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April 11, 2019

All is not well in OGDCL

Top Story

April 11, 2019

ISLAMABAD: Though the oil and gas regulatory authority, Oil and Gas Development Company Ltd (OGDCL), is facing a dozen of cases both in NAB and FIA, but still all is not well in the public sector exploration and production entity as it has in a latest activity allegedly awarded a contract of millions of dollars to a Chinese rig company negating the PPRA rules raising eyebrows of many, reveal the documents and background interviews of the relevant officials.

However, the spokesman of OGDCL Ahmad Hayat Luk, who was sent 7 questions about the alleged wrongdoing in awarding the contract to a Chinese company, while giving the detailed answers of six queries tried to establish that there is nothing wrong doing happened in the contract and PPRA rules are strictly adhered to.

However, inside sources said that some influential top officials have made too much money out of the alleged contract. The story of country’s flagship exploration and production company about the said alleged wrong doing started when it awarded $5,600,000 worth contract to a Chinese company- CNPC (Chuanqinq Drilling Engineering Company Ltd) for hiring of rigs allegedly in breach of PPRA rules.

OGDCL top management has been appearing in National Accountability Bureau (NAB) to clear their positions in various inquiries/investigations after receiving complaints. Similarly, dozens of corruption cases of OGDCL are under investigation with Federal Investigation Agency (FIA).

Infested with many cases, the top mandarins of the entity seem not shy while taking the questionable decisions knowing it will further stigmatise the OGDCL image. However, it appeared that OGDCL management has been leaving no stone unturned to avoid compromising on concerned rules while dealing with business related matters, and company’s performance or targets. CNPC had allegedly influenced the board and the management of OGDCL seeking approval for hiring of its one rig.

And, the OGDCL had awarded approval in this regard in February 2019 through a limited or negotiated tender, which was not published in the international newspapers. OGDCL had sent CNPC a limited tender for procurement of two (02) rental rigs and this tender was only sent to CNPC and Deutag Drilling, while approval was given to CNPC only and Deutag was declared technically disqualified.

The PPRA Rule 42 (d) negotiated tendering clearly reads: “A procuring agency may engage in negotiated tendering with one or more suppliers or contractors with or without prior publication of a procurement notification. This procedure shall only be used when,- (i) the supplies involved are manufactured purely for the purpose of supporting a specific piece of research or an experiment, a study or a particular development; (ii) for technical or artistic reasons, or for reasons connected with protection of exclusive rights or intellectual property, the supplies may be manufactured or delivered only by a particular supplier; (iii) for reasons of extreme urgency brought about by events unforeseeable by the procuring agency, the time limits laid down for open and limited bidding methods cannot be met. The circumstances invoked to justify extreme urgency must not be attributable to the procuring agency.” The sources maintained that PPRA reasons for negotiated tender does not satisfy the use of it for tender No 4264.

CNPC was awarded this tender on higher rates in comparison to the rates which were previously offered by CNPC in OGDCL tender number 2020. The cost of this purchase order or contract awarded to CNPC stood at $5,600,000, which was granted without initiating even a process of pre-qualifying the companies by OGDCL.

As per PPRA rules, OGDCL cannot send limited or negotiated tenders without initiating a process of prequalifying companies while a tender with same value should be published in international newspapers.

Due to slow drilling operations, OGDCL’s Drilling Department had raised the need of three more rigs before OGDCL management for drilling or spudding of wells to meet target till June 2019. Available documents said that OGDCL tender No.2020 was published in 2017 and OGDCL received offers from the rig contractors.

The scope of work was to supply six (06) drilling rigs-2000hp for onshore drilling and all services were inclusive, while the projected wells to be spudded either in the 4th quarter of 2016-2017 or by 1st quarter 2018-2019. And, in this contract three (03) rigs were provided by CNPC (Chuanqinq Drilling Engineering Company Ltd.), a Chinese origin drilling company based in Islamabad-Pakistan. The value of this contract was $22,968,209.48, while duration of the contract was one (01) year expired on 30th June 2018.

Sources said that CNPC had allegedly tried to influence OGDCL Drilling Department for mobilisation of its rigs by getting an extension for OGDCL tender No. 2020 at the end of this contract term.

However, they said OGDCL’s departments like SCM (Supply Chain Management), Audit etc other than drilling departments had opposed to grant CNPC extension. And, extension at that time was not given to CNPC as new tender number 3229 was published by OGDCL for rental of six rigs in 2018. As a result to this, nine (09) bids were received and six lowest financials contractors were given the purchase order and Sinopec and Hilong were among these companies. CNPC offer was rejected being highest. CNPC did not win this tender and its rigs were going demobilised so the company (CNPC) had allegedly tried to use its influence in drilling department once again to get this tender cancelled and also for securing extension to previous tender (tender number 2020). “But, due to OGDCL’s department’s opposition for awarding extension to a tender previously won by CNPC, new tender number 3229 was not cancelled and extension at that time was also not given to CNPC,” said sources.

Sources also said that CNPC had allegedly used its influence in OGDCL again and got delayed the tender (tender#3229) while due to delays in performing OGDCL drilling schedule as per original projection, up till now only seven (07) wells are drilled while only three (03) months are left to complete well drilling target till June 30 and OGDCL projection for this year till June was 27 wells. They said CNPC had used drilling departments to put pressure on the SCM and other departments to get favours and allegedly some officials in the entity were the main instrumentals for such maneuvering in favour of CNPC.

When the correspondent asked for explanation about the fact that OGDCL has awarded $5,600,000 worth contract to a Chinese company - CNPC (Chuanqinq Drilling Engineering Company Ltd) for hiring of rigs allegedly in violation of PPRA rules, the OGDCL Ahmad Hayat Luck, who took one and half days for collecting the answers from the relevant departments responded, saying that tender-2020 for hiring of three (03) rigs was press advertised and contract was awarded to M/s CNPC being technically responsive and financially lowest bidder.

Therefore, he stressed saying that no violation of PPRA rules was made. The said contract was signed initially for one year with provision of further extension. After expiry of the contract, in view of operational requirement, contract was further extended for hiring of only one rig (CCDC-26) for one year to meet drilling targets at lowest discounted operating day rate at $16,250 per day as per provision available in the contract.

However, well-placed sources said that hiring of rental rigs through tender No 2020 in 2017 had no issues and violations of PPRA rules. A fresh tender No 3229 was published for hiring of six rental rigs on 26th January, 2018 that was for the 4th quarter of 2018 and 1st and 2nd quarter of 2019. This means that CNPC tender 2020 will end in September 2018 and through new tender No 3229, any new company who is technically responsive and financially low will give rental rigs to OGDCL. CNPC contract expired in September 2018 and extension was given on Feb 2019 (Official document of Extension Below).

Now the question arises, they argued saying, as to how were they kept using CNPC rigs without contract from Sept 2018 to Feb 2019? If they were not using them why are they paying them? All this story of targets is only because they wanted to hire CNPC rigs. They also unfolded saying that there is a lot of money involved in rental rigs as normally agents within the entity who help a Rental Rig company win a contract get a commission of $2000 per day. They also said that CNPC Rig CCDC-26 was in use even after expiration of contract, one rig was given extension and two rigs are being hired through new tender.

When questioned if OGDCL accorded approval to the award of contract in February 2019 through a limited or negotiated tender and it was further asked if the tender got published in the international newspapers? And OGDCL is reported to have sent to CNPC, and Deutag Drilling a limited tender for procurement of two (02) rental rigs while approval was given to CNPC only and Deutag Drilling was declared technically disqualified. And don’t you think that it is against the PPRA rules for not publishing the tender in international newspapers? And if the tender is published in the international dailies, any proof, the OGDCL spokesman countered saying that award of contract in February, 2019 was basically an extension of the existing contract for hiring of one rig (CCDC – 26) from M/s CNPC. Initially, he said, the contract was awarded through open tender published in press on February 10, 2017. Keeping in view of annual drilling targets, additional rigs were required by April 20, 2019. Therefore, tender enquiries (tender No. 4264) were issued on February 8, 2019 for hiring of up to 03 drilling rigs to the nine companies operating rigs in Pakistan following the mode allowed under PPRA Rule 42 (d) “Negotiated Tendering”:

The names of nine companies, he said, include i. M/s KCA Deutag Drilling Co Pakistan ii. M/s CNPC Chuanqing Drilling Engineering Co (CCDC) Pakistan iii. M/s Hilong Oil Services & Engineering Pvt Ltd, Pakistan iv. M/s Weatherford Drilling International (BVI) Ltd, Pakistan v. M/s Schulumbger, Pakistan vi. M/s ZPEC, Pakistan vii. M/s Exalo, Pakistan viii. M/s Dewan Drilling Ltd, Pakistan. ix. M/s Sinopec International Petroleum Service Corporation Pakistan.

He said that M/s CCDC and M/s KCA Deutag submitted their bids. M/s KCA Deutag was declared non-responsive due to non-availability of their rig to spud first OGDCL well on or before 20th April 2019. M/s CCDC offered two rigs in their quotation. Matter is under consideration at this stage. The quoted operating day rates of M/s CCDC i.e. $16,250 under this tender found to be the lowest rates among all contractors’ rigs operating in OGDCL. This tender is being finalised following PPRA Rule 42(d).

However, responded claiming that there was no requirement of additional rigs as this requirement was only made to give benefit to CNPC after extension was not given to CNPC in tender 3229 as they were financially high. (Financials and technical evaluation of tender 3229 attached) OGDCL now have nine rental rigs and own 7-8 rigs of its own, for which there are not enough points to dig. “Just to give a favour to CNPC they are wasting OGDCL money. Qadirpur East is an example where they used rental rig and there is no discovery from the well,” they said.

The sources said that rental rigs are one of the biggest financial contracts in OGDCL procurement. “They questioned as to how could they [OGDCL officials] have not planned it while floating tender 3229 that how many rigs and points are available? As for limited tender No 4264, the sources said, PPRA only allows sending limited tenders to those companies who are already prequalified.

The sources argued that prequalification process is done though tendering process which should be advertised in international newspaper and OGDCL website. Limited tenders are sent to companies who are prequalified through this process. No process of prequalification was done for this limited tender and tender 4264 was not advertised in newspapers not on OGDCL website. In tender No. 3229 seven companies participated that include 1, Tianjin China 2, CNPC China 3, Weatherford Pakistan 4. Duetag Pakistan 5, Schlumberger Pakistan 6, Hilong 7. Sinopec Out of these seven companies three were technically disqualified which are (Weatherford Pakistan, Schlumberger & Tianjin China) Sinopec & Hilong own only three rigs that were free to use, which were utilised in tender. CNPC and Duetag were financially high so, their no rig was hired. However in limited tender # 4264 the tender documents were sent to 9 companies. Two companies Weatherford & Schulumbger were technically disqualified as they don’t have rigs as per specifications of OGDCL. Sinopec & Hilong had one free rig so OGDCL knew they won’t quote.

The sources said that Dewan Drilling, Exalo Pakistan & Zpec had never worked with OGDCL and had no free rigs as their all rigs are in use with other companies like PPL, Mari etc. Drilling department knew they won’t quote as well. One CNPC and Duetag sent bids for this tender. Duetag was technically disqualified (In tender 3229 Duetag quoted price was 2 time higher than all the companies so if it would have passed the technical evaluation it would not have been a threat in financials). “Only CNPC was left alone to qualify for this limited tender. In this case if one company is left after technical evaluation OGDCL will have to retender again as there is no competition in financially.”

When the correspondent asked, “If CNPC was awarded the contract on higher rates in comparison to the rates which were previously offered by CNPC in OGDCL tender number 2020. Plz respond to it? The cost of this purchase order/contract awarded to CNPC was $5,600,000. Was contract granted without initiating even a process of prequalifying the companies by OGDCL and if this is the case, don’t you think sir, it is again the breach of PPRA rules?”

The OGDCL spokesman said that rig is not being hired on higher rates as compared to tender number 2020 and 3229. Rig of M/s CNPC (CCDC–31) is being hired at the lowest operating day rates i.e. $16,250/day as explained above (Point–2). Furthermore, this rig has lowest fuel consumption and mobilisation cost. The tender is being finalised following PPRA Rule 42(d) and there is no procedural violation. Furthermore company has benefited from lower rates, lower mobilisation cost and fuel efficiency of the rig.

However, official sources said: “If we add all the services, diesel, transportation this one rig is hired in approximately on same price as of rigs provided by companies in tender 3229. If price of CNPC was low why didn’t they hire all three from CNPC? Why did it rent rigs from other companies through tender 3229 on financially higher rates than previous? Whereas in limited tender 4264 as CNPC knew it won’t have any competition it charged OGDCL on higher prices than of tender 3229 because it is the only company in the world which fulfills OGDCL requirements.”

When the correspondent asked as to why the drilling process got slowed down? And why did OGDCL’s departments like SCM (Supply Chain Management), Audit oppose the extension of contract under tender No.2020 to CNPC?

OGDCL spokesman said under press tender No. 3229 for hiring of up to six rigs, M/s CNPC was not found financially lowest bidder. During processing of this tender they offered a price discount to become a lowest bidder. This discount proposal was reviewed by Drilling, Supply Chain Management, Finance and Internal Audit Department. All departments gave candid opinion with regard to the discount offered by M/s CNPC.

The discount offered by M/s CNPC was also discussed with PPRA experts to make a prudent decision. After thorough review and deliberation the discount offered by M/s CNPC, after financial bid opening, was turned down and contract was awarded to the technically responsive and financially lowest bidders for hiring of six rigs i.e. M/s Hilong and M/s Sinopec (3 rigs from each bidder).

Therefore, no violation of PPRA rules was made in award of contracts under tender No 3229. As per business plan, there is a target of 21 wells during the ongoing Financial Year and the target is being pursued effectively and therefore, it is premature to make prediction at this stage.

However, according to official sources companies like Hilong and Sinopec provided three rigs each in tender No 3229. All that the spokesman has explained is right but all the tactics delayed tender process. In last 9 months only 8 wells are done because the process of hiring rigs was delayed to favour CNPC. This is also mentioned in the official letter from OGDCL for tender No 3229 that clearly states that no further delays should be done and rigs should be awarded to Hilong and Sinopec.

When asked for the response from OGDCL about the fact that new tender number 3229 was published by OGDCL for rental of six rigs in 2018 and (09) bids were received and six lowest financials contractors were given the purchase order and Sinopec and Hilong etc.

OGDCL mouthpiece says that it has already been answered. However, tender No. 3229 was not cancelled and contracts have been awarded to the technically responsive and financially lowest bidders such as M/s Hilong and M/s Sinopec for hiring of six rigs.

The official sources also said that the tender #3229 was not cancelled, drilling department tried to favour CNPC, which delayed tender process. Limited tender 4264 and the extension of one rig that was given to CNPC are the tenders which were made to support CNPC after drilling departments failed to get CNPC rigs through tender 3229.

The News when drew the attention of OGDCL spokesman saying that CNPC is reported to have allegedly used its influence in OGDCL again and got delayed the tender (tender # 3229) while due to delays in performing OGDCL drilling schedule as per original projection, up till now only seven (07) wells are drilled while only three (03) months are left to complete well drilling target till June 30 and OGDCL projection for this year till June was 27 wells and asked if CNPC is causing delay for drilling schedule, Mr Luck said that contracts have been awarded on merit and strictly as per tender terms & conditions. OGDCL is hopeful achieving its drilling targets by the end of fiscal year 2018- 2019. Twelve wells has been spud so far against current year target of 21 wells.

However official sources said that in tender 3229 drilling department tried to replace the new companies with CNPC rigs but due to interference by audit department they remained unsuccessful. However, this influence delayed the tender process and rigs did not reach the wells on time. No merit and rules were followed in tender#4264 and extension of one rig,” sources conclude.

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