Purchase of 75 locomotives: award of contract to Chinese firm evokes controversy

A glaring lack of transparency or fair play perceptibly bordering on infighting, bickering and squabbles among the senior officials of the Railways and the Railways Ministry has led to cause a highly unfortunate situation.
The deal that the ministry has struck with a Chinese firm for the purchase of 75 locomotives has been termed by its competitors-General Electric USA- "unfair" and in violation of procurement rules while the Chinese firm not only contests these charges, it claims that it has been facing unfair delay in the convening of a contract signing ceremony.
Inquiries conducted by Business Recorder show that the Chinese firm did eventually pass the pre-qualification and technical evaluation stages to qualify for financial bid process amid some highly controversial circumstances, or through an overnight change in the composition of the tender committee at a later stage with a view to giving favour to this company as alleged by its competitors.
These inquiries, however, strongly suggest that the Chinese firm, Dongfang Electric Corporation, turned out to be the successful bidder for the Rs 8 billion locomotives purchase mainly on the basis of the price that the Chinese firm quoted for the deal which was not only substantially less than the one quoted by its competitor-General Electric USA-it was even lower than the PC-I estimated cost.
The other main reason, or perhaps the overriding factor, behind the success of the Chinese firm could be the unique importance and significance of the friendship between China and Pakistan, although the company has been carrying a controversial image because of a badly flawed deal that it struck with PR for the supply of over 50 locomotives a few years ago.
Documents available with Business Recorder show that technical proposals were opened on 25-09-2007 and as many as four bidders submitted their proposals. The technical committee consisting of Sher Ayaz Khan Managing Director/Locomotive Works, Behzad Mehmood Chief Mechanical Engineer/Loco and Habib-Ur Rehman Project Director/Loco Rehabilitation, evaluated the proposals two times and recommended the following conclusions for tender committee's consideration:
i) Dallian Rolling Works-China declared unsuitable for 3000HP, suitable or 2000HP with many reservations and 1500HP 5 locos on trial basis.
ii) General Electric-USA fully qualified suitable for all 3 types of locomotives as a package.
Prior to the review of technical evaluation, the remaining two bidders were disqualified. On 29th July 2008, Technical Committee again disqualified Dallian Rolling Works-China for 3000Hp.
Subsequently, however, the ministry issued letter of intent to Dallian Rolling Works-China around 09-06-2008.
The Chinese firm's competitors have alleged that the Tender Committee ignored several tender conditions and opened the financial proposal of Dallian-China which, according to them, is against PPRA guidelines for two envelops tender on package basis.
The competitors have also alleged that Dallian/Chinese diesel engine has not been standardised by PR because the number of monthly failures is on very high side comparing with any other class of locomotives. That is why Pakistan Railways has not yet issued any performance certificate for 69 locomotives (3000HP and 2000HP) procured from China in 2001 because the performance is not up to the mark.
According to them, fuel consumption of Dallian diesel engine is extremely high as compared to General Electric locomotives equipped with Electric Fuel Injection (EFI) that could further reduce the fuel consumption, and that Axle weight of Dallian locomotives for all 3 classes is much higher than required. It will adversely affect the Pakistan Railways track (Technically it's not possible to reduce the axle weight without removal of certain major assemblies and that Pakistan Railways should have declared Dallian proposal as Non Responsive when they failed to extend the offer validity in July 2008.
Later, the Farooq Aziz tender committee was reshuffled overnight and a new committee was formed headed by Asad Saeed as GM M&S, consisting Naim Mailk AGM mechanical, Tariq Yaseen AGM infrastructure.
Although the Railways Secretary Kashif Murtuza has reportedly defended the action on grounds that the reshuffling or transfers were as a matter of routine and in accordance with rules and that the tender committee is the final authority to award the tender and that those sitting on the technical committee are junior to those in the tender committee, the Chinese firm's competitors believe that the tender committee's unanimous decision in favour of Dongfang was in total disregard of Farooq Aziz Committee, PPRA guidelines and tender specifications. The letter of intent (LOI) was issued to Dongfang without prior approval from the PM in the absence of Federal Minister of Railways, according to them.
Not only has the Chinese firm denied these charges quite vehemently, it has also claimed that its contract was never cancelled even for a single time because it fulfilled all the requirements of the international bid.
It says that the contract document for the purchase of 75 Chinese locomotives was prepared in November this year. Each page of this contract had been signed and stamped by representatives of Pakistan Railways and the Chinese company on November 11 while the signing ceremony was to take place on November15, 2008, in the presence of Prime Minister.
The Chinese firm has alleged that the US Embassy officials had exerted pressure on the Railways for the cancellation of the contract with the Chinese in favour of the US bidder.
It further claimed that the Chinese firm had also offered transfer of technology for the PR Locomotive Factory at Risalpur. About 54 locomotives were manufactured at Risalpur in June this year, while an ordinate delay in execution of the project has also halted production work at the factory. The DongFang Electric Corporation had already trained officials of railways working at Risalpur.
The Chinese firm argues that the price of Chinese locomotive is within the price range given in the PC-1 of the project, whereas the price quoted by the US bidder is much higher than the estimated cost.
Comparative figures are given below for each 3000 HP Completely Built Up (CBU) locomotive:
PC-1 estimated cost: US $1.79 million, Chinese locomotive: US $1.41 million, US locomotive: US $2.80 million.
According to it, the price offered by the US firm exceeds PC-1 estimate by 56 percent, while price offered by the Chinese firm is 21 percent lower than PC-1 estimate. As per the Planning Commission rules, the price of the project cannot exceed the PC-1 estimated price by more than 15 percent. In terms of delivery of locomotives, the Chinese bidder has offered delivery time of 11 months while the US firm had given 22 months period for the delivery of locomotives after the finalisation of the contract.
The chief executive of the Chinese company, DongFang Electric Corporation, told Business Recorder that "our contract was not cancelled even a single time because we fulfilled all the requirements of the international bid, and there was a proper procedure for the approval of the bid, he added.
He further claimed that first the Financial Evaluation Committee of the Pakistan Railways approved the prerequisite of the tender, then the Technical Evaluation Committee approved the bid after removal of objections.
It may be mentioned here that during his recent visit to China, Prime Minister Yousuf Raza Gilani had said he wanted to be present at the formal signing ceremony. However, the Federal Minister of Railways, Haji Ghulam Ahmad Bilour, who took charge of his office on November 14, reportedly raised some objections over the contract and delayed the signing ceremony. He did not forward the file to the Prime Minister for the signing ceremony. Safdar Rasheed contributed to this report from Lahore.