PSM tech audit contract: Ministry to seek waiver on PPRA rules

The Ministry of Production has decided to seek waiver from PPRA Rules 2004 to award technical audit contract of Pakistan Steel Mills (PSM) amounting to $0.15 million (Rs 135 million) without withholding tax to Russian state-owned firm VO Tyazpromexport, sources told Business Recorder.
Tyazpromexport is the original designer and manufacturer of Pakistan Steel, which expressed interest in technical audit of the politically controlled financially undisciplined entity. Giving the background, sources said the matter of expansion of Pakistan Steel's production capacity came up for discussion during the visit of President of Pakistan to Russia (11 - 13 May 2011). The concerned officials of the visiting Pakistani delegation held a meeting with the Russian state-owned firm, VO Tyazhpromexport, on the issue.
A record of discussions held between the two sides was prepared wherein it was noted that technical audit of the plant would be carried out by VO Tyazhpromexport for the Pakistan Steel's expansion up to 1.5 million tons per year (mtpy).
The basic concept of Pakistan Steel's expansion is in two phases, as follows: (i) rehabilitation of existing facilities and expansion up to 1.5 mtpy, at an estimated price of $500 million in three years; and (ii) expansion of the plant up to 3.0 mtpy, estimated price and time schedule of which will be considered after technical audit.
In the first phase, technical audit of the plant will be conducted after which techno-commercial offer will be submitted, in addition to consideration of offer by competent authorities for valuation and approval of cost of the project.
Sources said that technical audit was necessary to identify the requirements for restoration of the existing production capacity of 1.1 mtpy and also the need for new equipment addition or upgradation of the existing facilities for expansion up to 1.5 mtpy. Besides, it would also identify the extent of funding required for the project, which was to be provided by the Russian government.
"Pakistani side pointed out that the cost of technical audit should be included in the price of future contract for expansion up to 1.5 mtpy," sources said. However, subsequently, Pakistan Steel received a draft of contract from VO Tyazhpromexport for carrying out technical audit of the plant for restoration of the existing facilities and expansion of the production capacity up to 1.5 mtpy with prognosis of expansion up to 3.0 mtpy. Pakistan Steel apprised its Board of Directors (BoD) about the matter in the meeting held on October 15, 2011.
The Board deliberated the matter and directed following actions, to proceed further: (i) constitution of a committee comprising Chairman (Board Audit and Finance Committee), Additional Secretary (Ministry of Production) and A/CEO (Pakistan Steel) to negotiate the terms and conditions of technical audit contract with Tyazhpromexport; and (ii) get waiver of application of PPRA Rules-2004 to award the contract to the Russian state-owned firm, Tyazhpromexport, being original designer and manufacturer of Pakistan Steel, after endorsement of Expansion Committee constituted by the Government.
As a follow-up to the directive of the Board, a meeting of the board negotiation committee was held in Islamabad on November 18, 2011. The committee negotiated the terms of technical audit contract with the local representative of VO Tyazhpromexport ,and finally a price of $0.15 million exclusive of withholding tax was agreed for the work. The issue of waiver of PPRA Rules-2004 for awarding the contract to VO Tyazhpromexport was also discussed.
The board negotiation committee was of the view that the board was competent to award the technical audit contract to the Russian state-owned firm, being original designer/manufacturer of Pakistan Steel. The committee further opined that as the job related to the expansion would be charged to that head and being part of the job to be undertaken in the future on the basis of agreement between the two governments, hence the same should not strictly adhere to the need of PPRA Rules, being part of the project, and does not fall in the constituency of procuring services for the existing PSM requirement. Moreover, progress of the same is exclusive and in insulation of the procurements for the present PSM plant.
Sources said that CDWP in its meeting on October 21, 2011 unanimously decided that PSM's production capacity should be enhanced up to 1.5 mtpy. They added that in PSM's Board of Directors meeting on January 12, 2012 ACEO, Pakistan Steel, briefed about the details of progress so far in respect of negotiation of terms and conditions for the contract of technical audit by VO Tyazpromexport and the contract price of $0.15 million exclusive of withholding tax which was agreed during the negotiations.
ACEO also apprised the Board regarding the views of the Committee for award of technical audit contract and binding of PPRA Rules. The Board decided that exemption from PPRA Rules should be sought from the ECC to award the contract to the original designer without competition.