PSO accused of violating procurement rules

IQBAL MIRZA

KARACHI: Pakistan State Oil (PSO) has violated Public Procurement Rules (PPR) 2004 in the award of two Unsolicited Contracts, i.e.  Contract of Affreightment (COA) signed between PSO and Pakistan National Shipping Corporation (PNSC), and US $ 5 billion five years contract of PSO with M/s Bakri Trading for blended oil, according to Transparency International Pakistan (TIP).

Adviser TIP, Syed Adil Gilani in a letter sent to the Principal Secretary to the Prime Minister sent on Oct 10, he has invited Prime Minister’s attention to the TIP letter sent on Oct 8, 2012 on the alleged illegal Contract of Affreightment (COA) signed between Pakistan State Oil and Pakistan National Shipping Corporation and subsequent two reminders sent on October 11, 2012 and October 22, 2012, which have not been replied by PSO.

Public Procurement Regulatory Authority (PPRA) had also questioned PSO on October 19, 2012 to submit its report on the allegation of illegal award of unsolicited contract to PNSC, and further informed PSO that “unauthorized breach of any rule of the Public Procurement Rules 2004 amounts to mis-procurement”.  PSO has also failed to justify the alleged illegal award of contract to PPRA till date, Adil Gilani said.

The allegation needs to be taken seriously by the Prime Minister, as PSO is continuing the practice of awarding illegal contracts, and have also awarded another unsolicited contract of U.S.$ 5 billion five year contract to  M/s Bakri Trading for so called  blended oil.

The SECP had also objected to the alleged illegal awarded of contact to PNSC on Nov 5, 2012 and questioned PSO on this award and has asked to reply whether any  unsolicited contracts were awarded by PSO, and  their legal standing under the laws and regulations of Pakistan, applicable on PSO. SECP had further asked PSO for their compliance in relation with key factors identified by the Supreme Court of Pakistan in its RPP Judgment of March 30, 2012. 

These factors have been mentioned as under: upholding competition among firms, promoting best value for money, encouraging more firms to bid on work, maintaining openness and transparency in the bidding process, executing contracts quickly,  ensuring quality of goods and services and, meeting other obligations required for federal procurement.   

Another complaint received on another unsolicited contract awarded by PSO to M/s Bakri Trading for five years supply of blended oil to PSO for U.S $ five billion.

The complainant has made following allegations:

1. That the Managing Director PSO can not award any contract to any company without open tendering under the PPRA Rules.

2. That PSO Board of Director is also not authorized to award any contract to any company without open tendering under the PPRA Rules.

3. That Ministry of Petroleum, Government of Pakistan also cannot award any contract to any company without open tendering under the PPRA Rules.

4. That M/s Bakri Trading is not the only company in market for supplying blended oil.

4. That to make this deal, an illegal  competitive edge was given to Bakri Trading by documenting it as the one and only oil blending company in Pakistan.

5. That Managing Director PSO and M/s Bakri Trading mis-informed government and public that blending facility is only available with M/s Bakri Trading, although it is available in Pakistan with many other  trading companies which have storage facilities at KPT and PQA and also PSO has storage tanks and same blending facility.

6. That blending is a normal mandatory procedure and is in vogue in Pakistan since 1947.

7. That blending facility is not a rocket science, as it simply relates to transferring “the stored oil from one oil tank (as heavy components are settled at bottom and light components are at top) to another oil tank to make it homogenous at the time of delivery to tankers”. 

8. That high sulphur oil price is determined at daily rate published by PLATTS, and contractors quote tendered cost of their markup for services over the costs of oil determined by PLATTS and average prices in Pakistan by refineries, and paid at the rupees parity rate of dollar at the date of supply.

9. That PSO has caused billions of rupees loss by awarding this illegal contract at highly inflated non-competitive cost.

10. That PSO Board Audit Committee did not agree to award unsolicited contract to Bakri Traders in BAC meeting of October 24, 2012.

Adil Gilani said that the above allegations, reconfirmed by SECP and PPRA against unsolicited contract awarded to PNSC, and  11  allegations against contract awarded to Bakri Traders,  are serious, and prima facie  it  appears that PSO under the new Managing Director has been guilty of violations of awarding of the two unsolicited contracts against the requirement of Public Procurement Rules, and also against the key factors to be considered in the procurement of public contracts identified by the Supreme Court of Pakistan in its judgment given on March 30, 2012  in the Rental Power Plants Case.

Transparency International Pakistan requested the Prime Minister to take immediate measurers to cancel the two unsolicited illegal contracts awarded by PSO to M/s PNSC and M/s. Baqri Traders. And accordingly necessary measures against PSO officers and Board of Directors responsible for awarding of these two illegal unsolicited contracts which are deemed to be mis-procurement as pointed out to PSO by PPRA.

Copies of the letter have been forwarded for information with a request to take action under the Rules and Regulations to the following: Chairman, Public Accounts Committee, Islamabad, Chairman, NAB, Islamabad, Secretary, Ministry of Petroleum and Natural Resources, Islamabad, Registrar, Supreme Court of Pakistan, Islamabad, Auditor General, Islamabad, Chairman SECP, Islamabad,  and Managing Director, PPRA, Islamabad - with a request to take action under section 5(2)(a) which reads: “monitor application of the laws, rules, regulations, policies and procedures in respect of or relating to, procurement” and under section (5)(2)(i) of PPRA Ordinance 2002.