Compressors for Qadirpur: OGDC chooses not to punish errant supplier

The corporation decides against encashing bank guarantee of the US-based company.

ISLAMABAD: The Oil and Gas Development Corporation (OGDC) has chosen to ignore advice of its two key departments which said that bank guarantee of a foreign company be converted into money for breach of contract.

The two OGDC departments had recommended invoking clause 26 of the organization’s May 2009 contract with M/s Valerus Compressor Services USA for the supply of 14 compressors for Qadirpur gas field at a cost of $19.9 million and encash 10 per cent bank guarantee ($2.03 million) and confiscate 5 per cent balance amount of the contract because the supplier had violated the contract terms by supplying modified compressors and indulged in short supplies as well.

Instead of accepting the recommendations of SCM and P&P, the OGDC management has extended expiry date of the bank guarantee – an action apparently meant to give undue favour to the supplier at the cost of the national interest.

When approached for comments, the acting boss of OGDC Basharat Mirza said grant of extension to M/s Valerus is not a special favour and there is no question of encashing bank guarantee. “I am fully aware of the facts of the case in question and will decide whether or not to encash the supplier’s bank guarantee,” he said.

Basharat Mirza claimed that only one department was demanding encashment of bank guarantee and confiscation of balance amount of the contract.

To begin with, Qadirpur Compression Project had cost the OGDC an unusually huge amount of $42million with the construction work costing $24 million and $19.9 million for procurement of 14 compressors, according to a report, a copy of which has been obtained by the Express Investigation Cell (EIC).

The report said it was probably the only project of its kind whose civil work cost exceeded machinery price. The report further said M/s Valerus Compressor Services USA which was given the contract for the supply of compressors in 2009, grossly violated the provisions of the contract by supplying substandard compressors.

Qadirpur field in Sindh was developed in 1996 and it contributed on average 400 mmcfd gas to the system for over one decade. However, the reservoir showed trouble in early 2008 and the production began going down. This unexpected development needed installation of compressors at wellhead to stop further reduction in pressure. The OGDC instead of rising to the occasion kept on wasting time simply in deliberations on whom to award the contract. It finally picked up M/s Valerus USA which instead of honoring contract commitments opted to make a quick buck by supplying modified compressors. Field manager at Qadirpur reported supply of substandard compressor in December 2011.

Published in The Express Tribune, April 16^th, 2012.