Procurement of used vessels: PNSC unlikely to get permission as PPRA opposes proposal

ISLAMABAD: The Pakistan National Shipping Corporation (PNSC) is unlikely to get permission to procure second-hand vessels as Public Procurement Regulatory Authority (PPRA) has opposed the proposal, saying that it could not be justified in terms of the value for money, well informed sources told Business Recorder.

The PNSC, in a letter of February 02, 2023 sought permission of the Authority for the procurement of second-hand vessels, crafts, ships, and associated equipment / machinery through negotiated tendering under Rule 42(d)xii) of PP Rules, 2004.

Sharing the details, sources said the Ministry of Maritime Affairs (MoMA), in a letter dated August 26, 2022, sought clarification of the Authority regarding invocation of Rule 42 on their recent procurement of two second-hand ships. The ministry referred to a tripartite meeting held on May 05, wherein the Authority suggested the PNSC to invoke Rule 42 to undertake such procurements under direct contracting /negotiated tendering provided the underlying condition(s) of the said Rule are truly met. The Authority in its response of October 14, 2022 clarified that procurement of second-hand goods are not specified anywhere in the Procurement Regulatory Framework. Moreover, negotiated tendering due to extreme urgency as specified under Rule 42(d)(iii) is not applicable in this case as procurement of ships is a planned activity.

On February 2, the PNSC apprised that since 2002, they are providing sea transportation for crude oil being imported into Pakistan from the Arabian Gulf and therefore hold strategic importance in terms of Pakistan’s national and energy security. ln order to cater to the said requirements, PNSC has been purchasing second-hand vessels due to low initial investment involved if compared with the price of new vessels and immediate return of investment as second-hand vessels could be put on service immediately upon procurement whereas new ship construction takes about two to three years. These procurements are carried out in accordance with SOPs devised by the PNSC which include publishing broad parameters of the ship in the print and electronic media for inviting offers from the owners through Baltic Exchange enlisted brokers. The PNSC highlighted that its procurement process is transparent and such second-hand vessels bring value for money which can be ascertained from the profits generated by the Corporation during the last two decades. PNSC has forecast regular induction/replacement of three to four ships annually to replace its ageing fleet and to meet the country’s economic and national interest.

According to PPRA, Rule 42(d) (ii) is an alternate method of procurement whereby a procuring Agency may engage in negotiated tendering due to technical or artistic reasons or the reasons connected with protection of exclusive rights or intellectual property. The proposed procurement of vessels neither involve technical solutions which are non-obvious for others nor patentable inventions having unique technical solution(s) for the shipping industry. Therefore, the said Rule is not applicable in the proposed procurement.

The PPRA further argues that shipping is one of the sensitive industries which requires periodic assessment and ageing management of the fleet. Regarding procurement of used vessels and equipment/machinery, the PNSC should consider that quality is priority and safety is the overriding priority as per provisions of the International Maritime Organisation (IMO). Each ship has its own maintenance manual having well defined maintenance schedule incorporating the provisions of proactive and preventive maintenance. Therefore, before purchasing such used ships, there is a need to explore their maintenance history.

The PPRA further stated that principles of procurement enshrined under Rule 4 required that the object of procurement brings value for money to the procuring agency. Value for money enables the procuring agency to obtain optimal benefits in terms of quality, timeliness, reliability, after sales service, upgradeability, price, source, and the combination of whole life cost and quality to meet its requirements. The used ships are likely to suffer from wide-scale damage including corrosion and multiple fatigue cracks and their repair /mitigation may prove to be uneconomical during the life span. Moreover, mechanical equipment on the used ships loses efficiency due to continuous operation which may either require expensive overhauling or replacement.

Furthermore, second-hand ships beyond certain age lack after sale service as well as upgrade ability to the latest technology. Keeping in view the above, procurement of second-hand ships could not be justified in terms of the value for money.

Copyright Business Recorder, 2023