Secret $2.2 bn Pakistan Steel deal without bids

[LRE]

Tuesday, August 18, 2009
Chairman says three or four companies’ interest sought
By Kamran Khan

KARACHI: Already running into losses and liabilities worth about Rs21 billion, the Pakistan Steel has signed a non-transparent secret memorandum of understanding (MoU) with the Metallurgical Corporation of China (MCC) for $2.2 billion expansion programme to raise its current production capacity of 1.1 million tons to five million tons, according to investigation carried out by this correspondent.

The government of Pakistan will provide sovereign guarantees for full repayment loans from Chinese banks to the Metallurgical Corporation of China for this project.Without an in-house technical and financial feasibility for an ambitious five-million ton expansion plan by the Pakistan Steel, the Chinese company has already been allowed to conduct a feasibility study of its own. Under the MoU the government of Pakistan has already committed to make all necessary approvals.

Contrary to relevant government rules and regulations as well as basic norms of transparency, the Pakistan Steel didn’t place any advertisement in the local and international press to seek the best international offers before entering into secretive negotiations with the Chinese company, which was long seeking to clinch this deal.

“We didn’t place any media advertisement here or abroad for this project, but we had written letters to three or four companies to gauge their interest,” said Pakistan Steel Chairman Moin Aftab Shaikh, while making a startling revelation that there were no government rules that require an open invitation for offers on projects of such importance.

Perhaps he seemed unaware of the Public Procurement Regulatory Authority (PPRA), constituted through an act of parliament in 2004. The PPRA rules were put in place to ensure transparent and cost effective procurement of quality goods and services in the public departments.

Most shocking element of this MoU, available with this correspondent, which will bind Pakistan with an additional foreign loan of $2.2 billion, is a clause that requires complete secrecy of this understanding.

Clause 6.1 of this MoU states: “This MoU and any discussions related to it shall remain strictly confidential between the parties and no public announcement shall be made without written consent of both parties.”

When Moin Aftab Shaikh was asked by this correspondent why such secrecy was made an integral part of the memorandum when the Pakistan Steel is a public organisation, he replied: “This was not our requirement but the Chinese company asked for this secrecy clause and we agreed.” Mr Shaikh, however, didn’t agree that this secrecy clause has made this MoU even more suspicious.

The Pakistan Steel management and other senior official at the production ministry dealing with the Chinese offer had no answer why an open bidding was not held. While the MoU with the MCC was wrapped in secrecy clauses, an amazing haste was seen in finalising it. In a country where things don’t move unless forceful hands push them ahead, the Pakistan Steel-MCC MoU was taken up in a high-level ministerial meeting within 24 hours of its signing on July 8.

The next day, a 12-member delegation from the MCC was at the office of the ministry of production and industries in Islamabad where the minister of production and a high-powered delegation of the ministry received a blueprint for the implementation of $2.2 billion Pakistan Steel expansion plan from the visiting Chinese team.

The Pakistan Steel chairman, however, denied any involvement of Mr Riaz Lalji, a businessman of growing clout and powerful friends in the government, in the project.

While struggling to cope with the mounting losses and liabilities of around Rs21 billion, the Pakistan Steel consumed around Rs10 billion of cash injection provided to it by a consortium of government-owned financial institutions in July.

The cash injection was also against the guarantees of the government of Pakistan, but it is not known if the finance ministry has approved the financial elements of this current MoU that broadly stretches the government of Pakistan’s capacity to extend sovereign guarantees for its near bankrupt government institutions.

PIA, currently facing a cumulative losses and liabilities of Rs140 billion, is seeking similar government guarantees worth about $2 billion for an ambitious purchase plan of 27 aircraft from Boeing and Airbus Industries.

http://thenews.com.pk/top_story_detail.asp?Id=23922