Unilaterally terminating LRT project cost over Rs. 5 Bn to Sri Lanka: audit report

Sri Lanka incurred a loss of staggering Rs. 5,978 million after the previous government unilaterally decided to terminate the Light Rail Transit (LRT) project funded by Japan, a report compiled by the National Audit Office revealed.

The project was initiated in 2016 with the aim of reducing the traffic congestion in the city of Colombo and to provide better public transportation facility to the commuters.

Plans were afoot to construct seven lines, covering several areas from Rail Transit System (RTS) 1-7 as Green, Yellow, Red, Purple, Pink, Olive and Grey. Out of these seven lines, RTS 1 (Green) and RTS 4 (Purple) had been planned to be constructed first.

However, according to an MoU pertaining to this project, it had been decided to consider RTS 1 line as a future project, by giving priority to RTS 4 line from Borella to Malabe.

These two lines had been planned to be constructed under six construction packages and the Japan International Cooperation Agency (JICA) had agreed to provide financial facilities under concessionary credit conditions and the Oriental Consultants Global Company of Japan had agreed to provide consultancy service in collaboration with several other companies.

JICA had provided the facility of paying the said loan during a period of 40 years including a grace period of 12 years and the annual interest rate thereon was 0.1 percent.

However, then-government under former President Gotabaya Rajapaksa unilaterally decided to terminate the LRT project in 2020. Approval was granted by the directive of former president and the Cabinet decision dates September 28, 2020 for the unilateral termination of activities of the project with immediate effect by the government of Sri Lanka, citing that this project as costly and not cost-effective.

According to the audit report, it was observed that termination of the loan agreement could result in damaging the mutual trust and confidence in transactions between Japan and Sri Lanka.

It was further observed that there was no proper understanding and agreement amongst relevant institutions relating to the termination of this project or the loan agreement.

If further action is not taken either to recommence the project by utilizing the results achieved from the expenditure of Rs. 5,977 million already incurred or to commence an alternative project, it was observed as an uneconomic expenditure incurred by the government of Sri Lanka, the report mentioned.

The claim of Rs.5,169 million relating to loss of profit, requested by the Oriental Consultants Global Company Limited which is the main consultancy company or the sum paid for the said request as well as the interest to be paid in future on delay of compensation or any other payment made, is definitely an uneconomic expenditure for the Government of Sri Lanka, the report read further.

It says that if the Oriental Consultants Global Company Limited – the consultancy company in this project – decides to present itself in international courts for arbitration, the Sri Lankan government would have to incur a high cost.

The report stresses that maximum effort should be made to convert the uneconomic nature of expenditure into economic nature by utilizing the unsettled commitments incurred and property vested already for the project or for an alternative program.

Further, effort should be made to reach an agreement necessary for maintaining the repayment of the disbursement of Rs.5,066 million obtained by December 2021 on prescribed concessionary rates even after terminating the loan agreement unilaterally and in making observations by the General Treasury relating to Cabinet Memoranda, it added.

Meanwhile, maximum effort should be made to give independent professional observations beyond extending support for decisions expected through said Memoranda, are several recommendations presented by the audit report.