The government is likely to clear a controversial deal to procure 75 diesel locomotives from China by setting aside PPRA rules of 2004, fearing that cancellation of the contract will adversely impact economic relations between the two countries, sources told Business Recorder.
The issue has been thoroughly deliberated by the Federal Cabinet this week and referred to the Ministry of Law and Justice for final comments.
Official documents obtained by Business Recorder showed that the Cabinet in its meeting held on January 4 this year constituted a committee to look into the matter and report back to the Cabinet.
The committee in its second meeting held on February 20th 2012 constituted a sub committee headed by Secretary Interior comprising Secretary Railways and Director general FIA as members to examine the entire procurement process with reference to PPRA Rules, point out deviations, if any, to examine the possibility or any other criminal liability, fix responsibility on those involved and make specific recommendations and suggest a way forward.
The Federal Investigation Agency (FIA) carried out an investigation and submitted the report to the concerned committee.
According to the Ministry of Railways, the procurement of 75 diesel electric locomotives was approved by Executive Committee of National Economic Council (Ecnec) in its meeting on December 14, 2005 at a cost of Rs12.7 billion with Foreign Exchange Component (FEC) of Rs8.4 billion.
Contract for $105.143 million was signed between Pakistan and M/s Dongfang Electric Corporation, China on December 31, 2008. However, National Assembly Standing Committee on Railways referred to certain procedural flaws, a deviation from PPRA rules 2004, rectification of which requires exemption by the competent authority.
On the advice of the Law, Justice and Parliamentary Affairs Division, Ministry of Railways sought necessary exemption from PPRA rules. PPRA, however, indicated that it has not been entrusted with the necessary power to sanction violations of PPRA rules 2004.
The Cabinet was further informed that an amount of $15.771 million comprising 15 per cent of contract amount was released to the manufacturer in June 2009 as advance payment and an additional $10.801 million was paid out to China’s Exim Bank in March 2010 on the conclusion of the loan agreement.
Moreover, the government of Pakistan became liable to payment of commitment charges of $1,489.53 per day from January 2010 (0.6 per cent) on utilized portion of the loan. These commitment charges for the first eight days i.e. January 13-20, 2010 have already been paid ($11,915.24).
Since then, a liability of $1.46 million has piled up over a period of 979 days as on September 17.
The Ministry of Railways argued that it is absolutely essential that a decision be taken either way to avoid recurring losses from commitment charges which would be viewed very seriously by audit authorities.
The Ministry resubmitted the case to the Cabinet for a decision either to grant condonation in accordance with the proposal deliberated on January 4 this year by the Cabinet or to cancel the contract for procurement and initiate fresh tender proceedings. However, cancellation of contract would have the following implications: (i) the decision could affect other loans being negotiated with China; (ii) it could impact adversely on economic relations between the two countries considering especially that supplier of the locomotives had planned for production; (iii) it could result in legal complications in case the manufacturer or the guarantor bank disputes Pakistan’s unilateral action; and (iv) the locomotives have been negotiated at a rate of $1.4 million each and procurement through a fresh tender at this rate is highly unlikely.
After detailed discussion, the Cabinet decided that Ministry of Law should examine the whole issue and submit its recommendations to the sponsoring Ministry before the next meeting of the Cabinet. All relevant documents required by the Ministry of Law and Justice in examining the issue would be provided to them by the concerned Ministry/ Divisions.
The Cabinet also decided that Ministry of Railways should submit the case in the next meeting along with report of the committee constituted by the Cabinet on January 4 this year and recommendations of Ministry of Law and Justice. Mushtaq Ghuman for Brecorder.