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IP gas pipeline: Cabinet decides to award EPCF contract sans bidding

The Cabinet has decided to award Engineering Procurement Construction Financing (EPCF) contract with respect to Iran Pakistan (IP) gas pipeline without resorting to open competitive bidding process as it will be in conflict with GoP's obligations under the co-operation agreement with Iran, reveal official documents available with Business Recorder.

According to documents, the Cabinet was informed on January 30, 2013 that Inter States Gas Systems (Pvt) Limited (ISGS) from Pakistan and National Iranian Oil Company (NIOC) from Iran entered into a Gas Sale Purchase Agreement on 5th June, 2009 which became effective on 13th June, 2010 after completion of Conditions Precedent for IP Gas Pipeline Project, including issuance of sovereign guarantee for Iran. It was stated that the pipeline design, engineering and feasibility study has already been completed. Accordingly, the route survey and its route alignment had also been finalised. The installation of concrete markers is under way followed by land acquisition for the route. Moreover, the procurement process of Long Lead Items (LLIs) including line pipes is in its final stage.

The Cabinet was further informed that after failing to secure conventional financing, non-conventional options such as Government to Government (G to G) Co-operation Agreement, in accordance with directions of the Steering Committee/Sub-Committee of the ECC, were explored with Russia, Iran and China. It was stated that Iran agreed to enter into G to G agreement with financing up to $250 million (with the possibility of enhancing it upto $500 million). The draft G to G Co-operation Agreement was negotiated with the Iranian delegation on November 20, 2012 in the presence of representatives from the Ministries of Law & Justice, Finance, Foreign Affairs and the State Bank of Pakistan and the finalised draft of G to G Co-operation Agreement was initialled by Pakistan and finally Iranians, subject to the approval of the competent authority.

It was stated that pursuant to the G to G Co-operation Agreement, Iran has nominated Tadbir Energy Costar Iranian Co (TEGIC) to undertake complete EPCF work for the first segment up to $250 million starting from Iran Pakistan border. Iran also nominated TEGIC for the second segment of the project and agreed to consider increasing the financing facility by allocating upto $250 million subject to their involvement in distribution of gas in Pakistan to be discussed later on. Alternatively, TEGIC has also agreed to provide/assist in arranging $250 million as supplier credit and any additional financing for the second segment, subject to mutual agreement.

It will act as the lead EPCF contractor along with the nominated local subcontractor(s). The ISGB will negotiate EPCF contract with TEGIC and the contract will be awarded based on the engineer's estimate while ensuring completion of the work by 1st January 2015.

The documents further disclose that the PPRA Rules 2004 require procurement of goods and services by the government pursuant to open competitive bidding as the principal method of procurement. Rule 5 of PPR, however, provides that whenever provisions of PPR are in conflict with an obligation or commitment of the Federal Government arising out of an international treaty or an agreement with a state or states, or any international financial institution, the provisions of such international treaty or agreement shall prevail to the extent of such conflict. Resultantly, the Petroleum Ministry argues that the EPCF contract will be awarded without resorting to an open competitive bidding process since the same would be in conflict with GoP's obligations under the co-operation agreement.

The Petroleum Ministry has sought approval of following proposals: (i) approve the initialled Government to Government Co-operation Agreement between the Government of Pakistan and Iran for construction of Iran-Pakistan Gas Pipeline Project (Pakistan segment) against financing facility up to $250 million by Iran (with the possibility of enhancing upto $500 million); (ii) issuance of sovereign guarantee by GoP for the financing arrangement; (iii) earmarking of cess under the Gas Infrastructure Development Cess Act, 2011 for provision of balance financing ($1.0 billion-estimated) for the project guaranteed by Pakistan side under the Government to Government Co-operation Agreement; and (iv) authorise Inter State Gas Systems (Pvt) Ltd to execute the EPCF contract with the Tadbir Energy Gostar Iranian Co as Lead, along with sub-contractor pursuant to the aforesaid Government to Government Co-operation Agreement without resorting to open competitive bidding process and other requirements of the Public Procurement Laws.

Copyright Business Recorder, 2013