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Delay in procuring Ashuganj NGL plant

Govt may incur loss upto Tk 400 cr

By Toufique Imrose Khalidi
The delay in proc uring the Tk 150 crore AshugnnJ natural gas liquids (NGQ processing plant may result in a loss of upto Tk 400 crore. estimated In terms of loss of revenue due to non sale of gas and NGL. of fk lais say.
"Production of natural gas
liquids from Kailashtila gas treatment facilities will have to be held back for absence of the processing plant at Ashuffinj." a senior Petrobangla official says. The result Is a net loss to the tune of 52 million US dol lars a year thanks to the loss of revenue due to the non-sale, of gas and NGL products.'' the official, refusing to give his name, says quoting a May 1992 World Bank report.
The Kailashtila Molecular Steve Turbo Expander Plant will start producing gas and NGL froth February next year, but all these will remain unused until the Ashuganj plant is ready for processing.
A stalemate Is there as the Colt Engineering Corporation of Canada, the company awarded the contract to supply and install the plant, has been refusing to sign the contract. Initialled November 11, 1992, citing reasons unacceptable to the government of Bangladesh.
The World Bank last month threatened that it would stop funding future gas projects If the project's implementation was delayed any further.
The 37.5-mlllion-dollar plant was to be procured under the Second Gas Development Project (SGDP) funded by the IDA, the World Bank's soft-lending window. But the government decided to pay for the plant after the closing date of the IDA credit against it expired. The World Bank also refused to endorse the terms of the contract after a second evaluation of bids with the financial proposals revised.
The Petrobangla and its infrastructure consultants, the Pencol Engineering Consultants, took about two years to decide on the contract, for which tender was first floated July 1990, leading to the lapse of the credit. According to the Energy Minister, the IDA credit would now be diverted to a component of the proposed Third Gas Development Project.
Under the present circumstances. the Petrobangla officials speak of three options available for the government.
Jhe options are 1) floating a re-tender through international competitive bidding, 2) approaching the IDA to Include the project under the Gas Infrastructure Development Project (GIDP) and 3) constd ering the recent proposal from the second lowest bidder, the M/S Larsen & Toubro Ltd of India, to negotiate the price
for undertaking the job.
Adopting the first option, the officials say, will lead to a delay in completion of the plant by one-and-a-half to two years, resulting in a loss of 78 to 104 million US dollars.
Accepting the second option will mean a delay of 1 3/4 to two years In completion. In this case, the loss stands at from 91 to 104 million US dollars. This option will also require a re-tender on agreement by IDA.
Going for third option will save at least six months time needed to finalise the award of the contract under a re-tender, they say, thus reducing the estimated loss to 52 million US dollars.
Meanwhile, a section in the government is still trying to give the contract to the Coll Engineering Corporation that did not sign the initialled contract by the extended deadline, January 15. raising new demands.
However, Coll continues to-remain intransigent.
The company told the Project Implementation Unit (PIU) of the Pctrobsingla January 13 that it could continue discussions on the contract provided the PIU agreed to the draft, suggested by Colt, and also amended the wording of the bank guarantee for performance bond and advance payment guarantee in such a way that client (Petro-bangla/GOB) could not encash them unconditionally.
The PIU ordered encashment of the bid bond November 26 as Coll did not respond lo queries whether it was ready to sign the contract by November 30 as agreed. Later the dale was extended upto December 15. The deadline was extended again upto January 15 whic h too, was not honoured by Coil.
On December 16. the Canadian company Sent a draft letter of credit (L/C) with amendments. On December 22, the .firm's Finance Director faxed lo PIU lo say that Colt agreed lo the wording of the L/C as amended by the PIU.
But, 15 days later, on January 7, 1993, Colt disclaimed its agreement to the amended draft of L/C saying ,
that the Finance Director was not authorised lo make this agreement. It also stated that 11 was not willing lo discuss the project any further and requested return of the bid bond money already encashed by Petrobangla.
Even after expiry of the twice-renewed deadline, according to authoritative Energy Ministry sources; the Government is still expecting a positive outcome of Colt's taking the job.
The obvious question that is being raised is: Why is the government bent on giving the contract with so much concession to a company refusing it? What arc the compulsions?
Some even go lo the extent of asking: Can Colt do the job?
If not, what recourse does the Government of Bangladesh take? Forfeiting five per cent warranty bond after spending 37.5 million US dollars?
Has anybody ever verified whether Colt has ever worked as a tijrn-key contractor or a generalfconlractor for a similar project?
And what happens if Colt walks off after getting third phase payment (about 25 million US dollars)?
Who was verified the technical and financial capability of Colt's doing the job?
Allegations have it that Colt's yearly turnover is less than 30 million US dollars. And that is why the company is demanding changes in payment terms.
In normal cases, Colt should have received export credit guarantee from Canada. Than it would not need any added confirmation that it is now asking for, to the L/C. Why is 11 not getting EXIM bank guarantee from Canada?
All these are very valid questions considering the impact of the delay in procuring the plant on the future donor-funded gas projects.
Commenting on the situation, a senior official of the ERD that coordinates the government's external aid mobilising efforts said: "Suspension of the power sector credit should have been an eye-opener for the government (now that this project threatens a similar event)."