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November 5, 2019

SSGC’s Rs427mln irregular meter procurement goes unnoticed


November 5, 2019

KARACHI: Anomaly in procurement of gas meters by Sui Southern Gas Company (SSGC) from a French firm involving half a billion rupees has been kept on the hush-hush for over a year with the utility now looking for a new supplier after sticking to a single supplying source from France for almost three decades, The News has learnt.

A government audit report last year had termed the procurement from consulting firm Itron France ‘irregular and unjustified’ as it said the buying from the supplier was not permitted under the licence agreement signed in 1992.

“During the course of audit on the accounts of SSGC for the year 2016-17, it was observed that after inviting sealed bids, the management of SSGCL placed order to Itron France for the procurement of 340,000 number of components for ‘G-4 Gallus 2000’ gas meters… against a total price of Rs427,189,080… ,” the audit letter said. “… market should have been searched to achieve the cost of benefit ratio.”

It was further observed that since the licence agreement was executed only for technical know-how and information and imparting training to the employees to the company and the agreement contract clause contained no contract clause for any procurement from the licensor, “the procurement of gas meter components from Itron France is irregular and unjustified.”

When contacted, a SSGC’s spokesperson was caught unaware of ‘irregular procurement’. “As far as I know there is no inquiry going on for irregularity of procurement at the meter manufacturing plant,” the spokesperson said.

The documents showed that SGGC debuted agreement related to gas meter technology with Schlumberger Industries, France in April 1992. The French company was first acquired by Actaris SAS in October 2001 and then by Itron France in April 2007.

Under the terms and conditions of the licence agreement in 1992, the licencee desires to acquire from the licensor know-how, technical information and assistance for the manufacture and distribution of gas meters.

It was, however, learnt that the both the parties had inserted two clauses in the agreement revised for 2009-2014. Under the revised contract, the Itron would supply to SSGC the measuring unit of the licenced product.

“At the end of the five years extension period from the date of the effective date of this amendment, the parties will discuss the possibility to enter into a joint venture or other form of collaboration in order to integrate some parts locally, subject to a successful feasibility test for partial integration of the measuring unit,” said the agreement.

Ironically, the localisation clause was expunged in the contract renewed for 2014-2019. The audit report said the technical employees of SSGC could not obtain professional proficiency despite availing services for a longer period. The soft tone adopted in the audit report might be a reason behind no outcome of the inquiry.

“Reasons/circumstances under which the gas meter components were purchased from a single bidder may be intimated to audit,” the report said. “Complete details of the procurement made from Itron France since 1992 until date may be furnished to audit.”

A senior ex-official of the SSGC said the supplier has so far provided no equipment or assistance for testing of measuring units supplied for G-4 meter before start of assembly from 1992 till 2019.

Since no repair possible is for such gadgets due to design limitations, once it develops faults apparently there is no option other than to place further import orders.

“More than 90 million euro ($100.477 million) has been paid by Pakistan for import of measuring units, whereas the total required investment for technology transfer and machine would have been 7 million euro ($7.815 million),” the former executive said.

The official said the component costwas high with no provision in design by Itron France for anti-reverse flow at 0.5 bar pressure and pressure drop caused loss of performance. He went on to say that measuring units supplied till today were commercially non-competitive in the international market.

The SSGC’s spokesperson, however, rubbished the claims of low or no localisation as baseless. “All components of G-4 gas meter have been localised except measuring unit,” the spokesperson said. “Under the previous agreement with Itron France almost all parts of G-1.6 gas meter were localised except one part called diaphragm.”

The spokesperson said the agreement with Itron France expired in October this year and “now the company is exploring different possibilities as way forward.” “After expiry of agreement with Itron France components cannot be supplied by them until any other arrangement which has not taken place so far,” the spokesperson said.

The spokesperson said the gas utility manufactures all the ‘localised parts’ in-house or through local vendors. “The localisation is substantial.” Sources said the gas utility should opt for an open international tendering that stipulates mandatory localisation instead of reengaging with the decade-old partner.

The sources said ground is being made to renew the contract with the French supplier yet again at the behest of its local agent, THSyed. The local company is an unauthorised agent for SSGC import business, according to the sources.

The SSGC’s spokesperson said the utility has no role in appointment of the local supplier. “THSyed is local agent of Itron France,” the spokesperson said. “The commission matter usually lies between principle and agent, nothing to do with customer (in this case SSGC).”

A former general manager meter manufacturing plan said SSGC had paid Rs14 billion only for one component with no compliance on technology transfer, causing too much loss due to un-accounted for gas because of easy tempering in both franchise area. “[There was] poor disposable measuring unit design from single source at triple cost in comparison with international market price, with no investment from so-called licensor (supplier) at any level [and] no provision of quality conformance tool for measuring unit,” he said in a letter earlier this year.