Awarding $53 m Gas Station to Chevron Petrobangla ignores a host of questions

Petrobangla continues to hammer hurriedly awarding US oil company Chevron the contract for an over- priced gas compressor station project in the Gas Transmission Company Ltd (GTCL) system through a questionable process by totally sidelining a host of technical and financial questions raised by a GTCL consultant, sources said. Gas compressors have become necessary for GTCL as they help increase gas flow and pressure at a desired rate, which is currently being compromised. Petrobangla Chairman M Muktadir Ali wrote to the energy ministry on July 26 to approve awarding the deal for the project in the GTCL’s system in Muchai for $ 52.7 million in favour of Chevron, the cost of which will be recoverable from the Production Sharing Contract (PSC) for Block-12. But sources said, according to the GTCL consultant, Chevron has not yet submitted its detailed technical and price proposals for Muchai station. An energy ministry approval would actually give Chevron a go- ahead without scrutinising what the GTCL is buying. The GTCL is not a signatory to the PSC, and there is no instance of any PSC operator like Chevron operating on any system owned by a national company. The Petrobangla chairman in a letter to the energy ministry earlier had said Article 15 of the PSC with Chevron accommodates the company’s installation of compressor. But other officials contradict this interpretation. Petrobangla is Chevron’s PSC partner, and all explorations and development work under the PSC are approved by a set of committees for financial and technical issues concerning Petrobangla and Chevron. The GTCL has no role or even remote involvement in such approval process. Sources said the cost-recoverable Chevron’s Muchai station’s actual cost would be much higher than $ 52.7 m because this cost does not include two years’ operation and maintenance cost or that of spare parts. Again, the sources also raised questions whether Petrobangla could bypass the cabinet’s approval for imposing a cost of $ 52.7 m for a GTCL project outside a PSC area just by making an interpretation of a PSC clause in favour of it. “Besides, where is the mechanism to see if it is a fair price? Where is the competition and transparency,” asked a GTCL source. Since there is no legal instrument that allows a private company to work in the GTCL’s system, Chevron is expected to sign a partnership contract with the GTCL to cover the legal gaps which exist till now. A Chevron source had earlier told The Daily Star, “The compression project will be implemented within the terms and conditions of the PSC. Upon completion and cost-recovery, the compressors will be handed over to the custody and jurisdiction of GTCL to operate.” Petrobangla’s move to award the deal to Chevron raises further questions because the GTCL board headed by the Petrobangla chairman in May had cancelled a GTCL tender to award contract to Korean company Hyundai to install three compressors with Asian Development Board (ADB) funding. The GTCL’s tender was opened in February, but the Petrobangla chairman had asked Chevron for this job in December last year. Meanwhile, a number of experts argue whether having a compressor station at Muchai should get priority over installing compressors at other points. The GTCL pipeline at Muchai point is connected to several large gas fields owned by both Chevron and the Sylhet Gas Fields Ltd. This pipeline has the capacity to supply 1 , 041 million cubic feet gas a day (mmcfd) while it is presently supplying 990 mmcfd. “Gas supply through this pipeline can be increased by 50- 60 million cubic feet a day (mmcfd) by augmenting production in these fields, even without installing compressor,” says a pipeline expert. “By installing compressor, the pipeline will be able to increase only 9 mmcfd gas.” This fact is also stated in the report of an independent consultant hired by the ADB. Meanwhile, in Petrobangla’s July 26 letter to the energy ministry, Chairman Muktadir Ali praised Chevron’s proposal saying that its compressor had “ high horse power”. And he pointed out that Chevron made a technical presentation on July 15 before officials of Petrobangla and GTCL. He claimed that Chevron’s explanation of questions raised by GTCL’s consultant had satisfied all the officials present there. He justified cancellation of a GTCL bid to award contact for three compressor stations with ADB funding saying that the lowest bidder– Korean Hyundai — gave 12 clarifications on its bid to the project’s consultant in May, which the GTCL board did not find acceptable. But sources pointed out that the chairman misinterpreted the project consultant’s stance as the consultant actually recommended considering Hyundai’s bid by taking further clarifications. He also said Hyundai’s price offer for the three compressors was 152 percent higher than the allocated fund. But sources said Chevron’s compressor station project cost is actually 12 m dollars higher than the cost proposed by Hyundai at Muchai point. The GTCL consultant on July 9 posed questions on Chevron’s proposal. These include service year of the compressor station not mentioned; station metering facilities not mentioned; recovered condensate ownership not determined; operational guarantees not mentioned; communication; provision of pipelines not mentioned. TECHNICAL ISSUES IGNORED Unlike the Petrobangla chairman’s claims that Chevron’ s response to these questions were satisfactory at the July 15 meeting, the GTCL consultant in its July 21 letter reiterated that Chevron did not technically address 16 such questions. Chevron rather wanted more time to answer these questions. Quoting the consultant’s letter, GTCL sources said Chevron had commented on and compared its proposal with Hyundai’s without mentioning gas flow condition, design data and tender document requirements. Some of the issues considered by Hyundai were not considered by Chevron. These include metering unit for each discharge pipeline; pipeline by-pass with bore valves; 100 percent station by-pass; VSAT communication system between stations and GTCL head office; shelter and shade for all major equipment; office building; water hydrant system; on-line hydrocarbon analyser; temporary office and accommodation for GTCL personnel during construction and 730 days of Operation and Maintenance (O&M); two years’ O&M; two years’ mandatory spare parts; tax and Vat included in the proposed price (which will be deducted from payments as per rule); conditional discount of $2 million offers and provision for future pipeline and other equipment including spares. ADB’S DIRECTIVE POSE FURTHER COMPLICATIONS The Petrobangla chairman claimed that the ADB had agreed to revise its loan for the compressor project and is likely to give a go- ahead for its retender by January 2010. Instead of three compressors, the ADB would give loan for two compressors since Chevron would install one compressor at Muchai. The GTCL board upon cancelling the compressors’ tender in May wrote to the ADB seeking clearance for re-tendering the compressor project for only two compressors. But instead of okaying the retendering process, the ADB last week wrote to the GTCL to ask Hyundai to extend the validity of its bid and project price by one month. Hyundai’s bid and price offers have remained valid till July 31 though the board had cancelled the tender. “This means that the ADB has not cleared re-tendering and it still considers Hyundai’s bid valid,” explained a source.

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