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Award of contract for tunnel-boring machines: TI Pakistan for investigation into Rs 7 billion loss




  • Expressing deep concern over the allegation of loss to exchequer of Rs7 billion in the award of contract by Wapda for two tunnel-boring machines (TBMs) for the Neelum-Jhelum project at a cost of over Rs19.5 billion without tendering, Transparency International Pakistan urged the Prime Minister to institute an inquiry against persons involved in this “mis-procurement”. 

    The contract was awarded in violation of Public Procurement Regulatory Authority (PPRA) rules to M/s Herrenknecht of Germany in connivance with M/s Nespak, TI Pakistan said in a letter sent to The Principal Secretary to the Prime Minister on November 5. 

    Adviser, TI Pakistan Syed Adil Gilani said Transparency International Pakistan has received a complaint that no insurance company is ready to provide even $15 million insurance for the two Tunnel Boring machines, imported by Wapda at a cost of Rs19.5 billion, before they could start functioning, as they were not procured by open tendering required under PPRA Rules. 

    The allegations, he said needs to be investigated by the Prime Minister as the project of tunnel boring in which the complaint of alleged corruption of over Rs7 Billion is reported, was inaugurated by the Prime Minister Raja Pervaiz Ashraf, on August 6 on a wrong feedback by Wapda as they have not been operations even after three months. 

    The allegations regarding the corruption in two TBMs case made by the complainant have been listed as under: 

    (1) That the contractors M/s CMEC/CGGC defaulted on the contract and delayed the work on the 32-km main tunnel, which is to divert Neelum waters from Nauseri to Chattar Kalas, and could achieve progress of only 4km but the contractor who does not have the equipment to do tunnel boring, was not penalised for the delay. 

    (2) That according to the terms of contract, due to the failure of contractors to perform, the contract agreement with of CMEC/CGGC JV should have been terminated by Wapda, and work should have been carried out at the risk and cost of M/s CMEC/CGGC . 

    (3) That Wapda, Nespak, the Consultants and M/s CMEC/CGGC colluded by circumventing the PPRA Rules, and instead of recovering 10% liquidated damages of Rs9 billion, provided financial help to M/s CMEC/CGGC, and procured 2 TBMs from M/S Herrenknecht Germany at the cost of Rs19.5 billion. 

    (4) That the tunnel boring machines (TBMs) were not mentioned in the original contract awarded in December 2007 to the Chinese companies Gezhouba Group Company Limited and China Machinery Engineering Corporation, CMEC/CGGC JV. 

    (5) That Wapda on its website had reported that Board of Directors of NJHPC had approved deployment of Tunnel Boring Machine (TBM) for the project on November 11, 2010. Wapda has arranged procurement of TBM from M/S Herrenknecht Germany at a cost of $92 million. 

    (6) That Wapda itself has contradicted its own statement that it has directly purchased two TBMs, by posting of a contradictory information on its website that Board of Directors NJHPC has approved the deployment of Tunnel Boring Machine (TBM) for the project on November 23, 2010 and the contractor has arranged procurement of two TBMs from M/S Herrenknecht Germany. 

    (7) That international consultant never recommended the use of the tunnel boring machines for the Neelum Jhelum hydropower project at any stage. 

    (8) That the Chinese company has refused to operate the high tech tunnel boring machines (TBMs) unless the insurance cover of $15 million is arranged by Wapda, as they have refused to accept the responsibility of performance of the TBMs . 

    (9) That no insurance company is ready to the insurance of two TBMs as these were not procured in accordance with PPRA Rules. 

    (10) That due to the corruption and incompetence of Wapda, cost of project has now increased by four times from Rs84 billion (as per first PC-I) to Rs321 billion in 2012. 

    (11) That Wapda in connivance with M/s Nespak who are official consultants of the project, (Wapda Chairman is a Director of Nespak) , awarded the negotiated contract to M/S Herrenknecht Germany at a cost of $184 Million. 

    (12) That the cost of the boring machines is not more than $110 million, and $74 millions have been taken as kickback. 

    Adil Gilani said that these allegations are very serious, as Lieutenant General (Retd) Mohammad Zubair, chief executive of Neelum-Jhelum Hydropower project himself has stated publicly that the Chinese company which is responsible for completing the project has refused to operate the high tech tunnel boring machines (TBM) unless the insurance cover of $15 million is arranged. “Now we are trying from pillar to post to get the insurance cover of $15 million so that the two TBMs could be operated soon.” 

    He wondered why Wapda bought TBMs, as “nowhere in the world, a procuring agency bought TBMs and then asked a contractor to use it. And no contractor in the world will agree to operate clients supplied TBM and also take responsibility of its failure, damages”. 

    According to Public Procurement Rules 2004, open bidding should have been conducted, and according to the PPRA Regulations 2008, all insurances for performance of the equipment, risk of damages etc is contractors/suppliers responsibility. 

    Insurance of works and contractor’s equipment, requires that the contractor shall, without limiting his or the employer’s obligations and responsibilities under clause 20, insure: (a) the works, together with materials and plant for incorporation therein, to the full replacement cost (the term “cost” in this context shall include profit), (b) an additional sum of 15 per cent of such replacement cost, or as may be specified in Part II of these conditions, to cover any additional costs of and incidental to the rectification of loss or damage including professional fees and the cost of demolishing and removing any part of the works and of removing debris of whatsoever nature. 

    Had this procurement been processed under the PPRA Rules, issue of insurance and guarantees would have never occurred, and Wapda would also have saved over payment Rs7 Billion. 

    TIP requested the Prime Minister, that if the complaint is true, inquiry is requited to be held on this compliant and also all those held responsible for this alleged mis-procurement shall be made accountable for the alleged loss of Rs7 billion in procurement and further delay in the project, which is causing economic losses of over Rs10 billion per year due to the failure of completing the project which is supposed to supply 969 megawatt of electricity. 

    Copies of the letter have been forward for necessary action to the following: the Chairman of the Public Accounts Committee, Islamabad, Chairman of NAB, Islamabad, Secretary, Water & Power, Islamabad, Registrar of theSupreme Court, Islamabad, the Chairman Wapda and M.D of PPRA, Islamabad. 

    Copyright Business Recorder, 2012

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