US-Canada Energy Firm Charges Former Govt of Corruption
By Sulochana Ramiah Mohan
The Yahapalanaya Government’s blunder in handing the Hambantota Port to China under a 99-year lease and an 85 per cent stake is now the subject of numerous case studies – but evidence indicates this colossal mistake may have instead been a case of corruption.
In fact, the handover of this national asset may have been entirely unnecessary. In 2010, a firm called Greenlink Global Consulting (Greenlink) brought forward a US- and Canada-backed investment worth US$ 1.4 billion, titled the Hambantota Energy Project (HEP), which would have provided the revenue to service the debt to China.
However, Greenlink alleges that its legitimate development rights and work product were deliberately and fraudulently ‘hijacked’ by corrupt actors working with China’s State-owned China Harbour Engineering Company Ltd (CHEC), which now runs the Port. It has now been registered with the Attorney General of Sri Lanka on 10 July 2020 for damages of US$ 400 million, through its lawyers, Amsterdam & Partners, Washington DC, over the proposed HEP.
Greenlink is deeply concerned over how the former Government told them to “wait for energy reviews and policy decisions,” while CHEC was granted rights to the land at Hambantota together with a Cabinet directive for a Letter of Intent (LoI) for a power purchase agreement to develop a 1,000MW power facility.
Greenlink, then the local partner of Sithe Global Power Development Inc. (Sithe), which is a fully-owned subsidiary of Blackstone Group Inc., USA, had on 20 December 2019 written to incumbent President Gotabaya Rajapaksa, drawing his attention to the HEP and how the project’s feasibility study had been completed and approved by all stakeholders.
The letter noted that two prominent Ministers in Ranil Wickremesinghe’s Cabinet had deliberately circumvented the development rights to the project and handed it to the Chinese affiliates without regard for the internal bidding non-compete and non-disclosure arrangements entered into with Sithe and the Chinese affiliates.
Greenlink President, Michael Fernando, a Sri Lankan-born resident of Canada, noted that he has received both bribery offers and death threats since, which have kept him away from Sri Lanka since his last visit in May 2016 – all this after having travelled every month from 2010 until 2014, and having urged the President to review the awarding of the project and open HEP for international bidding through a transparent and independent process.
Greenlink brought forth the HEP in 2010, when China initially undertook the development of the Hambantota Port. At the time, the Government of Sri Lanka (GoSL) invited international investors to do business in this Port.
The Sri Lanka Ports Authority (SLPA) said there were a couple of bidders that showed interest in investing through the Board of Investment (BoI) in 2010, 2012 and 2016, and only Laugfs Gas Company won the US$ 80 million contract.
However, Sithe had submitted a conceptual proposal to the SLPA in May 2011, regarding the US$ 1.4 billion HEP, which demarcated a dedicated berth in 70 hectares of land bordering the Hambantota Port, on the north side where the tank farm is. The project proposal was for a mere 25-year lease agreement.
Fernando arrived in Sri Lanka with Sithe Global’s Vice President, and accompanied by several other international consultants as well as local officials from the SLPA, flew to Hambantota to conduct a physical review of the site and highlight the benefits of the project.
However, later on, a set of politicians of the previous Government signed the rights to the Port completely to China under questionable terms in 2017, ignoring the business plan for the HEP project that was tabled in 2010 by Sithe and Greenlink, Fernando claimed.
Sithe is a power development company owned by funds managed by Blackstone, which is one of the largest asset managers in the world and a leading global private equity firm.
Greenlink was sent from pillar to post until the former Government dropped the bomb by ultimately giving away the Port to China, making Sri Lanka a prominent victim of China’s debt-trap diplomacy.
In May 2010, Greenlink introduced Sithe Global Power Ventures LLC to a Cabinet-approved project known as Lanka Aloka Project at Kerawalapitiya. However, after completing its due diligence for six months, Sithe Global discontinued the project as it was not cost-effective, and subsequently recommended Hambantota as the location for an LNG infrastructure project to the Government.
In 2011, Sithe Global submitted a conceptual proposal to the SLPA, and by May that year, the US embassy in Colombo demonstrated the support of the US Government, highlighting that Sithe Global, a fully-owned subsidiary of the Blackstone Group Inc, had access to the large financial resources of Blackstone and need not seek to raise capital to complete the HEP project.
Around September 2011, Sithe Global submitted its application for BOI approval, with a proposal synopsis for the HEP project to the SLPA.
By February 2012, Sithe Global executed an exclusive Memorandum of Understanding (MoU) with the BOI for this LNG infrastructure project at Hambantota, as a Foreign Direct Investment (FDI), and on October 2012, Sithe Global, with the assistance of Greenlink, prepared a feasibility study that included the construction of a 500 MW LNG Regasification and Storage Infrastructure Facility at the Hambantota Port with an FDI of US$ 1.4 billion, which it submitted to the BOI.
The feasibility study confirmed the technical and financial feasibility of the project and reconfirmed Hambantota as the LNG infrastructure hub to secure long-term benefits to the country. The feasibility study document is already on record, with GoSL and all stakeholders except the CEB having approved the study in principal.
China’s alleged hijacking of the project
Thereafter, Sithe entered into confidentiality and non-circumvention agreements with CHEC and China Huanqiu Contracting & Engineering CORP (HQC), which are Chinese State-owned affiliates, on 19 December 2012, and 24 December 2013, respectively. These agreements clearly forbade the copy and use of the work products and proprietary information stemming from the HEP project, and also forbade them from circumventing the rights of Sithe Global, and subsequently Greenlink, to the HEP project, by submitting a bid independently or with any State-owned Chinese affiliates for the HEP project.
In January 2013, the CEB, which is governed by the Ministry of Power and Energy, advised that it required 18-24 months to undertake an independent study of the use of LNG as a fuel source for the production of electricity before issuing a Letter of Intent (LOI) for the negotiation of a Power Purchase Agreement (PPA).
As a result of this unexpected delay, Sithe Global suspended its active development of the project and authorised Greenlink to continue to obtain the LOI. Sithe Global also agreed to formally assign its rights to the HEP Project to Greenlink and advised BOI and GoSL accordingly, despite the need for an independent study having not been expressed previously.
However, the feasibility study completed by Sithe Global and Greenlink already included a world-class study of LNG by Poten & Partners and met all the requirements of the new request. Thus, they claim, this independent study requirement was unwarranted and was done to delay and divert final approval of the project to make time for corrupt actors to hijack the project from Sithe Global and Greenlink. As proof of these claims, an independent study was never actually completed nor required before the HEP project was fraudulently reassigned to the Chinese entity.
In September 2013, Fernando met with then-President Mahinda Rajapaksa in New York and updated him on the delays in issuing an LOI to continue the HEP Development. Rajapaksa requested Fernando to meet him in Colombo along with his son, MP Namal Rajapaksa, concerning this LOI. However, the President’s Chief of Staff, Gamini Senerath, failed to give Fernando this appointment.
By the time Rajapaksa decided to call for an early Presidential Election before the end of his term, this scheduled meeting had not taken place. Also, from December 2013 to February 2015, a new Interim GoSL was formed, which saw neither significant development of the project, nor any confirmation of the independent study on LNG by the CEB.
On 07 February 2015, following its decision to suspend its interest in the HEP project, Sithe Global assigned development rights for the HEP project to Greenlink Global Consulting Inc., and by 23 March 2015, the BOI confirmed that the project was pending approval upon receiving the LOI.
In March 2015, during the term of the interim Government, a team from Greenlink, comprising Fernando, internal counsel and engineers, met then-Minister of Finance, Ravi Karunanayake to update him on the HEP and what was required to move the project forward.
Greenlink’s Fernando claims that at this meeting, while commending Greenlink for the great job, Karunanayake also downplayed Blackstone’s credibility, submitted unsubstantiated and invalid excuses to derail the project, and even made a false statement that Greenlink’s HEP project was part of an unsolicited proposal, when in fact it was an FDI approved by the BOI at the request of GOSL. Karunanayake’s stance was likely due to the HEP project replacing the justifiably discontinued Lanka Aloka project.
Fernando’s team subsequently met then-Secretary to the Ministry of Power and Energy, Dr Batagoda, and the CEB generation planning ream for a technical presentation. At this meeting, Dr Batagoda requested the CEB Director of Generation Planning to give Greenlink a draft of a PPA to help move the project forward, pending the LOI, considering the projected power shortage the country would face.
Further to Greenlink’s presentation to Dr Batagoda, Fernando’s team made a presentation to the Sub-Committee of the Ministry of Power and Energy at the Parliament of Sri Lanka.
Fernando also met then-Prime Minister Ranil Wickremesinghe and MP Harsha de Silva at Parliament on the same day. Then-Deputy Minister of Power & Energy, Ajith Perera and other officials requested that Greenlink bring in the Canadian Government for a Government-to-Government (G2G) project, as it would fast-track the HEP project without requirement for an RFP process as per the Electricity Act.
On this request, Greenlink approached the Government of Canada through its Crown Corporation, Canadian Commercial Corporation (CCC), to deliver a letter to the Secretary of the Ministry of Finance, confirming its interest in the project on a G-to-G basis. This commitment would have resulted in substantially lower costs for the financing of the project and a guarantee of cost and timelines for its delivery/completion.
In March 2016, then-Canadian High Commissioner in Sri Lanka, Shelley Whiting and Fernando met with Karunanayaka, who requested the High Commissioner readdress a letter to him, instead of making an effort to thank the High Commissioner for the letter from the Canadian Government, which expressed its interest in HEP. There were media releases of this meeting as well.
On the same day, Whiting and Fernando met then-Minister of Southern Development and Law and Order, Sagala Ratnayake to explain the background of the project since 2010. Here, they explained the importance of procurement of LNG on a G2G basis and the importance of spearheading this project under his guidance. Ratnayake then referred Greenlink to work with the Southern Development Authority.
In March 2016, Whiting and Fernando also met with Ajith Perera at the Energy Ministry and discussed the importance of the LOI to negotiate the PPA to address the predicted power crisis. During this meeting, Dr Batagoda rushed in and inexplicably took an opposite approach on LNG, and started talking about coal power while criticising LNG power generation.
Fernando had by then experienced the pressure of many GoSL officials, whom he had known for many years, but were not interacting with him as usual. He alleged that this unusual change in behaviour was associated with the hidden influence these individuals were under related to the illegal hijacking of the HEP project. He notes this may have been the shame and guilt they may felt because of their duplicity in this corrupt scheme.
In April 2016, Greenlink provided the GoSL an Expression of Interest (EOI) approved by the CCC to reaffirm its commitment and capacity to move forward with the HEP project and after much effort and negotiations, Greenlink arranged to secure the commitment of several high-profile Canadian-based/affiliated engineering and infrastructure companies, forming a Consortium to work with a selected developer backed by a Sovereign guarantee to complete the project within a definite budget and timeline.
But in May 2016, the High Commissioner to Canada in Sri Lanka received a response to the CCC’s letter from Secretary of Finance, Dr Samaratunga, redirecting them to the Ministry of Power and Energy. This was shortly after Ministers Malik Samarawickrama and Sagala Ratnayake returned with Ranil Wickremesinghe from Beijing, China.
This is clear evidence of bad faith and wilful wrongdoing on the part of these politicians, since the decision to illegally reassign the HEP project had already had been made. This was done even while the Ministry of Power and Energy forwarded a request to bring the Canadian Government to pursue the project. Additionally, Karunanayake had not responded to former Canadian diplomat Whittling’s letter in March 2016.
By this time, Fernando began to receiving death threats from various parties, which he outlined in an email to Sagala Ratnayake on 31 May 2016.
After all these setbacks, Whittling informed Greenlink of the final nail in the coffin in August 2016, she had received confirmation that the HEP project was awarded to China.
The Ministers identified had not only facilitated the illegal hijacking of the HEP project from Greenlink, but their action directly contributed to the project costs mushrooming and eventually being stalled.
CHEC and HQC further broke their non-compete and non-disclosure agreements
In March 2017, Fernando sent an email to former Minister of Development Strategies and International Trade, Malik Samarawickrama after many failed attempts to meet with him. Fernando said that only Samarawickrama had never responded to any of his communications on the HEP project and had been continuously avoiding meeting with him.
In October 2017, Sithe Global reconfirmed Greenlink’s assignment to obtain the LOI and assign it development rights to the HEP project, informing CHEC, HQC, PM Wickremesinghe, the BOI and all relevant stakeholders regarding the executed transfer agreements with Greenlink.
Also in December 2017, Greenlink registered a formal complaint with then-President Maithripala Sirisena and with the Ministry of Power and Renewable Energy regarding the circumvention of the development rights held by Greenlink to the HEP project, but no action was taken to address this circumvention and associated wrongdoings, including corrupt conduct by former GoSL senior officials.
In December 2018, Greenlink retained Sri Lankan counsel for a mediation process with the consent of Sirisena, but this process was stalled as the Chinese affiliates failed to respond.
The incongruity and failures of the procurement process and fraudulent and illegal actions of former Ministers, combined with the lack of transparency and accountability in the awarding of the HEP project, amongst others, is a glaring example of how corruption can subvert the system and cause serious harm to the social and economic well-being of Sri Lanka.
Apart from registering a claim for the legitimate damages and losses from the hijacking of the HEP project, Fernando’s experience of the past several years has highlighted the terrible costs of corruption and has turned him into an anti-corruption advocate. To that end, Fernando is advocating that the HEP project and future infrastructure projects be open to international bids under an open, transparent and independently monitored process.
The extent to which China’s Belt and Road Initiative has influenced Sri Lanka so far, calls for utmost vigilance on all fronts in our dealings with the nation. It is now up to our Government to prevent history from repeating itself and prevent another colonisation of this island by a foreign power, or we will pay a price far steeper than the debts we have incurred.