Poor quality: Company uses scrap in the manufacture of transformers

FIA books firm for supplying substandard goods, causing big loss.

LAHORE: The Federal Investigation Agency (FIA) has booked a firm for supplying transformers made with substandard material, causing a huge loss to the national exchequer on account of line losses.

A senior official of state-owned National Transmission and Dispatch Company (NTDC) has also been nominated in the case for facilitating the company, The Express Tribune has learnt.

The action was taken following an inquiry, conducted by the NTDC on the directive of Pakistan Electric Power Company (Pepco) managing director, which confirmed that recycled silicon steel and recycled or waste oil of transformers were used by the manufacturer.



A three-member committee said three manufacturers – AB Ampere, Hammad Engineering Company and Pan Power International – were found utilising less-than-imported quantity of silicon steel core in the manufacturing of transformers.

In its report, the committee said the manufacturers involved in the multi-billion-rupee scandal had obtained only a small quantity of the purchased material compared to the actual quantity used in the manufacturing of transformers.

This could prove that the material used in the transformers was purchased from an unauthorised source and they were made of scrap.

The manufacturers were asked to justify the shortfall in purchases, but they could not come up with an explanation during the course of the inquiry.

According to the record of transformers supplied, the committee said it showed a shortage of core material totalling 353,780 kg.

These findings were based on the documents provided by local manufacturers of transformers, verified by supporting documents and circumstantial evidence. The committee was of the opinion that action could be taken against these firms.

A complaint lodged by the Distribution Transformer Manufacturers Association China with the FIA and Pepco pointed to the fast growing business of selling transformers, made with low-quality material, to Pepco at prices of transformers produced with brand new material.

The association alleged that the procurement agency was involved in pre-qualifying some favourite persons for the supply of transformers, although they did not have appropriate manufacturing facilities.

As the transformers that Pepco bought were made of scrap as core material, they lasted only one-fourth the age of transformers made with new silicon steel core, it said. In this way, Pepco officials caused a huge loss to the exchequer because it annually spent over Rs25 billion on the purchase of transformers.

Transformers are a key component in the power transmission system. The NTDC has a specific code for the oil and silicon steel – two basic items used in manufacturing transformers – to ensure the life of transformers for a specified period.

The specifications make it mandatory for the manufacturers to import core material (silicon steel) from western Europe, North America, Japan, Australia and New Zealand.

“The FIA, on the basis of these complaints and after finalisation of its inquiry, has registered a case against one of the companies and action against the rest will be taken after completion of inquiries into their conduct,” a senior FIA official told The Express Tribune.

An FIR registered with the FIA ACC Police Station against Hammad Engineering Company and Muhammad Afzal, Deputy Director Material Inspection NTDC Lahore, says: “During the course of enquiry, it was established that Hammad Engineering Company is involved in using low-standard silicon steel sheets in violation of Wapda rules and regulations which caused huge line losses.

“Hammad Engineering Company tried to cheat the FIA by providing forged customs documents indicating that goods declarations/customs documents were cleared.”

Similarly, it said, the company also purchased 99,210 kgs of electrical steel sheet from Data Ali Hajvery and Company, Lahore in violation of rules and regulations during 2007. The company violated the terms and conditions set by Pepco/NTDC for import/use of raw material.

In this way, the FIR said, Hammad Engineering committed fraud, forgery and criminal breach of trust. Muhammad Afzal and others facilitated the company in the manufacturing of poor-quality transformers. The role of others would be determined during the course of investigation, it said.

Published in The Express Tribune, March 4^th, 2014.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.