Tender mishandling costs govt dearly

Due to mishandling of a tender and non-fulfilment of financial commitment by the World Bank (WB), the government is being forced to inject from its own funds $194 million into a 335 megawatt gas-fired combined cycle power project in Siddhirganj.
The Electricity Generation Company of Bangladesh (Egcb) is set to sign an agreement with Spanish Isolux and Korean Samsung joint venture today.
The joint venture is locally represented by Science and ICT Minister Syed Abul Hossain's family company Sahco.
In re-tender for the project, the Egcb in August last year picked the lone joint venture bidder -- Isolux-Samsung-- for the job.
The joint venture offered to build the plant at cost of $ 341m. Together with other components which include a long term servicing of the plant, the project cost now stands at a staggering $529 m.
But the project was originally approved in 2009 with a $ 269 m budget including a WB fund of 196m.
In late 2010, before the re-tender was floated, the WB had promised to increase its funding by another $220 m. But despite repeated requests, it has not agreed to provide the extra fund till date.
Now, the authorities have worked again on the project's finance and found that it needed $194 m in foreign currency to have the project implemented by Isolux-Samsung.
The project would have been implemented as per the original estimate by now had the authorities not made a controversial selection in the first tender floated in 2009. In response to that tender, the Egcb had received four offers ranging from $177m to $270m.
When the tender was floated, the WB gave a condition that it would not approve bids of any bidder using Siemens equipment against which it (WB) was investigating corruption charges. Despite knowing this condition, the Egcb selected Chinese bidder Sinohydro that proposed to use Siemens equipment. Sinohydro was represented in that tender by Sahco.
This led to disagreements with the WB, and the Egcb was forced to go for a re-tender in late 2010.
Fund crunch
On December 23, 2010, two Spanish companies--Isolux with Samsung and Cobra -- submitted bids for the project. Cobra made an offer $40 m lower than Isolux's 341m, but it was disqualified on grounds of an “incomplete” offer.
On the other hand, Isolux-Samsung fell short in the experience criterion of the bid. The terms demanded the bidders have the experience of setting up a plant of no less than 300 MW capacity. But the joint venture's highest experience is building a 280 MW plant.
The Egcb at first disqualified it and then changed its decision saying that the project needed to be implemented urgently. Disqualifying the joint venture would lead to re-tender for project, it said.
With none to compete, Isolux-Samsung's offer was selected and the authorities asked the WB to increase its financing to cover the extra cost sought by the offer.
In August last year, the Egcb secured the WB's conditional clearance for the selection. But the bank said nothing about enhancing its financial support.
In February, the power ministry wrote to the Planning Commission explaining the financial deficit of the project, stating that the $194 million has to be collected from other donors or paid from the government fund. It mentioned that since it would take a long time to secure the money from donors, the Planning Commission may consider arranging fund from the government to save time, and approve the revised project proposal.
In April, the Executive Committee of National Economic Council (Ecnec) approved the revised proposal with the option of arranging the $194 m either from the government or any donor or from government to government loan.
Egcb chief Mostafa Kamal explained that the government had no option but to implement the power project to address the power crisis. “The World Bank has not shut the door. It just has not said anything about it yet. We want to proceed with the project,” he said when contacted.
He dismissed that the Egcb itself will provide the $194 million. “We don't have that money. Egcb has just started earning money from February.”
Kamal pointed out that the project cost is reasonable. “The per-megawatt cost stands around $1 m, which is not high. They are using a costly latest generator which will be very much gas efficient. It will generate 218 MW power using 50 million cubic feet per day (mmcfd) gas, and its heat will be used to produce the remaining 117 MW power,” he said.
Criticism & Sahco
Many officials and industry operators are surprised at the hefty additional financial arrangement by the government when it is keeping many fuel-based power plants shut to save money. Fund crunch is also compelling the government to delay payment to many rental power companies for power purchase.
To push through the power projects amid fund crisis, the government even opted for asking the bidders to arrange the finance, and received good response to several big power tenders.
Usually, in cases of big price difference, the government goes for re-tender.
In mid-2009, Petrobangla cancelled a $141 million tender for installing three gas compressors arguing that it did not have more than $50 m for the project. Back then, the government did not move to arrange additional funding for this vital project to improve gas supply pressure in the country. Cancellation of the tender was however bitterly criticised.
Sources are now saying that in case of Siddhirganj, things are different because of Sahco.
The WB last year suspended its loans for the Padma bridge project pointing fingers at then communications minister Abul Hossain and others, and alleging that Sahco was seeking bribes from bidders. The allegation against the minister led to his removal from the communications ministry.
Sahco is involved in representing the winning bidders in two other power projects -- a 150 MW project in Sirajganj and a 150 MW one in Khulna. Each of these tender processes faced various allegations against the winning bidders.
Besides, a 300 MW power project in Ghorashal was cancelled after three rounds of tenders because procedural anomalies in selecting the winning bidder represented by Sahco.
Abul Hossain defends Sahco
When The Daily Star asked Syed Abul Hossain whether he has influenced the government to provide the $194 million for the project, the science and ICT minister said he has no involvement in business as he resigned from his company Sahco in January 2009.
Advising this correspondent to talk to the chairman and managing director of Sahco about the matter, the minister wanted to know why he was asked about anything concerning Sahco or its business activities.
He said, “There are many qualified persons in Sahco who can speak on the issue. I'm a minister and I have no involvement in business.”
Abul Hossain claimed Sahco is the top most power generation company in the country since 1975, and it could get involved in any power project on its own merit.
He said generally the lowest bidder gets a job after scrutiny by different government agencies, and there were no irregularities in this case.