February 06, 2007	Tuesday	Muharram 16, 1428

ISLAMABAD, Feb 5: The Pakistan Steel Mills Corporation (PSMC) has awarded a $23 million (Rs1.4bn) contract to Ukrainian company Concord Industrial Project Ltd for carrying out "critical repairs" at the mills.

Dawn learnt on Monday that the Letter of Award for the repair of Coke Oven Batteries No. 1 and 2 was issued two weeks ago, on January 25.

According to the letter, technical and commercial offers for the job were opened separately on May 17 and August 10 last year and discussions with the successful bidder were held from January 12 to 19 this year.

People in the know claim they smell a rat in the award. The difference between the price of award and the apparent reserve price is huge, they say.

They explain that the earnest money demanded from the bidders was Rs8 million. Considering that the earnest money is two per cent of the reserve price, this price works out to be Rs400 million.

However, the tender has been awarded for Rs1.4 billion which is 3.5 times the apparent reserve price.

"What could be the rationale behind the award of works at such an apparently exorbitant price, particularly in view of the extensive repair works carried out on the Coke Oven and By-product Plant Complex (COBP) recently by Pakistan Steel itself under the supervision of Russian experts,” a source asked.

Another relevant fact is that the competition in the bidding was poor as only two parties quoted for the works.

Sources said that 49 oven of battery No. 1 and 26 oven of battery No. 2 have been repaired by Central Maintenance Department (CMD) and 10 ovens of battery No 2 are under repair and balance 13 ovens material had already been purchased. From this it is apparent that most of repair work has already been completed by Pakistan Steel itself and that material for the remaining ovens had already been procured.

A meeting was held under the chairmanship of Secretary Industries and Production in 2002 in Expert Advisory Cell on the affairs of Pakistan Steel. During this meeting the management of PSMC informed the Secretary that COBP plant will be repaired in-house.

“Why is PS going back on its word when most of the repair work of COBP has been completed and what could be the justification for award of the repair work to an outside party, particularly, at such an excessive price,” another source said.

This is even higher than the budgetary price submitted by M/s Tyzpromexport (TPE), Russia. In February 2003, during the visit of President of Pakistan to Moscow, an MoU was signed to enhance the production capacity of the plant up to 1.5 million tons per year.

This was the hallmark of this visit. A number of a bilateral follow up visits were made. The COBP repair was made the part of this MoU. In January 2004 on the basis of readiness of documents and technical viability, PS and TPE agreed to chronology of priority of works, which included the repair of COBP, and agreed to sign the formal contract on 15 January 2004.

Unfortunately, sources said the contract was not signed. The death of the then PS Chairman PS Lt Col (Retd) Muhammad Afzal Khan, on Dec 30 2003, turned out to be a huge setback to the ongoing process of implementation of MoU. However, in April 2004, the Russian company M/s TPE submitted the budgetary price of $164 million to enhance the annual production capacity of the plant up to 1.5 million tons.

The Russians submitted their budgetary price of $4.049 million (included in the total price) for the repair of COBP in April 2004, which is much lower than the price of $23 million in the letter of award -No.CON/M/Batteries/COBP/625/2007/127, dated 25-1-2007. This price of the present award is 5.75 times approximately the budgetary price of the TPE.

Sources said instead of signing the contract pertaining to the MoU, a number of visits were undertaken to Russia, China, Austria, Poland and Ukraine, which proved wasteful and non-productive. Further, valuable time was squandered chasing ‘Record Production’ at the cost of the maintenance of the plant.

The COBP comprises four major units which includes Coal Handling Plant, Coke Oven Batteries, By-products recovery Plant and Coke Dry Quenching Plant, Coke Wet Quenching Plant and Bio-Chemical treatment Plant.

On February 1, 2005 Central Development Working Party (CDWP) approved the PC-1, related to the MoU. Following which, PS again asked TPE for their recommendation and price proposal to enhance the production capacity up to 1.5 million tons. TPE submitted their new and enhanced budgetary price of $200 million including the revamping cost of COBP of $8 million (Rs480 million approximately). The present exorbitant price of Rs1,400 million is 2.92 times this price.

In fact, besides the excessive price, there are several other anomalies in the present letter of award. The clause of functional performance guarantee, which, as per tender documents, was 15 years is missing in the letter of award, sources said.

The time of completion of this work has been stated as 22 months reckoned from the date of signing of the contract/agreement. The Performance Bank Guarantee (PBG), from one of the approved scheduled banks, equal to 10 per cent of the contract value has been stated for only the completion period plus 24 months Defect/Maintenance Liability period after the issuance of operational acceptance certificate by the engineer. The period of satisfactory functional performance should have been 15 years and not completion plus 24 months.