World Bank and Asian Development Bank (ADB) have reportedly refused to accord price preference up to 25 percent to domestic engineering industry despite the Government of Pakistan''s repeated request, well-informed sources told Business Recorder.
The sources said that a petition had been filed in the Ministry of Water and Power by some leading local manufacturers underscoring concerns over non-compliance to the provision of SRO No. 827 by DISCOs/PEPCO in international tenders especially being financed by the international donor agencies. Giving the background, sources said on December 3, 2001, Ministry of Commerce issued an SRO No. 827 (1)2001 regarding "Import of Engineering Goods (Control) Order, 2011," (F/B) making it mandatory upon the Government and Pubic Sector Agencies to accord price preference up to 25% to the local manufacturers of engineering goods when comparing the price quoted for items of foreign origin. Since, 15% price preference is being accorded to the domestic manufacturers by the procurement agencies in case of international tenders funded by donor agencies, the local manufacturers argue that provision of SRO No.827 be followed in all international tenders either being financed from indigenous resources or donor funding.
Following requests have been made:- (i) accord 25 percent price preference to local manufacturers instead of 15 percent; (ii) during evaluation, compare the FOB prices of the foreign bidders (after loading with local custom duties and other incident charges borne by the purchaser) with that of the Ex-Work (EXW) price of the local bidder; and (iii) rationalize the payment clauses to make payment to foreign supplier after receipt of material at warehouses of the purchaser and after issuance of Good Receipt Notes (GRN).
The sources said international tenders being financed by the donor agencies are floated as per the agreed procurement guidelines which are harmonized in case of major donors/IFIs. Moreover, the PPRA Rules clause 5 underlines that the guidelines of donor agencies get preference over all local rules and procedures (F/C); therefore, the provisions of the said SRO stand superseded under this policy. However, the local bidders are raising the issue time and again and approaching the courts for relief.
Three writ petitions against the tender notices issued by PEPCO/DISCOs for procurement of engineering goods are pending in Lahore High Court and one in Islamabad High Court and hampering the process of procurement for the projects being funded by ADB/World Bank.
According to sources this may have serious implications for our future economic cooperation; the PPRA has clarified that as far as the issue of first right of refusal is concerned, this Authority has no objection. However, Rule-40 of the Public Procurements "at the best negotiated prices" unless that procurement fall in the categories mentioned under RuIe-42(c) or (d) of the Public Procurement Rules, 2004 ie direct contracting or negotiated tendering. It would be in accordance with reference to context that if the bidder is asked to match the prices of the lowest evaluated bidder the term "Price Preference" vanishes in its true meaning.
In accordance with sub-clause (2) of clause 4-A of SRO No.827(1)/2001 dated 03-12-2001, landed cost of imported goods (Inclusive of all taxes/levies) shall be compared with "Final Price" of locally made goods (Inclusive of taxes/charges) as quoted by the local bidders. Further, restricting "price preference" to a maximum of 15% by the donor agencies in funded projects, needs to be reviewed and the local engineering industries (bidder) be allowed price preference strictly in accordance with SRO No.827 (1)/2001 ie to the extent of 15% to 25% depending on the quantum of value addition during the process of manufacturing as also provided to them in non-funded projects.
In order to discuss the recommendations submitted by the subcommittee, a meeting was convened by the Finance Division under the Chairmanship of AFS (EF) wherein it was decided during the meeting that the sub-committee be entrusted to carry out analysis as to how developed countries provide support to local manufacturers in International and local competitive bidding process.
Thereafter, the sub-committee held a second round of deliberation and came up with a second report. Various aspects of SRO 827 (i)/2007 were reviewed by the sub-committee and subsequently following recommendations were made: (i) guidelines of donor agencies take preference over all local rules and procedures as far as funded projects are concerned; (ii) price preference of 15% allowed to local supplier of engineering goods against funded projects is sufficient if during evaluation comparison of prices of local goods and imported ones is done on equal footing. The GoP through EAD may take up this matter with donor agencies for considering the matter of price preference of 15 % allowed to local suppliers of engineering goods; and (iii) the GoP may separately take up the issue of allowing price preference to the extent of 25% to local industry (based on the quantum of value addition as given in SRO 827 (1)/2001) in donors funded projects.
As recommendations of the sub-committee are required to be submitted to the Lahore High Court, Economic Affairs Division requested Finance Division to convene a meeting of the main committee to resolve the outstanding issues in the implementation of the said SRO with the donors. It is likely to inhibit competitive spirit in the local vendors/ manufacturers thus discouraging value addition and refinement in the absence of fair competition/undue concession to local manufacturers. On the other hand, it is perceived that the SRO is an incentive to local manufacturers for import substitution, indigenization and self reliance. The matter, therefore, needs to be resolved in consultation with all stakeholders.
In view of the above, the Finance Minister constituted a Committee under the Chairmanship of the Secretary, Finance Division to examine the implications of implementation of the SRO No.827(1)2001 dated 23rd December,2001 regarding "Implications of Engineering Goods (Control Order, 2001 and to make recommendations within 45 days.
Afterwards, a subcommittee was constituted, by the committee, to be headed by General Manager (Tariff), Engineering Development Board (EDB) to give recommendations with regard to amendments to the SRO to make it in line with other existing laws.
World Bank has opined that the contents of the SRO.827(1)/2001 go beyond the stipulations of the domestic preference procedures provided in the Bank''s Procurement Guidelines. All the Bank funded projects are required to follow the Bank''s procurement guidelines, and it would not be possible to consider applications of the contexts/conditions of the said SRO in the Bank funded procurements. World Bank informed that its guidelines for international tenders are very much clear and equally applicable to all the member countries. Further, percentage of 15% is uniformly admissible to local industries of all the member countries.
Asian Development Bank (ADB) has also narrated that the only form of preference permitted under ADB''s Procurement Guidelines is the Domestic Preference Scheme which require bids for goods to be invited and evaluated on the basis of Cost, Insurance, Freight (CIF) or Carriage, Insurance Paid to (Named point of destination) as descried in INCOTERMS. Domestically produced goods with a local value added component of at least 30% qualify for a preference of 15% when being compared to imported goods. The guidelines are a Board approved policy which they cannot deviate from without Board''s approval. Without such a change in policy, the ADB would be unable to agree to mechanisms described in SRO No.827 (1)/2001 in procurement financed in whole or in part by it.