, and the first issue that confronts the nation is governance and transparency in the business of the state.

Take the latest arbitration case in a Singapore tribunal where Citi Bank is suing the government-owned Ceylon Petroleum Corporation (CPC) over the non payment of dues in the controversial oil hedging case. Sri Lanka’s Supreme Court took the view that the hedging agreements were flawed and payments were suspended, though subsequently the case ended without a ruling due to a dispute between the court and the state. The CPC however, on the advice of the Attorney General refused to make payments to the four banks including lead bank and ‘main culprit’ Standard Chartered Bank. The Central Bank also reprimanded the banks for violating the rules.

It was the business and financial reporters of the Sunday Times who exposed this one-sided deal, leading to public interest litigation in which the country was saved millions of dollars of taxpayers money.
Nevertheless the CPC and the authorities should share the blame for a deal that went wrong particularly as it was clear as daylight that the agreement was heavily weighed in favour of the banks and not the CPC in terms of the hedging options. The banks lost millions in the deal having entered into their own hedging contracts with outside parties and are now seeking the lost money through compensation.
The fact however remains that if proper contracts were drawn up under the rules of good governance, transparency and proper tender procedures, this problem wouldn’t have arisen. The banks would have got their dues, the CPC wouldn’t have lost and furthermore investor confidence in the system wouldn’t have been damaged - an issue that confronts all investors.

Thus by shortcircuiting established tender procedures for the sake of quick development and faster approvals on the lines of the model articulated by London-based economist Mushtaq Husain Khan of speedy development sans tenders and at high cost which is eventually economically feasible, corruption and bribery comes to the fore.

Tenders are approved over the counter without following established procedures – all for the sake of the nation that must develop fast; even if it means there is a fallout from such decisions. Two sectors immediately come to mind: infrastructure and tourism.

For example concerns have been raised about the strength, carrying-power and stability of the flyovers built at ‘great speed’ at Peliyagoda, Nugegoda and Dehiwela. Was the tender process transparent? Was proper testing done? These bridges have certainly eased the traffic flows and greatly helped to improve movement of vehicles and pedestrians. However, what would happen if a public spirited individual goes to court with proof that there were irregularities in the contracts similar to what happened in the LMS, Water’s Edge and Sri Lanka Insurance cases? If the evidence is irrefutable, won’t the courts revise the tender and maybe order that the flyovers be dismantled because they are a danger to public health and safety?

The same argument would apply to hundreds of unauthorised buildings (private tutories and some international schools) where, if sufficient proof is provided to court, they would have to be dismantled. However the courts have in some cases, rather than create precedence and absolute chaos (if all the structures have to be dismantled), taken a pragmatic view of reprimanding the owners or directing that (in the case of tutories/schools) that residents’ access should not be obstructed.
The short-cut to speedy tourism (2.5 million arrivals by 2016 from a current half a million) has also raised concerns from the industry. Two valid points: the impact on the environment and whether Sri Lanka’s food production base is sufficient to feed an extra two million people.

Understandably Sri Lanka’s path to progress, having lost many valuable years when the country could have reached the development of Asia’s successful economies, shouldn’t be hindered by cumbersome tender procedures and bureaucratic delays. Yet both local and foreign investors need to be satisfied that awarded tenders are clean as a whistle ... not finding a whistle-blower with evidence of a fraudulent contract, going to court.

The short cut to development is fraught with dangers in a land like Sri Lanka where bribery is a way of life and corrupt politicians are rewarded with doctorates rather than jail terms. Such a development strategy would work and gain the confidence of investors only if tender procedures are streamlined to ensure quicker approvals under a completely transparent process. Otherwise the losses would ultimately outweigh the gains leaving the nation and its people to suffer (that too in silence).