CPEC’s transparency: NHA admits irregularities in award of $2.9b contract to Chinese firm

Chairman says tax exemptions and concessions worth $200m given for construction of Multan-Sukkur road section

Shahbaz Rana February 28, 2018
NHA admits irregularities in award of $2.9b contract to Chinese firm PHOTO: AFP

ISLAMABAD: The National Highway Authority (NHA) chairman confessed on Tuesday that there were irregularities in the award of a $2.9-billion contract to a Chinese firm for construction of a motorway under the China-Pakistan Economic Corridor (CPEC).

The admission raises transparency concerns in the multi-billion dollar deals.

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NHA Chairman Jawwad Rafique Malik admitted that concessions worth roughly $200 million given to the China State Construction Engineering Company (CSCEC) were not part of the original bidding documents Pakistan had floated for the construction of the 392-kilometre long Multan-Sukkur section.

The chairman also confessed that the Rs294.4-billion or $2.9-billion contract had been awarded to the Chinese company on an “alternate bid”, which the company had submitted after quoting its original bid.

The chairman made these admissions before the Senate Standing Committee on Finance and Revenue that met on Tuesday under the chairmanship of PPP Senator Saleem Mandviwalla. These admissions carry huge implications for the multi-billion dollar CPEC projects and may land the government in trouble.

These confessions also revealed that controlled competition among three Chinese companies was not at all fair play, as the NHA engaged with the so-called lowest bidder in violation of the Public Procurement Regulatory Authority Rules of 2004.

Several senators have moved a calling-attention notice in the Senate, asking for rationale behind the huge tax exemptions. The Senate standing committee would give a report to the upper house of parliament on its findings.

The Executive Committee of the National Economic Council (Ecnec) had approved the Multan-Sukkur project at a cost of Rs259 billion but the lowest bid CSCEC gave amounted to Rs406 billion, said Malik. He further told the committee that CSCEC also submitted an “alternate bid” valued at Rs339 billion.

Upon this, Senator Nauman Wazir Khattak of the PTI questioned whether the PPRA Rules of 2004 allowed submission of alternate bids.

The chairman claimed that the rules allowed it but he could not cite the relevant PPRA Rule in his defence.

The NHA chairman further said that after negotiations the bidder agreed to lower the alternate bid price to Rs294 billion after the government assured that it would not charge taxes to the tune of Rs19.1 billion or roughly $200 million.

The senators inquired whether tax exemptions were part of the original bid documents and whether the other two Chinese bidders were aware of these exemptions. “Neither the other two bidders nor the lowest bidder knew about these tax exemptions,” confessed Malik.

But the NHA chief insisted that there was no loss to the state, as the government lowered the bid price to the extent of tax exemptions.

The admissions suggest that the deal was not awarded in a fair manner, said Senator Mohsin Aziz of the PTI.

Senator Nauman Wazir claimed that the NHA had initially received a Rs240-billion bid against the total project price of Rs259 billion. It later on asked the bidder to increase the price, which put the amount at Rs406 billion, said the senator. He added that both the bidder and the NHA then changed the project specifications to quote the Rs294 billion price.

But the NHA chief denied that the project scope was changed. Work on the project is expected to be completed in August 2019.

On the issue of tax exemption, Malik claimed that the policy allowed giving tax exemptions on imports. However, when the relevant policy and the rules were read it was disclosed that the exemption was only for temporary machinery imports while the government has given all types of exemptions to the company.

Although the chairman admitted giving exemptions worth Rs19.1 billion, the quantum of tax relief appeared higher. In its written response, the Federal Board of Revenue (FBR) informed the committee that in fact, three separate SROs have been issued. The tax authorities issued SRO 44, SRO 79 for income tax exemption, and SRO 51 for exemptions on construction materials and goods imported by the company for the project.

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The company has been exempted from paying federal excise duty, sales tax and withholding tax on imported construction materials and goods used in the construction of CPEC’s Sukkur-Multan section.

The FBR said that it has the powers to give exemptions after the ECC decision with the approval of the Minister-in-Charge. However, the Sindh High Court (SHC) has already struck down these powers, terming them illegal and unconstitutional.

Published in The Express Tribune, February 28th, 2018.

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