Zero progress in two years
A large power project in Bibiyana made no progress in the last two years, as its contractor failed to secure the project's finance as per its agreement with the Power Development Board (PDB).
A consortium of Japanese trading company Marubeni and Korean power company Hyundai signed the agreement in December 2012, committing to arrange the finance from Japan Bank of International Cooperation (JBIC) within 45 days.
But the consortium couldn't secure the finance as Hyundai wanted to walk out of the deal and Marubeni became a blacklisted company with all Japanese international financing institutions since March this year.
This punishment came after the US Department of Justice in March fined Marubeni $88 million for giving bribes to high-ranking officials in Indonesia to secure a lucrative power project, according to the website of Japan International Cooperation Agency (Jica). The blacklist status will, however, expire in mid-December.
If there was no hitch, this 450-megawatt gas-fired power project would be in full operation from mid-2015 and provide cheap power to the national grid. And the project would cost $342 million.
As the lone bidder, Marubeni won two other Japan-funded large power projects in recent years.
Instead of cancelling the Bibiyana-3 contract and going for a re-tender, the PDB has been allowing Marubeni to kill time till mid-December, sources said.
As part of this exercise, the PDB, in violation of the Public Procurement Regulation (PPR), is seeking government's approval to allow the joint venture to change the consortium's partnership as per a proposal of Marubeni.
The Japanese company said its partner Hyundai no longer wanted to be in this project and that Marubeni itself would take all responsibilities for the project.
“Marubeni's blacklisting has nothing to do with the failure to secure finance for the project,” said Saiful Islam Khan, the project's director from the PDB. “This project is being delayed due to problems within the consortium. The JBIC has always said it was ready to provide the finance.”
While Marubeni never raised the partnership issue with the government until recently, the PDB proceeded slowly with the project and tabled a draft loan agreement with the JBIC late last year, many months after the signing of the power contract.
The JBIC in last May told the PDB that it couldn't sign the loan agreement until the PDB resolved the partnership issue between Marubeni and Hyundai.
In June, the PDB issued the consortium with a contract termination notice. Marubeni in late June replied that it wanted to change the partnership term as Hyundai wanted an exit.
In late October, the PDB through the power ministry sent a proposal to the cabinet purchase committee for allowing Marubeni to become the sole contractor in the project.
The project director noted that there was no legal problem in allowing the consortium to change its partnership configuration after it signed a contract with the government. “It does not conflict with the PPR,” he said.
But Clause-9 of the PPR 2008 says: The composition or the constitution of a joint venture, consortium, or association once formed shall not be allowed to be altered prior to execution of the contract, but alteration at a date later than execution of the contract may be done subject to the prior approval of the head of the procuring entity.
Besides, the consortium bagged the contract on the basis of their combined qualification, and the two companies had committed that “constitution or composition of the consortium shall not be modified, without the prior consent of the Employer, until the conclusion of the contract, which may be eventually awarded to it in consequence of its tender.”
According to the project director, the contract termination notice was just an official formality. “We lacked the experience to deal with bidder's finance. Through this project we found that it took between nine months and a year to finalise the finance. The JBIC is offering the loan with a low interest of 3.28 percent. If we cancel this tender, it would take another two years to seal a deal,” he noted.
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