Officials involved in Chinese fertilizer scam face prosecution

A special audit report has recommended prosecuting officials who were responsible for the transaction of USD 6.9 million (Rs 1.38 billion) for an unsupplied fertilizer stock and directed to claim compensation from the Chinese company for attempting to unload a stock of unsterilized fertilizer that contained destructive bacteria.

The special audit report by the National Audit Office on the controversial procurement of 96,000 metric tons of organic fertilizer from a Chinese supplier reveals that the Sri Lankan government has incurred a loss to the tune of Rs. 1.38 billion in the process.

In 2021, then-government granted approval to import organic fertilizer from Qingdao Seawin Biotech Group Co., Ltd. in China as its attempts to transform the island’s agriculture into entirely organic were unsuccessful.

The audit report revealed that Sri Lanka’s National Plant Quarantine Services (NPQS) had observed the destructive bacteria Erwinia and Bacillus which causes diseases and that the fertilizer samples had not been sterilized.

Against the backdrop of such report, the special technical evaluation committee appointed by then-Secretary to the Ministry of Agriculture had given recommendations to import the relevant organic fertilizer shipment.

Based on these recommendations, Ceylon Fertilizer Company and the Colombo Commercial Fertilizer Company Limited had opened Letters of Credit (LOCs) to facilitate the importation of this fertilizer shipment, the report added.

The report also made many observations on the shortcomings in the procurement process and technical evaluation because not Technical Evaluation Committee members participated in the evaluation process and only the chairman of the committee had signed the documents related to pre-qualification evaluation from each bidder.

After that, the relevant supplier company had been informed by Shipping Advice on September 23, 2021 that the 20,550MT of fertiliser was sent from the Qingdao Port in China to the Colombo Port.

Last September, a controversial situation arose when Hippo Spirit, the ship that carried the fertiliser cargo was anchored off the Colombo port but could not unload the stock as it had not been sterilised in accordance with the Plant Quarantine Act and found to be consisting of harmful bacteria in the samples.

By refusing to accept and pay for the shipment, the importers, the two state-owned companies Ceylon Fertilizer Company Limited and Colombo Commercial Fertilizer Company Limited, filed cases at the Colombo Commercial Court to secure payment injunction orders against the People’s Bank.

After the issue was raised through diplomatic channels, a Cabinet Memorandum was submitted to resolve the issue through mediation on the advice of the Attorney General.

Accordingly, approval was granted to pay an advance of US$ 6.9 million for 75 percent of the cost of the fertilizer stock. Later, the two cases had been settled and withdrawn with the condition that the fertilizer should be resupplied with the desired composition and quality in accordance with the court settlement.

“Nonetheless the expected standard of stock of fertilizer has not been obtained until now. Although the period of the letter of credit and the performance bond should be extended and kept valid as per the settlement terms, those documents expired on March 12 and on March 24 respectively.

As a result, the ability to encash the money paid on settlement has been lost if the supplier will not provide standardized fertilizers. Resulting in all of the above, the entire amount paid for fertilizers has become a loss to the government,” the report said.