Non-compliance of procurement law: TI Pakistan serves notice on PSO to withdraw from MoU

Transparency International Pakistan has served a 30-day notice on Pakistan State Oil (PSO) to withdraw from the MoU signed on April 14, 2010 for implementation of the 'Integrity Pact' under clause No 11, as PSO was not complying with the requirements of Public Procurement Regulatory Authority (PPRA) Ordinance 2002, and Public Procurement Rules 2004.
Unless PSO complies fully with PPRA Ordinance and Rules, makes all its decisions on merit and establish transparency and accountability in all its dealings, TI Pakistan will withdraw from the implementation of 'Integrity Pact' from September 15, 2010.
Syed Adil Gilani, Chairman of Transparency International Pakistan, in a letter sent to Irfan H Qureshi, Managing Director, PSO, on August 16 has informed him about TI Pakistan's decision. Copies of the letter have been forwarded for "appropriate action" under the laws of Pakistan to: Chairman of Public Accounts Committee, and Auditor-General of Pakistan, Registrar of Supreme Court of Pakistan, Managing Director of PPRA, and all members of PSO Board of Management.
Gilani told Business Recorder here on Monday that TI Pakistan is constrained to take this extreme step as PSO is blatantly pursuing illegal actions in the award of contracts. He particularly mentioned the award of contract for security to a new company, reportedly owned by a member of PSO board. "This act, if proved to be true, may be tried under Rule 2 (f), "corrupt and fraudulent practices" and Rule 7 of Integrity Pact, where a recovery for collusive practice of 10 times the loss, ie Rs 400 million can be made from the contractor.
Other reasons cited in the letter for the withdrawal from MoU are as follows:
-- According to the MoU, PSO is supposed to establish transparency and accountability in all its dealings. On the contrary, PSO insists upon continuing with the 7 years old (illegal) Agreement with Infineum; that, too, on questionable basis.
-- PSO is giving incorrect/misleading statements about the sole distributorship aspect, as TI Pakistan had informed PSO that Infineum, in violation of the Agreement, has been selling its products to others (trader and non-IAC entity) in Pakistan.
-- It is after reporting of the complaint to PSO, by TI Pakistan, that PS0 has taken up the matter of Lub Tech (a trader) with Infineum.
-- Also, it is a wrong statement that Mobil Askari Ltd is a joint venture between Exxon Mobil and Army Welfare Trust (AWT, and therefore is an IAC.
The fact is that AWT has acquired l00 percent shares of the company from Exxon Mobil in 2007/2008 and manufactures its own brand of lubricants, independent of Mobil. AWT is a distributor of (a few selected/imported) Mobil lubricants, which does not give AWT the status of an IAC.
- PSO claims that prior to 2008, it was obliged to conduct business with Paramins/Infineum due to its collaboration with Castrol UK. This is not true. Castrol provided approved (multiple) formulations to PSO for their various brands, based on major additives suppliers' technology. Castrol did not impose Infineum (or any other additives supplier) on PS0. It was PS0's decision to choose the additives suppliers and, more often than not, Paramins/Infineum was awarded business due to the unfair advantage made available to them by PS0, through the Agreement in question.
-- PSO's stance that the steering committee, which comprises of members from both PSO and Infineum, regularly monitors the prices of products and mutually decides upon the best way forward to further the Lube trade and distribution network of the Company, makes no sense.
The committee's main function is to compare the prices offered by Infineum to PSO, with the prices offered to IACs in Pakistan, and to the Asia Pacific region, so as to ensure that PSO is not being overcharged. PSO has proved to confirm from documents that this was ever established by the committee. PSO has continued to evade the issue.
2 - PPRA Rules, notifications and regulations issued in 2002 stipulate that following five information about all procurements are mandatory to be made available on the procurement agencies website as well as on the PPRA website also, but PSO is consistently violating these requirements for last many years.
(i) Evaluation Results (ii) Public Contracts of Works (iii) Services & Goods worth Rs 50 million or more (iv) Procurement planning, procurement reports and (v) Procurement notice. PSO has again violated by not providing set of' prequalification document which shall include: Evaluation criteria, while inviting Expression of Interest for supply of' used vegetable oil, published on August 15, 2010. PSO has also awarded contract for security to a new security company, reported to be owned by a PSO Board Member, without any tendering, in violation of PPRA Ordinance 2002, and on1y the first contract has increase of Rs 48 million from the ongoing contract in May 2010 of Rs, 72 million (new contract 1st phase Rs 121 million). This act, if proved to be true, may be tried under Rule 2 (f), "corrupt and fraudulent practices" and rule 7 integrity pact, where a recovery for collusive practice of 10 times the loss, ie Rs 400 million can be made from contractor.
3 - According to the National Accountability Ordinance 1999, Article 33 B, PS0 is to furnish NAB copies of all executed contract agreements of over Rs 50 million, and NAB Contract Evaluation Form of such contracts. Since 2002 PS0 has failed to comply this NAB requirement for the best reason known to PSO, which is against the law, and is a serious crime. NAB law is that "all ministries, divisions attached departments of the federal government, all departments of provincial and local governments, statutory corporations or authorities established by the federal government or provincial governments and holders of public office shall furnish to NAB a copy of any contract, entered of the minimum monetary value of Rs 50 million or more, within such time as is reasonably practicable from the date of signing such contract."
4- PSO has failed to even consider and select officers on merit, and has appointed political recommendies. Only two cases are enough to prove PSO's biased selection criteria. Appointment of Mrs Shumail Shah, with no experience of training or development, but as she is sister of Naveed Qamar, Minister for Petroleum, as Deputy General Training & Organisational Development.
Selecting Lieutenant Cdr Shahab Shah, a serving Naval Officer, ADC to the President, as Deputy General Manager, PSO, which PSO could not consider, except when the application is sent by the Ministry of Defence to PSO. TI Pakistan had said in the letter that government servants are bound, under ESTACODE, and PSO clarification is a failed effort to avoid the TI Pakistan point, but statement is issued that ESTACODE is not applicable on PSO, which is not what TI Pakistan has said. Exact words from TI Pakistan letter are "Under the ESTACODE, a government employee can not apply for another service, public sector or private sector directly."
TI Pakistan also feels uneasy on the reports of award by PSO of a contact to an Israeli-based firm, Turpak-Orpak, despite the government's ban on any kind of trade or agreement with an Israeli entity, and the public statement of PSO on May 27, 2010 that the management remains committed to values of transparency and good corporate governance as is evident from the agreement with Transparency International Pakistan to help Pakistan State Oil ensure compliance with standard operating procedures, whereas the facts are that PSO is not following the laws and rules in spite of being pointed out many violations and irregularities by TI Pakistan.
Under Article II of the MoU, TI Pakistan has given 30 days' notice to PSO that unless PSO complies fully with PPRA Ordinance and Rules, makes all its decisions on merit and establishes transparency and accountability in all its dealings, TI Pakistan will withdraw from the MoU for the implementation of Integrity Pact w.e.f. September 15, 2010.