Non-opening of L/C against sugar contract: national exchequer incurred Rs 1.369 billion loss: AGP report

The Auditor General of Pakistan Report 2010-11 has revealed that the exchequer faced a loss of Rs 1.369 billion due to non-opening of Letter of Credit (L/C) against a sugar contract. According to the audit report, Trading Corporation of Pakistan (TCP) opened a tender on May 29, 2010 for import of 200,000 M/Ton sugar.
As many as seven bidders participated in the bidding. The report says that M/s Simzain International Karachi, the local agent of M/s Yunan Coal Chemical, China submitted the lowest bid of $558 per M/Ton on Cost and Freight basis for supply of 100,000 M/Ton sugar.
The management issued a Letter of Acceptance to Simzain International on May 31, 2010 requiring them to furnish Performance Bank Guarantee (PBG) equivalent to 2 percent of the contracted quantity as per clause 12 (a) of the Term and Conditions. The entire quantity of 100,000 M/Ton was required to be shipped within 10 weeks from the date of opening of L/C.
The audit report says that the supplier submitted PBG on June 3, 2010 of the required amount, which was to expire on August 31, 2010. However, TCP did not open the L/C, required to be opened within five days from the receipt of PBG, on the grounds that the firm could not arrange the shipment in the previous tender. Due to non-opening of L/C, the supplier could not supply sugar of 100,000 M/Ton at the rate of $558 per M/Ton and the management purchased 250,000 M/Tons sugar from another supplier at the rate of $724.95 per M/Ton through a tender dated June 21, 2010.
The report maintained that to make good a previous lapse on the part of the supplier, TCP procured sugar at a much higher rate by causing a loss which could not offset the saving done by encashing PBG of the lowest bid. Due to non-opening of L/C within stipulated time a loss of $16.695 million equivalent to Rs 1.369 billion was incurred.
The matter was reported to the management on November 4, 2010 and November 22, 2010. The audit suggested fixing of responsibility on the person(s) at fault. The report says that the matter was discussed in the DAC meeting held on December 15, 2010. The audit contended that despite the lowest offer, M/s. Yunan were not allowed to perform merely on the ground that they will not perform - a supposition and not based on facts. Moreover, nothing in the tender documents barred the lowest bidder to be awarded the contract. The DAC directed the management to provide a revised reply to the audit along with documentary evidences, ie copies of all letters written by TCP to the ministry, copy of letter written by supplier to TCP regarding final validity of their offer and copies of the ECC decision, etc.
The management in compliance with the DAC directives submitted a revised reply along with supporting documents stating that the same supplier had been offered through a letter dated December 29, 2010 for opening L/C. They added that the L/C was to be opened in January 2011 upon acceptance of the offer by the supplier. However, the progress was awaited till finalisation of this report.