Awarding contract to highest bidder: PSO begins probe into $3mn loss scandal
ISLAMABAD: The Pakistan State Oil (PSO) has initiated an inquiry against 'a gang', within the organisation, accused of causing about $ 3 million (Rs 258 million) loss to the national exchequer by awarding Base Oil tender to the highest, as opposed to the lowest, bidder.
Minister for Petroleum and Natural Resources Dr Asim Hussain has also directed the Chairman of PSO to investigate the scandal and take stern action against the culprits. Transparency International Pakistan (TIP) had approached the National Accountability Bureau (NAB) to move against the real wrongdoers.
"I have received three complaints against the award of tender. PSO's legal department has commenced an inquiry to bring the culprits to justice," said Sohail Wajahat Siddiqui in a telephonic conversation with Business Recorder.
Official documents show that PSO floated a tender for Base Oil/imp/11-01, invited by Manager, Supply-Import for the supply of Base oil SN150 & SN500, Group II which had to be submitted on October 10, 2011 and the offer validity was for 5 days.
The tender bids were opened on October 10, 2011. Total six bids were received. One bid was without pay-order, and on the objection of the bidders the bid was rejected. So, only five bids were accepted by the department which fulfilled all requirements.
The Manager Supply-Import on October 24, 2011, said that the contract was awarded to the agent company Formosa, the highest bidder. He said that out of six bids only three bids were considered to be technically qualified by the department. All the qualified bidders were to supply Formosa product and out of those three qualified bids two failed to produce a guarantee letter from manufacturer (Formosa). Only one qualified bidder produced the letter and claimed to be the agent of the manufacturer. That was the highest bidder. In the tender there is no provision to provide a letter from the manufacturer.
"If the lowest three bidders abided by the terms and conditions including of submission of bid bond then why were they rejected on the pretext to provide a manufacturer's letter is a question being investigated by the legal department of PSO," commented an official.
The award of contract clearly proves some mala fide intent and by awarding to the highest bidder a difference in price of more than $800 per ton would imply a cumulative loss of 3 million dollars to the national exchequer.
According to sources, interesting aspect of this scam is that the Letter of Credit (L/C) was established in the name of the manufacturer or the local agent's principal who offered the bid, instead of USA company, namely ICC Chemical Corporation.
Investigators are raising questions as to how the letter of credit was established in the name of this USA company when it never participated in the tender. Questions are also being raised about the need to request the bidders for a letter from the manufacturer when the L/C did not go to the manufacturer.
As per API Base oil specifications (i) grade SN150 & SN500 belong to Group I and; (ii) grade 150N & 500N belong to Group II.
The API specification of Group I is totally different from Group II, and no addendum was issued for this correction. This kind of ambiguity was created intentionally to misguide the bidders which is against the PPRA rules. Besides, it is contended that the officials of PSO were unaware of what they were tendering and what they were procuring as they had no technical know-how and only indulged in malpractices.
Surprisingly, the department invited tender for Grade SN150 & SN500 group II and approved the contractor for 150N & 500N group II. This is also against the PPRA rules.
Formosa produces Grade 150N & 500N which belongs to Group II. It does not produce SN150 & SN500 of Group II. This leaves serious concerns.
The lowest bidder H H Trading House has requested the Minister to immediately order the cancellation of letter of award, contract, LC, etc and conduct a transparent scrutiny of the tender bids.
Manager Supply -Imports, Zia Mohiddin, in his letter, has confirmed that six bids were received; of which only three were technically qualified, but these three were also without supporting documents of 'product origin/sourcing letters'. As all three qualified bidders had offered the same manufacturer's product, they were asked to furnish back-to-back commitment letters from the source/manufacturer to support their bid.
According to him, only one bidder furnished back-to-back letter/proof from the principals, as well as the manufacturer. The manufacturer's letter stated that they had offered their products to only one trader/supplier for the PSO tender. Accordingly, the contract was awarded.
Meanwhile, TIP had written a letter to the Chairman of PSO, copies of which were sent to the Chairman of NAB and Registrar of Supreme Court, requesting them to look into the matter and to take appropriate action under the law.