The two Inquiry teams of Pakistan State Oil (PSO) on Retail Automation and Zaqsoft-PSO contracts have embarrassed the PSO management before Sub-Committee of National Assembly Standing Committee on Petroleum and Natural Resources as one team levelled corruption charges in the deal whereas the other gave a clean chit to the contractors.
A report of PSO Fact Finding Team submitted to Sub Committee of NA body on Friday prayed for withdrawal of Inquiry Report 2009 prepared by Re-Evaluation Committee chaired by Tarik Akbar Khan that had established a financial loss of Rs 781.4 million to the PSO due to mala fide intentions pertaining to the contract. However, head of Fact Finding Committee Muneer Ismail accepted that the contract had been awarded without advertisement.
Fact Finding Team of PSO headed by Muneer Ismail said "the Fact-Finding Team does not find perception gap in the vision of the PSO personnel and the director general of Retail Automation globally within the Oil industry when the project was conceived".
According to Fact Finding Committee report, timely decision of PSO apparently provided the competitive edge, which resulted in significant tangible and intangible benefits to PSO. The Fact-Finding Team's report identified all the available local and international vendors at that time and their limitations. Equal opportunity was provided to all three available vendors to set up a pilot-project and the work was awarded after the successful demonstration of the pilot-project by Zagsoft.
This Fact-Finding Team saw a deviation from the conventional procurement process. However, it also found that efforts were made to have alternate controls and mitigation in place. Decision-making was done through a management committee and all short-listed vendors were evidently given an opportunity to deploy and execute a pilot-project as a proof of concept.
It was evident from reviewing the ManCom minutes that the whole project was supervised by the ManCom comprising of key functional heads of the company including the MD. Furthermore, due diligence was exercised and all the decisions were taken by the Committee rather than any individual or department.
The Fact-Finding Team finds "Financial Loss to PSO" quantified / assessed at Rs 781 Million to be conceptually incorrect for the following reasons: The total actual outlay of the programme to Zaqsoft including capital and maintenance is Rs 523 million and not Rs 781 million, as stated incorrectly in the Committee's report. This incorrect number includes duplication or overlap of entries ("loss to various favours" Rs 118 million, "investment waste" Rs 108 million, "maintenance cost waste" Rs 43 million.)
The Report does not account for the recovery for the capital outlay through the 'Service Station License Fee' (SSLF) recovery mechanism, where PSO has recovered Rs 84 million from 2005 to 2010 and continues to recover an additional Rs 21 million annually. The Report does not quantify the volume and earning to PSO due to the competitively strong card offering. Over the 8 years, the net earnings on fuel alone have been in the range of Rs 906 million.
Additionally, the analysis does not account for the service charges earned by P50 from its customers through the cards business, generating Rs 632 million. When the above are reconciled for the net effect, the figure is very significantly positive & cannot be characterised as "loss". The Fact-Finding Team finds that prices were abnormally high in parts quoted by Zaqsoft to P50. After the first agreement, these parts' rates were further escalated by 29%. However, this was not raised as a concern in the Committee's report (2009).
To determine the appropriateness / relevance of the maintenance and support costs, the Fact-Finding Team benchmarked the maintenance and service costs of Zaqsoft against other Vendors in related industries. Normally, the price of this type of agreement varies from 10% - 15% (inclusive of the break- down parts' replacement)
It was noted over the 7 years of the 'PSO - Zaqsoft relationship' that the average annual cost of maintenance and service with parts was within 9% - 12% of the total capital outlay. This is at the lower end of other SLA agreements with parts. The 2009 Committee's report incorrectly asserted that the Zaqsoft rate of Rs 240,000/- was higher than Turpak's quotation of Rs 177,000/- as the Committee failed to include the cost of software and Installation in the Turpak quote, which if included, would have raised the figure to Rs 265,849/-.
In the Zaqsoft agreement, the performance- bond equals to 5% of the value of the work order for 150 systems, equivalent to Rs 1.8 Mn. However, clause-49 of the Agreement supersedes its clause-48 that in lieu of performance-bond, Zaqsoft shall allow PSO to retain the 'exclusivity' payment of Rs 2.5 Mn. which PSO had to pay to Zaqsoft, as per the clause-27 of the said agreement.
It may be highlighted that this ultimately resulted in an advantage to PSO due to better 'financial trade-off. According to the Zaqsoft agreement, there were Two (2) types of payments to Zaqsoft. One was for the cost to the pump controller which mainly comprised the hardware cost and the second one being the system maintenance part.
In our review of financial record, no security deposit was deducted from the payment as it was not required under the terms of the agreement which may be on the rationale that the system was available at our sites and the payment is only made once the system is delivered to PS0.
According to the agreement, the second type of payment, ie the payment of maintenance was subject to the deduction of security deposit from the running bills which were returned after completion of the appropriate duration. The Fact-finding Team finds the assertion that no security deposit was deducted partially incorrect.
Clause-45 of the agreement states that the running payments to Zaqsoft will be made during execution of work on submission of bills, depending on the progress and after due verification by the representative engineers from PSO. Based on the above clause; from the review of the payment-history, PSO used to pay 66.66 % of the value of the pump controller to Zaqsoft on the receipt of the system at PSO stores premises after due verification from the respective Engineer. The remaining amount was to be paid after the installation and commissioning of the system at the PSO site, duly verified by the respective engineers/department.
The Fact-Finding Team could not establish a deviation from the agreement with regard to the "part payments". The Fact-Finding Team was unable to find any data supporting mala fide intent viz a vis the retail automation implementation at P50 through Zaqsoft.
There also seems to be a serious disconnect in the logic of the report. For example, there is no rationale or logic as to why a few of the personnel were highlighted therein, while the team working on the renewal agreement made in 2007 has not been made a part of the report.
Besides the lack of evidence to support the aspersions, it may be noted that there is no substantiated case or integrity-related incident that was available to this fact-finding team to support the Committee's report either. The Fact-Finding Team has been able to draw from the e-mail archives of the time, a series of e-mail trails where the team members of the previously constituted team had raised serious dissension to the conclusions drawn in the final report.
As can be noted, 4 (DGM Legal, GM IS, DGM RF, DGM IR) of the 7 members of the initial investigation and Re-Evaluation Committee had raised dissension's. These dissension's seemed to have been ignored or remained unanswered or purposely omitted. On this particular count (personnel and their purported mala fide intents), this Fact-Finding Team finds the previous report deficient and disingenuous.
Comments
Comments are closed.