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Vital gas supply project trimmed for fund crisis

Sharier Khan
As fund constraint stalls a vital donor-funded S189-million project to install three gas pipelines and compressors necessary to increase the country's gas supply, the energy ministry on Tuesday decided to reduce the number of pipelines and compressors down to two.
At a meeting chaired by Energy Adviser DrTowfiq-e-Elahi Chowdhury, it was also decided to invite the project's donor Asian Development Bank (ADB) next week to review reconfiguration of the project.
"The idea of this rearrangement is to have the best gas pipeline and compressor solution within this available fund of S189 million," says an official.
"If we just go for all pipelines and no compressor, gas will not flow to users at a desired pressure or quantity. We also
cannot ignore the pipelines as well. We need them all. Reconfiguration will give us some time to get new funds for the remaining parts of project," he adds.
The ADB offered a $235-million loan to the government in 2006 for gas infrastructure and training. Of this fund, SI 89 million was given to the Gas Transmission Company Ltd (GTCL) for the three compressors and pipelines.
Keeping around $ 14 million as contingency budget from the $189 million fund, GTCL held separate tenders for the pipeline and compressor projects.
The three pipeline projects are Monohardi-Elenga 30-inch 51km pipeline to transmit gas to Sirajganj and up to Khulna; Jamuna West-Nalka-Bheramara 30-inch 98km; and Bheramara to Khulna 20-inch 162km pipeline. The three compressor stations need to be set up in Muchai, Ashuganj and Elenga.
A compressor is necessary to maintain gas flow pressure and volume to a desired level. When gas flows from one point to another through a pipeline its pressure and volume at the other end drop. If there are too many consumers connected to the pipeline, this drop can be so significant that power plants or even domestic connections can bog down temporarily causing serious problems.
The GTCL at the Tuesday's meeting pointed out that due to excessive demand, gas pressure was unacceptably dropping in the 24-hour cycle every day in important locations like Chittagong, Demra, Siddhirganj, Rupganj, Narayanganj, Munshiganj, Manikganj, Mymensingh, Baghabari and elsewhere. Power stations, fertiliser plants and industrial units are being regularly affected for this.
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But the total project has been delayed by three years as the first tender for gas compressors had to be cancelled when an ADB investigation detected corruption in the bidding process.
The second tender was held in January 23 last year | and closed in June in which fourcompanies took part.
ABB and Hyundai qualified technically and their financial offers were opened in February. But the lowest bid-der Korean company Hyundai's offer turned out to be SI50 million, three times higher than the allocated budget of S55 million.
Hyundai's offer was however over SI00 million lower than /ABB s.
Some officials say the government cannot afford the project at this cost, while some
say this price reflects the present market situation and dismissing the tender was no solution as further retendering would not only increase cost but intensify gas supply crisis.
Such a situation demanded decision from the energy ministry.
Sources say at the Tuesday's meeting, the ministry decided to defer the tender for Monohardi-Elenga pipeline installation until next pipeline construction fund is available. The budget for this pipeline, which is a supply reinforcement project, was $23 million against which the lowest bidder offered $44 million.
The ministry has also decided to defer installation of a compressor in Elenga till availability of funds. The Hyundai bid for this compres-
sor seeks a cost range of $35-40 million.
The ministry' also felt that the Bheramara-Khulna pipeline installation with $40 million budget might be implemented in two sections -- the first involving a rivercrossing and the second on theland.
At the meeting, GTCL held that Installation of compressor stations has become inescapable reality for satisfactory operation of grid system owned by GTCL over the recent past with phenomenal increase in the growth of gas demand." It recommended that the financial constraint must be overcome by mobilising funds from the governmentresources.
Negating retender for the compressors, it said if the project is delayed, it will create enormous negative impact on
the overall economy.
Regarding the project cost, GTCL quoted its consultant saying the difference between ADB cost estimate and the lowest bidder's quoted price arose mainly due to: a) nearly two years of delay caused by re tendering process; b) change of gas flow rate conditions of all the three compressor stations and inclusion of ancillary equipment; c) two years operation and maintenance cost of the stations and taxes and Vat to be borne by the contractor which were not earlier included by ADB in its estimate; d) reconfiguration of compressor units; e) cost escalation at the rate of 2.5 percent per year over the base year of 2005 of capital cost estimates; and f) the impact of the world market prices in base metals and other materi-
als.
The consultant believes after adding these factors, an amount of $89.22 million should be considered as the gas turbine compressor cost estimate and comparison of the total quoted prices of the bidders should be made against this cost excluding the components not originally considered by the ADB estimate.
"The consultant calculated on this basis the comparable portion of the lowest bid price [$93,206 million] and comparing the same with the above suggested estimate of $89,225 million, the difference appears only marginal and as such the consultant considered the lowest bidder's override as justified," the GTCL said.