ISLAMABAD: The auditor general of Pakistan (AGP) has found irregularities worth hundreds of billions of rupees in the award of various road projects by the National Highway Authority (NHA), including certain projects initiated under the China-Pakistan Economic Corridor (CPEC).

The report on NHA’s accounts for the audit year 2016-17 found 52 cases, involving an amount of around Rs470 billion, where irregular award of contracts, violations of Public Procurement Regulatory Authority (PPRA) rules and unauthorised expenditures were observed.

In 102 cases, auditors pointed out weakness in internal controls that led to irregularities/losses to the tune of around Rs120bn. The audit report also points out seven cases of poor performance, including mismanagement, placing an undue burden on the national exchequer and inefficient utilisation, which caused a Rs7bn dent in the national kitty.

One of the main NHA projects mentioned in the report was the Rs148bn engineering, procurement and construction of a 230km section of the Karachi-Lahore Motorway between Lahore and Abdul Hakeem. The work was awarded to a joint venture (JV) of China Railway 20 Bureau Corporation (CR20G) and Zahid Khan & Brothers (ZKB) on Dec 8, 2015.

Contracts for sections of Karachi-Lahore motorway, roads leading to new Islamabad airport awarded in violation of rules

The audit observed that the whole project was tendered in one package. “Very tight condition of experience for pre-qualification reduced the quantum of response,” the audit noted, explaining that no Pakistani firm could win tenders in its individual capacity. “Had the project [been] divided into multi[ple] packages, it would have resulted in more healthy competition,” the auditors opined.

According to the report, a joint venture of ZKB and the China Gezhouba Group Company was disqualified in the pre-qualification process. However, ZKB was allowed to form another JV with CR20G at the bidding stage, in violation of PPRA rules. At the time of bidding, the lowest bidder also did not provide the mandatory bid security of Rs500 million, and consequently, the bid was supposed to be declared “non-responsive”. However, the audit noted that this was not done by the NHA.

Later, the JV reduced their bid from Rs159.784bn to Rs148.654bn following negotiations between the NHA and the contractor, another violation of PPRA rules, the report said. “It is evident that the work was awarded irregularly. The issue has also been highlighted by Transparency International... had the work been retendered, and in packages, it would have been awarded on much lesser rates,” the report said.

The report also pointed out that downward trends in the prices of bitumen and high-speed diesel post-2014 were not factored in. “This is evident from the unsolicited bid of Frontier Works Organisation (FWO) dated Sept 30, 2016 of Rs 132.6 billion for the project which was not accepted by NHA being against PPRA rules.”

The audit noted that FWO rates were always inclusive of 15 per cent overhead charges and 7pc income tax, making FWO’s actual bid at around Rs121.992bn, lower than the actual Rs148.654bn bid by CR20G-ZKB.

The auditors also found something fishy in the award of a Rs294.352bn contract for the Sukkur-Multan section of the motorway, awarded to the China State Construction Engineering Corporation (CSCEC). The project, whose cost was estimated by CSCEC at Rs 240.158bn was awarded to the same firm at higher rates, the report said, adding that the rates quoted by CSCEC were “very much on the higher side” as compared to the PC-1 rates offered by the same contractor.

The report also highlighted irregularities in the “calling of tenders and award of work without administrative approval” for the construction of a road from Thalian on M2 Motorway to New Islamabad International Airport.

The Rs1.918bn contract that had remained “under process” since Dec 2011 was awarded to Habib Construction Services in Nov 2015 after approval by the Executive Committee of National Economic Council (Ecnec). The audit observed that the procurement process was initiated when the PC-1 was under process, but the lowest bid was accepted after the project was retroactively approved by Ecnec.

The auditors also found that a project involving the construction of a main link road for the New Islamabad International Airport was awarded to the National Logistics Cell, even though it fell under a concession agreement on the M2 Motorway that had already been awarded to the FWO.

Published in Dawn, October 17th, 2017