Transparency International Pakistan and Pakistan State Oil Company Limited (PSO) are involved in a quagmire over violation of Public Procurement Rules 2004, in procurement of additives for lubricants and fuel by PSO, for last many years.
Transparency International-Pakistan Chairman Adil Gilani is not ready to accept the violation of PPRA rules which PSO has committed, and is of the view that "PSO by continuing with the contract with M/s. Infineum, Singapore Pvt Ltd in 2003 is committing mis-procurement under Rule 50 which requires attention of Public Accounts Committee (PAC), Supreme Court of Pakistan, Public Procurement Regulatory Authority (PPRA) and National Accountability Bureau (NAB)".
In reply to PSO's clarification of July 20, sent to PPRA, a copy of which was forwarded to Transparency International-Pakistan for its comments, Gilani has commented exhaustively and raised several questions for PSO to justify.
-- PSO was requested, on May 4, 2010, to provide tendering process of this and all other such contracts. A reminder to the PSO Managing Director was also sent on May 15 but he has not yet clarified its position on these allegations.
-- Though the contract with Infineum was signed prior to June 9, 2004, under the PPR 2004, Rule Nos. 8 & 9, PSO was supposed to annually publish procurement plans and as such this contract should have been terminated after June 9, 2004.
Notwithstanding the illegality of the agreement, how PSO can justify the following, Transparency International-Pakistan asked:
-- Is PSO really the sole distributor? What about LubTech (Pvt) Ltd, which imports and sells Infineum's products in Pakistan?
-- Infineum continues to sell, directly, to a local compny, namely Mobil Askari Ltd, in violation of the agreement. Is this happening with PSO's approval, as required by the agreement?
-- PSO is not entitled to any commission on Infineum's sales to International Account Customers (IACs), which comprise major volume.
-- Under the circumstances, it appears that PSO is neither a sole distributor nor is it entitled to any substantial amount of commission. Rather, it seems to be a case of PSO receiving 3 percent discount from Infineum on products imported, directly, for its own consumption and for a small quantity for re-sale.
-- PSO implies 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 PSO. It was PSO's decision to choose the additives suppliers and, more often then not, Paramins/Infineum was awarded business due to the unfair advantage made available to them by PSO, through the agreement in question.
-- There was no compulsion before or after 2008 for PSO to continue with Infineum, on account of the so-called "bespoke nature of blend technolofies". Various OEM approvals are available with all additives suppliers. Also, they can obtain specific OEM approval, if required. Chevron Oronite is not the only company whose product is approved by Pakistan Railways.
-- It is incorrect to say that some of the additives of Infineum are proprietary and therefore PSO has to use them as per OEM requirements.
-- The fact is that, given an opportunity, other additives suppliers can also offer OEM-approved technology.
-- Infineum's products have been declared "proprietary" by not allowing other additive suppliers the equal opportunity due to the illegal agreement in place.
-- The only mechanism suggested in the agreement to monitor PSO's long-term competitiveness is to form a steering committee. PSO makes no mention as to whether such a steering committee was formed. If yes, did the committee monitor the prices as required? If yes, what were the findings of the committee?
Gilani said that public sector agencies in Pakistan are not performing well due to the fact that merit in selection is ignored, and connected persons are employed. He quoted from Quaid-e-Azam's famous address to the Constituent Assembly on August 11, 1947. "The next thing that strikes me is this. Here again it is the legacy which has been passéd on to us. Along with many other things, good and bad, has arrived this great evil - the evil of nepotism and jobbery. This evil must be crushed relentlessly. I want to make it quite clear that I shall never tolerate any kind of jobbery, nepotism or any influence directly or indirectly brought to bear upon me. Whenever I will find that such a practice is in vogue or is continuing anywhere, low or high, I shall certainly not countenance it."
About the selection of officers' not on merit and against the laid down procedures, Gilani commented only one clarification of PSO about the selection of Naval officer as Deputy General Manager exposed PSO flouting rules.
Under the ESTCODE, a government employee cannot apply for another services, public sector or private sector, directly. An educationist has also been appointed as Manager for training & organisational development and it has also been reported that she is being given promotion within four months' period.
In its letter sent to Public Procurement Regulatory Authority on July 20, PSO had clarified its position as under:
- As per the agreement, PSO is the sole distributor of Infineum's product in Pakistan and this agreement is restricted to provision of lubricants' additives only and not fuel additives as alleged by Transparency International-Pakistan.
- Infineum is a longstanding business partner of PSO and this association dates back to more than three decades of PSO's operations in collaboration with Castrol UK under which, PSO was obliged to conduct business with Exxon Paramins till the year 1997 after which Exxon Mobil and Shell International merged their additive business into Infineum Singapore (Pvt) Ltd. Since then Infineum has been supplying lubricant additives and technology to PSO.
-- After 2008, when PSO-Castrol association ended, PSO had to continue the relationship with Infineum because of the bespoke nature of blend technologies. Please also note that in additive technology, there are very few suppliers in the world and they obtained OEM approvals thereby making the additives proprietary in nature. A case in point is Chevron Oronite, whose additives are approved by Pakistan Railways and enjoy monopoly. The lubricant supplied to PR must be blended using Oronite additives only. In similar ways, some of the additives of Infineum are proprietary and therefore we have to use them as per OEM's requirement.
-- As for the allegation that PSO incurred losses due to this agreement, the fact is that PSO has received $1.5 million as commission alone in addition to most competitive prices from Infineum. Moreover, in order to monitor the same, there is an extensive mechanism in the agreement.
-- This agreement is not limited to supply of additives but Infineum is responsible for experts' trainings, provision of blend technology and the usage of their international laboratories. Infineum is investing huge amounts for getting OEM approvals for PSO lubricants, the cost for obtaining just one OEM approval is more than $1 million.
PSO has also clarified its position on recent appointments, which have been allegedly not processed on merit and laid down procedures. Transparency International-Pakistan has, however, in its comments forwarded to PPRA rejected PSO's clarification and considers that by continuing with the contract with Infineum, PSO is committing mis-procurement under Rule No 50.