The Oil and Gas Development Company Limited (OGDC) has reportedly violated 33 items in procurement of 12 drilling rigs, worth $6.405 million (Rs 520.534 million) from GEFCO, USA in 2008.
Official documents available with Business Recorder show that as per article-10 of contract of June 16, 2008, executed between OGDC (purchaser) and GEFCO (George E Failing Company), USA, (seller) for procurement of rigs, the purchaser's authorised representative had the right to inspect and/or test the goods during manufacturing at works or at point of delivery to confirm their conformity with the contract specification.
The seller had to serve a notice to the purchaser regarding readiness of the goods for inspection 30 days in advance indicating the place of inspection, and if the purchaser or his authorised representative was not available for inspection the manufacturing works would conduct the final inspection and issue quality certificate. If the inspected or tested goods do not conform to the contract specification the purchaser would reject them and the seller would either replace the rejected goods or make all alterations necessary to meet specification requirement.
According to documents, OGDC procured 12 drilling rigs, worth $6.405 million from GEFCO, USA, vide purchase order of June 3, 2008. The rigs were received at Karachi sea port on June 9, 2009 without pre-shipment inspection by third-party inspector despite notices/reminders served by the supplier on OGDC on March 9, 12 and 25, 2009. However, the supplier issued a quality certificate and effected shipment inspection report dated October 8, 2009. The buyer pointed out deviation in 33 items against tender specification.
All discrepancies were reported to GEFCO, USA through local agent on November 10 and 17, 2009 but the same were not removed. The supplier went to the court of Senior Civil Judge, Islamabad, against the post-inspection carried out by the third-party inspector in February 2010 which resulted in blockage of $6.405 million (Rs 520.534 million).
In addition, the rigs arrived at Karachi sea port on June 19, 2009 whereas the supplier presented shipping documents very late, which caused demurrage-charges-of Rs 379,405 from June 2l, 2009 to June 27, 2009. The matter was pointed out to the management on March 20, 2010 and to the Ministry on November 30, 2010. In reply of January 6, 2011 the management stated that the issue of demurrage charges had been taken up with the supplier. The reply was evasive and no comments were furnished on procurement of rigs other than the approved specification.
DAC in its meeting held on January 10, 2011 directed the management to submit a fresh response to each sub-para to audit within seven days. OGDC, in its reply claimed that all procurement tenders whether international or national are advertised in the national press through PID and also placed on OGDC website in conformity with PPRA Rules Clause-l2. In response to the subject tender notice, nine (09) international companies submitted their bids. These bids were evaluated on merit and finally GEFCO, USA, qualified, being technically responsive and financially the lowest bidder. PPRA Rules have been fully complied and, therefore, the procurement of drilling rigs at $6.405 million should not be treated as irregular.
OGDC, however, acknowledged that pre-shipment inspection could not be carried out due to co-ordination problem with third-party inspectors. However, manufacturer provided pre-delivery test log/quality certificate of rigs. Third-party post-shipment inspection was completed at KBS Karachi and certain deviations were reported in the specifications of supplied material. These were communicated to GEFCO for immediate remedial measures.
GEFCO agreed to address the deviations relating to mud pump and spare parts and to remove the general concerns of quality of welding etc at the time of commissioning. However, it clarified on technical grounds that rigs are with superior specifications and have been designed to meet the highest quality standards.
OGDC further stated that the international engine of vehicle has 250 HP instead of 200 HP, thereby exceeding the requirement of contract and hence increase in GVW should not have any impact on the functionality of the rigs. They further warranted that length of mast is compatible and has been designed to bear the load of overhead components of the rig and will not cause any problem in its manoeuvrability.
In the meanwhile, OGDC tried to encash PBG (Performance Bank Guarantee) against which GEFCO got stay order and filed a petition in the Civil Court, Islamabad. The rigs were parked and kept idle in Karachi. Therefore, various meetings with GEFCO were held to resolve the issue and they subsequently proposed a commercial solution with a copy of draft MoU.
OGDC technical professionals re-evaluated the equipment in the light of justifications provided by GEFCO and, after critical analysis, supported the viewpoint of the manufacturer. OGDC also claimed that its management constituted a high level committee to settle the dispute in the best interest of company. The committee deliberated on technical, financial and legal aspects and concluded a MoU with GEFCO on the following conditions: (i) GEFCO shall withdraw the civil suit filed against OGDC; (ii) GEFCO shall make payment of $60,000 as compensation; (iii) GEFCO shall maintain an amount of $262,800 for the purpose of establishing a PBG for a period of 12 months from the date of completion of commissioning of rigs; (iv) GEFCO will certify and warrant that the supplied spare parts are the actual spare parts practically usable in the supplied equipment; (v) GEFCO will issue a warranty in respect of supplied equipment for a period of 18 months, instead of 12 months, from the date of completion of commissioning; and (vii) GEFCO will provide training to two additional OGDC professionals.
Documents further suggest that soon after signing the MoU, GEFCO fulfilled all conditions as agreed and the settlement rigs were commissioned and OGDC professionals were trained from 4-1-2011 to 3-2-2011 by GEFCO engineer through drilling of deep holes in the hard formations. During commissioning activities it became evident, based on the technical aspects, that these rigs were of superior quality and suitable to meet the operational requirements of seismic surveys.
Thereafter, these rigs have been tested for acquisition of 2D seismic data in Gurgalot E.L area falling in Dist Kohat, Khyber Pakhtoon Khawa (KP). The reports from field clearly show that performance of GEFCO rigs is outstanding and no problem has been observed on their manoeuvrability during working in the most difficult hilly terrain. With the availability of these rigs, OGDC has committed to undertake mega 3D seismic data acquisition project, falling in Nashpa Mela area of Kohat district.
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