Fear of litigation, penalties and Public Procurement Regulatory Authority's (PPRA) rules have reportedly encouraged the Oil and Gas Development Company Limited (OGDC) to award Uch-II gas project to Khan Research Laboratories (KRL), without going through the tendering process. KRL falls under the Strategic Plans Division.
The Economic Co-ordination Committee (ECC) of the Cabinet in its meeting on June 30, 2011 accorded no objection certificate to the Ministry of Petroleum and Natural Resources for award of Uch-II development project to be undertaken by the KRL. Official documents, available with Business Recorder, show that OGDC Company Secretary Eram Ali Aziz in a letter to the General Manager (SCM) and other concerned officials communicated the following decisions of the Board taken on April 27, 2011:
(i) OGDC may annul the entire bidding process altogether which OGDC has a right to do under the terms and conditions of invitation to bid documents;
(ii) get the Uch-II development work done through strategic partners such as KRL, Nescom etc;
(iii) the total cost of the project should not exceed the lowest bid price of $188 million;
(iv) the Board advised management to get confirmation in writing from PPRA that Uch-II bidding could be annulled without assigning any reason and that in the case of extreme urgency contract could be negotiated with any entity without going through the bidding process;
(v) the board advised management that the contract should be executed with the strategic partner or their officially designated subsidiary/associate; and;
(vi) the Board advised management to state their reasons for annulling the bidding process and awarding the contract to a strategic partner, ready and available for any future reference.
According to the documents, the ECC in its meeting on November 5, 2004 allocated additional gas from Uch gas field to Private Power Infrastructure Board (PPIB) for setting up power project as the gas had low btu ie 540 per standard cubic feet. PPIB, accordingly awarded power project to Uch II Power Limited, with advice to OGDC to negotiate the Gas Sale Agreement (GSA) with the party.
In pursuance of the government's directives, a GSA has accordingly been signed between OGDC and Uch-II Power Limited in January 2011 for supply of 160 mmcfd additional gas, which in turn will produce 404 MW of electricity. OGDC is obligated to supply gas to Uch-II Power Limited by September 2013. In case OGDC fails to supply gas by the targeted date then OGDC will be exposed to penalties and vice versa.
Sponsors of Uch-II Power have committed an international investment of around $400 million for this project and achieved financial close. In order to engage EPCC contractor for development of the Uch gas field, OGDC advertised the project in the national and international press.
Four firms submitted their bids. Technical evaluation was completed on January 06, 2011. PDIL, Petrosin and SPEC were technically qualified, based on the face value of documents submitted by the parties. The financial bids of these parties were opened on 26th January 2011 and simultaneously in-depth scrutiny of papers was also undertaken through a committee that reported contractual problems among the bidders' consortium, non-authentication of their past experience/documents submitted with bids, and higher price than budgetary estimates by PDIL.
The documents further disclosed that the OGDC, being a public listed company, presented the case in the Board of Directors' meeting held on April 27, 2011 for decision. Various options were discussed and it was decided to annul the entire bidding process altogether for some reason and get the Uch-II development work done through strategic organisation/partner such as KRL, Nescom, etc, without violating Public Procurement Rules Authority (PPRA) rules. The Board further advised that total cost of the project should not exceed the lowest bid price of $188 million.
OGDC sought the advice of PPRA and it confirmed that rule 33 of the PPRA rules 2004 allows the procuring agencies to reject all bids at any time prior to acceptance of a bid and Rule 42(d) (iii) provides the procuring agencies to invoke negotiated tendering in cases where for reasons of extreme urgency brought about by events unforeseeable by the procuring agency, the time limits laid down for open and limited bidding methods cannot be met.
Thus, due to extreme urgency of the project to promptly address energy needs, without which the entire economy of the country is being badly affected, law and order problems especially in Balochistan and the fact that OGDC would be exposed to huge penalties for non-supply of gas, OGDC annulled the bidding process on May 6, 2011 in line with the decision of the BoD and keeping in view PPRA's guidance.
The re-tendering of the case is a lengthy procedure and would have taken considerable time to award the EPCC contract and OGDC would not have been able to meet the required target time for supply of gas as per GSA which would have ultimately resulted in huge penalties for default.
Furthermore, the security situation in Balochistan was deteriorating and a number of security related incidents had recently occurred in the area. Strategic organisations such as KRL are better placed and equipped to timely construct the project as compared to private contractors besides providing transparency.
On the recommendation of OGDC, the Ministry of Petroleum and Natural Resources also approached DG Strategic Plans Division to undertake Uch-II project being of national importance and time bound project to overcome the energy crises in the country. Upon OGDC's request, KRL has submitted Technical and Financial proposal on May 19, 2011 which is under review by OGDC professionals.
Prime Minister, being head of National Command Authority, desired to place the matter before the ECC before finalising arrangements. The Ministry of Petroleum says that such projects are carried out by E&P companies as their regular business under their rules being self-financed public limited company, operating under their own Boards of Directors. The decision of OGDC is supported on the following grounds:
a. The GoP as well as OGDC can not afford delay of the project because of reasons already narrated above. OGDC's many projects are already under litigation causing huge loss to the country and award of this project to a private party will open up a Pandora's Box of litigation and project would be delayed for unlimited time period depriving the country of the much needed energy.
The Standing Committee on Petroleum had also recommended in its meeting dated 7th April 2011 that this strategy be followed so as to avoid litigation, ensure transparency and timely completion of the project.
b. In case OGDC is unable to complete the project within stipulated time period as per GSA, then it would trigger penalties which may go up to US $44 million, depending upon delay. c. Re-bidding is also not an option because it will delay the project.
d. Khan Research Laboratories (KRL), being a strategic organisation, has relevant experience and manpower with own security arrangements and will facilitate early completion of the project with full transparency. KRL has agreed to undertake the project by matching the lowest bid and fast track its completion within 18 months.
The Ministry of Petroleum supported the decision of OGDC to complete Uch II field development through strategic organisation ie KRL for its early completion at a cost of $188 million (with upper cap equal to the lowest price submitted in the bidding process). The price can be further reduced during detailed engineering, the documents said.
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