ISLAMABAD: The Oil and Gas Development Company Limited (OGDCL) has issued a letter of intent (LoI) to Hong Kong HuiHua Global Tech. Ltd. and local company AJ Corporation for the $82 million Uch Front End Compression Facility Project.
The development comes months after the joint venture of Presson Descon Int (Pvt.) Ltd. (PDIL) and Sui Northern Gas Pipelines Ltd. (SNGPL), which was initially awarded the tender for the Uch project, fell apart. The issuance of the LoI to the second bidder — a joint venture between Hong Kong HuiHua Global Tech. Ltd. and AJ Corporation — is significant as the Uch project is scheduled to be completed in the second half of next year and any delays will result in penalties for OGDCL besides hitting its reputation.
This is perhaps why the LoI comes with specific conditions requiring the second bidder to urgently confirm their acceptance of the terms and conditions outlined.
The Uch gas field compression project, which aims to enhance production capacity in the Uch gas field to meet Pakistan’s growing energy needs, has a scheduled completion date of July-September 2024 and operates under a gas sales agreement with a French company that owns the Uch power plant. The OGDCL will be liable to pay a daily penalty of $660,000 to the French company in the event of project delays.
The bidding process for the project has been mired in controversy. Initially, two bidders participated in the bidding process – PDIL in a joint venture with SNGPL, and Hong Kong HuiHua Global Tech. Ltd. in a joint venture with AJ Corporation. Following the tender, reports also emerged that former officials of the OGDCL lobbied not on behalf of either one of the consortiums, but on behalf of the manufacturing company that provides the equipment to these two consortiums. To do this, the bid was manipulated and specific stipulations were added so that only the bidder using equipment from a specific company would remain in the running.
Later on, the OGDCL’s audit department recommended cancelling the tender, raising concerns about tailored criteria that limited competition. Both bidders were found to be sourcing equipment from a single manufacturer, despite other vendors being available in the market.
Despite these concerns, OGDCL decided to proceed with the bidding process. The winner, PDIL and SNGPL’s joint venture, was requested to submit a performance bank guarantee of Rs 267 million, which amounts to 10 percent of the total project cost of $82.3 million. Unfortunately, the joint venture failed to deposit the required performance bank guarantee, leading OGDCL to encash its Rs 267 million bid bond due to non-compliance.
The LoI issued to Hong Kong HuiHua Global Tech. Ltd. and AJ Corporation’s joint venture explicitly states that the document should not be considered an award of the contract or service order. The bidder is informed that no vested legal or contractual rights will be accrued until a valid contract is executed between the parties. The terms and conditions of the tender documents will form the basis for the contract, which will be executed only after obtaining all necessary management and governmental approvals.
As part of the LoI, the bidder is also required to submit a 10 percent performance bond or bank guarantee within 15 days, following the provided format in the tender document. The bid’s validity is expected to remain firm throughout the delivery period specified in the tender documents. Additionally, the bidder must provide a declaration and integrity pact on their letterhead, duly typed, signed, and stamped.
The OGDCL, which is a government functionary, essentially acts as the government of Pakistan’s exploratory agent when it comes to oil and gas.
Located in Dera Murad Jamali in Balochistan, the Uch fields are owned by a French company called Engie. The Uch field is divided into two different phases. The first one is up and running and has been quite successful with 15 dedicated wells. For the second phase, the OGDCL was supposed to develop 15 more wells.
In the grand scheme of things, the Uch compression plant bid could result in serious financial harm if not executed properly. The over $80 million translates to over Rs 23 billion – that is over Rs 2,300 crore in spending money for the OGDCL.
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