The award of contract by PIA for the procurement of five Boeing 777-300 ERs at dollars 1.5 billion on unsolicited proposals and discriminatory conditions in the tender for procurement of 39 narrow body aircraft has assumed serious proportions.
Smelling 'rat' in the deal, Transparency International Pakistan on February 27 wrote a letter addressed to the Defence Minister, Government of Pakistan, Chaudhry Ahmed Mukhtar and Chairman, President and Chief Executive Officer of Boeing Company, W. James McNerney, Jr. stressing that the act of violation of Public Procurement Regulatory Authority (PPRA) Ordinance 2002 and Public Procurement Rules (PPR) 2007 by Boeing Company be examined by the United States Government under the US Foreign Corrupt Practices Act 1977.
TI Pakistan Adviser Syed Adil Gilani in the letter regretted that while PIA was not responding to the three letters written earlier in this regard, conflicting statements issued by PIA have come to the knowledge of Transparency International Pakistan.
He pointed out that on PPRA's denial that it had vetted PIA's deal, PIA spokesman came out with the clarification that the decision to select Boeing 777 family was taken in 2002. PIA operates a fleet of nine 777 aircraft and it shall be disposing of five aged Boeing 747 and 12 Airbus 310 aircraft very soon. It needs replacement of capacity shortfall of Boeing 747 and Airbus 310 on the long haul and that additional aircraft are also required to meet growing capacity requirements of future. The approved fleet plan, therefore, envisages induction of seven additional wide body aircraft of Boeing 777 family up to 2020.
Contesting PIA statement, TI Pakistan said that PPRA Article 42 provide for "Alternate Methods of Procurements", and clause (a) sub-clause ii & iii, elaborate these exceptions as under: Direct Contracting: A procuring agency shall only engage in direct contracting if the following conditions exist, namely: (ii) Only one manufacturer or supplier exists for the required procurement.
Adil Gilani said PIA sought clarification from PPRA on December 13, 2011 and PPRA replied on December 20, 2011 that for invoking rule 42 (c) any one of the conditions listed there under, from (i) to (vii), is required to be met. After receiving the clarification, PIA decided to conclude agreement with Boeing through "Direct Contracting". The agreement was inked on February 14, and not on February 21, as mentioned.
TI Pakistan also referred to PIA Managing Director Nadeem Khan Yousufzai's statement before the Senate Defence Committee that it would purchase aircraft from Boeing without government of Pakistan's guarantee. "Actual price is dollars 190 million but due to our good past reputation, the company will provide us at dollars 150 million and termed it a good deal."
He said the PIA would purchase five Boeing 777-300 ERs by third and fourth quarter of 2013. TI Pakistan has laid down following points which are needed to be clarified by PIA and Boeing Company: A- In case the reason/logic of PIA to buy Boeing 777-300 ER under Rule 42 (c) direct contracting, is accepted by the Ministry of Health, then as PIA has an old stock of eight Boeing 777, and change of supplier would oblige the PIA to acquire material having different technical specifications or characteristics and would result in incompatibility or disproportionate technical difficulties in operation and maintenance, why did PIA invited tenders for 39 narrow body aircraft on December 4, 2011 to phase out its aged B-737 aircraft, to select the narrow body aircraft.
B- Why PIA in the tenders invited on December 4, 2011 for 39 narrow body aircraft, provided a condition favoring only Boeing. "PIA shall prefer those bids that have Trade-Off option of six PIA Boeing 737-300 aircraft, three each against deliveries in third and fourth quarter of 2012".
These discriminatory and difficult tendered conditions are in violation of PPRA Rule 32. And why PIA discriminated between APU VendorHoneywell used by Boeing in all aircraft, and Airbus in less than 50 percent aircrafts were awarded 10 marks and Hamilton awarded 5 marks (used only by Air Bus). This is violation of PPRA Rule No 10 which states that specifications shall be generic and shall not include references to brand names, model numbers, catalogue numbers or similar classifications.
TI Pakistan is of the view that such violations were deliberately kept in the tender documents, so that no bidder shall participate, and then PIA will again use Rule No 42 (a) for procurement of 39 aircrafts from Boeing on the direct contracting basis.
C- If PIA logic for the use of Rule No 42 (c) is accepted by the Ministry of Defence (which has already reportedly been rejected by PPRA), it will set precedent for PIA to buy all its procurements from the manufacturers who have supplied previously, and they all will become "proprietary suppliers", which runs in hundreds, viz. toiletries and food stuff etc. This policy may also be adopted by others, and Pakistan Railways may also procure railway engines, OGDC drilling rigs/generators/compressors, KPT dredger & barges, PQA/KPT/GPA pilot boats and tugs, Wapda power plants and electric meters, PSO petrol dispensing units, NBP, PB, KB, SB ATM machines, irrigation and agriculture departments earth moving equipment like bulldozers, graders, front end loaders, Air Force war planes, Military tanks, Navy submarines and frigates, RPP by Pepco, pipes/plants by SSGC and SNGC, ships and oil tankers by PNSC and tens of other procuring agencies, at secret prices, and this will open a flood gate of secret procurements. In other words it will open floodgate of corruption.
D- Pakistan Peoples Party had filed a complaint in the National Accountability Bureau in 2004 on a similar case of selling eight Boeing 777 aircrafts to PIA in 2003, which is still pending and according to President's Special spokesman Farhatullah Baber will be taken up at appropriate time. The respondents in the case are: General Hamid Nawaz, Secretary Defence, Government of Pakistan, Chaudhry Ahmad Saeed, Managing Director, Pakistan International Airlines Corporation, Air Vice Marshal (Retd) Niaz Hussain, Deputy Managing Director PIAC and others.
NAB Chairman is called upon to initiate investigation in connection with the matters set out herein above and further proceed to file a reference against respondents for violating the provisions of Section 9 of the ordinance punishable under Section 10 of the ordinance in competent court of law and proceed against those concerned for violating Section 9 of the ordinance. "Senator Babar had said we have also filed a reference with NAB against PIA to reinforce our view that we do not endorse the one sided Government version". Unfortunately at that time Public Procurement Rules 2004 were not enacted, as they were notified on June 9, 2004.
E- According to Federal Defence Minister, Chaudhry Ahmad Mukhtar, each aircraft is dollars 150 million cheaper in price than Boeing old aircraft, and according to Managing Director Nadeem Khan Yousufzai the actual price of Boeing 777-300ER is dollars 190 million but due to PIA's good past reputation, the company will provide at dollars 150 million and termed it a good deal. This means that in 2002 PIA had paid dollars 300 million for each Boeing 777-300?
TI Pakistan in its letter requested the Minister to direct PIA to provide copies of the evaluation report and the contract agreements of five Boeing 777-300ER of 2012 and 2003 procurements of eight Boeing 777 to Transparency International Pakistan, under Rule 48 and Article 19-A of the constitution.
TI Pakistan further said that according to Rule 50, this procurement is deemed to be treated as mis-procurement, and requires action to be taken against officials of PIA and Boeing Company under Rule 2(f): "Corrupt & fraudulent practices", for collusive practice. This act of violation of PPRA Ordinance 2002 and Public Procurement Rules 2004 by Boeing Company is also to be examined by the US government under the US Foreign Corrupt Practices Act of 1977.
In the end Gilani reiterated that Transparency International Pakistan is striving for implementation of Rule of Law in Pakistan. Copies of the letter have been forwarded for information and action under the law to the following: Chairman Public Accounts Committee, Islamabad, US Ambassador, Islamabad, Chairman, NAB, Islamabad, Registrar, Supreme Court of Pakistan, Islamabad, MD, PPRA, Islamabad, MD, PIA, Karachi, and Denis J. McInerney, Chief, Fraud Section FCPA.Fraud@usdoj.gov.