TUESDAY DECEMBER 30: LNG terminal, pipeline project: contract allowed without meeting key requirement

ISLAMABAD: Economic Co-ordination Committee (ECC) of the Cabinet has allowed Inter State Gas Systems (ISGS), a subsidiary of Ministry of Petroleum and Natural Resources (MoP&NR), to award EPC contract of Gwadar-Nawabshah LNG terminal and pipeline project to China Petroleum Pipeline Bureau (CPP) without engaging in an open competitive bidding process.
However, Ministry of Petroleum and Natural Resources has been directed to seek federal cabinet's nod on this issue.
Official documents available with Business Recorder reveal that the ECC of the Cabinet on October 10, 2014 approved, in principle, Gwadar-Nawabshah LNG Terminal & Pipeline Project and authorised ISGS to execute implementation of the project. The ECC also directed the Ministry of Petroleum & Natural Resources to finalise funding plan, preferably on a Government to Government (G to G) arrangement or a BOT basis.
The project would be executed in two phases. Through phase-I, pipeline system from Gwadar to Nawabshah would be constructed alongwith an FSRU-based LNG Re-gasification facility to be established at Gwadar port. The quantity of Re-gasified Natural Gas (RLNG) could be in the range of 500 MMSCFD. Through phase-II, pipeline system would be constructed from Gwadar to the Pak-Iran border.
In pursuance of the ECC decision, MoP&NR contacted the Government of China which nominated China Petroleum Pipeline Bureau (CPP), a wholly owned subsidiary company of China National Petroleum Corporation (CNPC), to undertake the project implementation. CPP has the experience of building more than 80,000km pipeline within China and more than 20,000km outside China. Accordingly, CNPC invited the Minister for Petroleum and Natural Resources to visit China for further deliberations.
According to documents, during the visit of Prime Minister of Pakistan Nawaz Sharif to China on 7-8th November 2014, MoP&NR and CNPC signed protocol minutes of the meeting to seal the understanding arrived at between the two governments.
As per the protocol, CPP and ISGS would be exclusively engaged to negotiate the ECP contract and implement the project. The project would be treated as Government to Government, and CPP would arrange financing through a China soft loan under Government to Government arrangement.
The Government of China has indicated that it would arrange up to 85% of the required funds through a soft/concessionary loan facility against the provision of a sovereign guarantee to be issued by the Ministry of Finance. The Government of Pakistan would arrange a 15% down payment in order to utilise the Chinese soft loan facility. Detailed terms and conditions would be specified in the contract.
Both sides have also agreed to form a Joint Working Committee (JWC) comprising CPP and ISGS to bring the project into contract negotiation stage in the shortest possible period and target finalisation within six months. It was also agreed to conduct contract negotiation, an on-site field survey and apply financing package in parallel. The tenure of the protocol would be 5 years.
In accordance with the requirements of the PPRA Ordinance, 2002 read with the PPRA Rules 2004, procurement of goods or services by the government can only be undertaken through competitive bidding process. Rule 5 of the Public Procurement Rules, 2004, however, provides that "whenever these rules are in conflict with an obligation or commitment of the Federal Government arising out of an international treaty or an agreement with a State or States or any international financial institution the provisions of such international treaty or agreement shall prevail to the extent of such conflict".
Petroleum Ministry is of the view that in order to invoke rule-5 of the Public Procurement Rules, 2004, the procedure has been enshrined under Regulation 3 of the Public Procurement Regulations, 2011 which states that "whenever a sponsoring Ministry/Division was of the view that prospective procurements were required to be made by invoking Rule-5 of the Public Procurement Rules, 2004, it shall bring a case to the ECC after undertaking due consultations with the stakeholder Ministries/Divisions/Departments etc as prescribed in the Rules of Business, 1973. The ECC shall consider such case(s) and authorise, or otherwise the sponsoring Ministry/Division whether or not to proceed in terms of Rule-5 of the Public Procurement Rules, 2004".
The MoP&NR submitted the following proposals for approval of the ECC of the Cabinet: (i) protocol minutes of the meeting between MoP&NR and CNPC of China of November 8 2014; (ii) ISGS was authorised, in pursuance of Rule-5 of the Public Procurement Rules, 2004, to award EPC Contract after successful negotiations with CNPC/CPP of China alongwith other ancillary agreement(s) without resorting to open competitive bidding process enshrined under the Public Procurement laws; and (iii) issuance of a sovereign guarantee by GoP against the soft/concessionary loan facility being provided by China and arrangement for a 15% of down payment in order to utilise the Chinese Government's finance plan. After detailed discussions, the ECC approved, in principle, the proposal subject to the approval of the "protocol minutes of the meeting between the Ministry of Petroleum and Natural Resources and China National Petroleum Corporation (CNPC) of November 8, 2014" by the Cabinet.