INDIA: ONGC cracks down on Mumbai ESD

There's no accounting for accountability -- it's an entity endemically alien to those who conduct public service in India. If one were to roll-call the action taken against those responsible for acts of commission and omission that result in huge time and cost overruns in public sector projects, the statistics would be startlingly stark. Coming as a breach from the predictable, in a seemingly extraordinary move, ONGC chairman Subir Raha has given marching orders to the entire brass of the Engineering Services Division (ESD) in Mumbai for apparently messing up the formulation, and subsequent negotiations, of a series of high-value offshore tenders in recent months.

The matter came to a head last week when ONGC's Executive Purchase Committee (EPC), chaired by Raha, took exception to a recommendation by the ESD. The division had opined that a tender for the Uran-Trombay-Jawahardeep Oil Pipeline project -- along with a Sheva South-Jawaharlal Nehru Port Trust segment -- be scrapped. This was ostensibly because it was felt that the offer by a single bidder -- a consortium of Punj Loyd Ltd and Punj Loyd Indonesia -- was 82% higher than the in-house estimate of $67.67 million. The EPC was exercised by the fact that the EDC had "deliberately" pegged the reserve price so low, specially when cost estimates obtained from an international consultant -- Australian firm Worley -- had put the cost of the project at $120 million. The EPC was also upset by the unrealistic tender conditions set by the ESD, resulting in the selection of a lone bidder.

There were three bidders -- including the consortiums of Gammon India Ltd and Muhibbah Petrochemicals SDB , besides Punj -- for the pipeline project, but eventually only one passed the narrow window of the techno-economic evaluation. In an unusual move, the EPC took the portentous step of changing the top decision-makers at the Mumbai ESD on grounds that tender evaluations were getting messed up far too often for comfort. Just in 2004-05 period itself, in three out of four cases, the L-1 price was found to be higher than the reserve price by more than the authorised margin of 15%. The inability of more than one bidder to have qualified in a tender had raised the antennae of the EPC which tracked this phenomenon to the "improper or tight execution schedule" incorporated within the tender. There is also a charge -- though unsubstantiated -- that the technical conditions in a tender were manipulated to suit the requirements of just one or a handful of preferred bidders. The result was that the other bidders were rejected, narrowing the competition when the price bids were opened.

INDIA: ONGC cracks down on Mumbai ESDFor the most part, ONGC would normally avoid a situation in which only a single bidder is selected or in which the quoted price is significantly higher than the reserve price. Under these situations, it becomes difficult to justify an award -- the consequence is a delay in project implementation. There is a vestige of justification, however unconvincing, in defense of the ESD.

There are those who would argue that stringent completion schedules -- and the resultant shrinking of competition -- are often drawn up precisely because of the immense pressure from the top to hasten the commissioning of projects. It's a Catch 22 situation because this tendering process, in turn, throws up the wrong kind of results -- leading to another set of pressures from the apex authority which hold the ground staff responsible, not those who had directed the action from behind the scenes.

The EPC refuses to buy this theory and maintains that the buck has to stop with the ESD and the entire bunch of managers of its Mumbai operations. ONGC has taken the lead and, by all accounts, it's this brand of accountability which counts!

Via: IndianPetro
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