Railway engines: Locomotives deal with US company raises eyebrows

The project’s proposed cost was at least 30 per cent higher than a similar contract awarded to a Chinese firm.

ISLAMABAD: The Executive Committee of the National Economic Council (Ecnec) approved a project to purchase locomotives from an American company not only in violation of procurement rules but also at exorbitant rates and against the finance ministry’s advice, allegedly under pressure from the US. The project was approved at a cost of Rs55.5 billion by Ecnec, headed by Finance Minister Dr Abdul Hafeez Shaikh.

Official documents available with The Express Tribune reveal that the finance ministry had opposed the proposal of purchasing 150 diesel engines from the American firm General Electric, the case for which was pushed through the Central Development Working Party (CDWP) by the former railways secretary Sami Khilji. The finance ministry raised objections to the summary on grounds that the proposal violated the Public Procurement Regulatory Authority (PPRA) rules and was not financially viable.  The ministry also found that Pakistan Railways did not conduct a feasibility study while its cash flow for the repayment of the loan, which would have been obtained for procurement, was also faulty.

The project’s proposed cost  was 50 to 55 per cent higher than a similar project approved a couple of years ago and anticipated a loss of Rs27 billion, state the documents.

The price difference was worked out by the Planning Commission while comparing the proposed project with a similar contract awarded to a Chinese company earlier.

Even after bearing in mind the price rise over the last two years, the project was approved at 30 per cent higher rates, at the least, said sources.

The decision is also against the general directions of public accounts committee that restricted all government departments and agencies to adhere to PPRA rules.

The planning commission had estimated the cost of this project at Rs25 billion in the public sector development programme 2010-11 document.

However, bypassing the finance ministry advice, Ecnec, chaired by Shaikh, approved the project on December 9, 2010. The approval was subject to the Lahore High Court (LHC) verdict, as the provincial court was hearing the case filed against PR’s decision of issuing a tender to General Electric.

The court had awarded a stay order against opening of the bid documents in June 2010, as Pakistan Railways had sought US-specific bids, while excluding other competitors.

Documents available with The Express Tribune show that an American Senator from Pennsylvania, Robert P. Casey, Jr, wrote a letter to the Finance Minister on June 29, 2010. “A railway tender being offered by Pakistan’s National Railway … is of great impact to my constituents of the Commonwealth of Pennsylvania … I would appreciate hearing from you how the interests of my constituents, in this tender, can be protected,” reads the letter.

It might be pertinent to add here that General Electric’s transport division that manufactures freight and passenger locomotives is headquartered in Pennsylvania and the three-year contract would have been a guarantee for job security to the locals, as General Electric is the largest employer in Pennsylvania.

While Ecnec overruled the finance ministry, the LHC, last week, directed Pakistan Railways to re-tender the contract without any bidding restrictions. Senator Casey had hoped in his letter that the LHC would reject the petition seeking re-tendering.

In order to lure the government of Pakistan, a summary prepared by the planning commission for Ecnec states that the US offered to provide a loan to purchase these locomotives through the US Export Import Bank, on the sole condition that Pakistan would award the contract to General Electric.

Before the Ecnec approval, Pakistan Railways managed to get the project cleared from the CDWP on June 8, 2010. It did not submit a detailed PC- 1, depriving the planning commission and the finance ministry from technically and financially evaluating the contract.

Minutes of the CDWP meeting disclose that the planning commission’s transport and communication chief stated that “owing to restriction of widest competition, the per locomotive price is $3.15 million for up to 3500 horsepower (HP) engine and $2.95 million for up to 2500HP engine as compared to per unit price of $2.1 million for 3500HP engine and $1.9 million for 2500HP engine locomotives to be procured under an already approved project of 75 diesel engine locomotives.”

Published in The Express Tribune, January 25^th, 2011.