Power sector ‘racket’ unearthed by World Bank

Power sector ‘racket’ unearthed by World Bank

ISLAMABAD: The World Bank has unearthed a “racket” of 23 Pakistani companies which were awarded all contracts of projects undertaken by the Distribution Companies (Discos) and National Transmission and Despatch Company (NTDC). This report has been prepared by the World Bank Group (WBG) Integrity Vice Presidency (INT), which provides the findings of an administrative inquiry into allegations of corrupt, fraudulent, collusive, and/coercive practices.

According to the report, in July 2008, the International Bank for Reconstruction and Development (IBRD) entered into a loan agreement with the Government of Pakistan (GoP) for the Electricity Distribution and Transmission Improvement Project, financing of which was supplemented by two International Development Association (IDA) credits. The Project closed in February 2014.

The Project sought to: (i) strengthen the capacity of distribution and transmission networks to meet the increasing electricity demand in selected areas; and (ii) strengthen the institutional capacity of selected distribution companies and support other priority areas of power sector reform. The project was implemented by Pakistan Electric Power Company and multiple regional electric power distribution companies.

The INT initiated its inquiry in response to a report regarding a “cartel” operating in the electricity sector in Pakistan. The Report stated that at least 23 companies had organized themselves into “cartels”.

The INT’s administrative inquiry focused on six Project-financed contracts to supply certain electricity transmission equipment. Bidders of the companies have been described by the authors of the report as “cartel members”.

According to the World Bank, “evidence” indicates that for years, the publicly procured market in Pakistan for certain electricity transmission equipment was controlled by a group of companies; specifically, “evidence” indicates that Group members arranged in advance which companies would win particular contracts, including World Bank-financed contracts, and collaborated on bid prices.

“Evidence” indicates that the Group covered all tenders for this type of equipment by electric power distribution companies, including those financed by the project. “Evidence” indicates that prior to 2007, four companies had captured close to 80 percent of the market. Four companies formed the Group, decided to avoid competition, and divided public contracts among themselves. Subsequently, two then-new entrants to the market joined the Group.

Although the Group was an informal association, without legal status or offices, it was the platform to settle or cooperate on prices for upcoming tenders, and to designate contract winners. The group members appear to have allocated contracts among themselves to ensure that each member received its predetermined market share. Specifically, evidence indicates that allocation was based on company size and production capacity. When a Group member’s market share deviated from its agreed-upon allocation, the member would either be allocated or not allocated future tenders accordingly.

“Evidence” indicates that bid prices were set either during a Group meeting or before a bid opening, so that the other companies knew what price to quote in order to support the collection-selected contract winner. In some instances, the predetermined winner would instruct other Group members on appropriate bid prices.

The World Bank Group further states that “evidence” indicates that the Group was headed by a Chairman and whoever convened a Group meeting acted as Chairman for that meeting. The group meetings appear to have been convened by either a phone call or a fax to members and were generally held after the official announcement of a tender, but before the tender opening date.

“Evidence” indicates that Group members arranged the winner and price for contracts through manipulation or recommended for rebid.

“Evidence” indicates that at a Group meeting in July 2009, members agreed that so and so company would be the lowest bidder and would thereby win contract; if the Group had initially allocated the contract to another company member it agreed to reallocate the contract to a third company because, at the time, one company was lagging behind its agreed-upon market share. In October 2010, the contract was awarded to third company.

Initially, the Group allocated contract to one company. Although the company had quoted the lowest price, when the one percent federal excise tax included in another company’s bid was deducted from the bid price, its bid became the lowest. “Evidence” indicates that at a subsequent Group meeting, third contract was allocated to second number company. Evidence also indicates that the first company considered this a simple error by the second company and did not contest the award as it expected to be compensated in other tenders. In May 2009, the second company was awarded the contract.

The World Bank imposed administrative sanction of debarment with conditional release on Third number company (company C) and the successor entity to 2nd company (company B successor). These sanctions extend to any legal entity that the companies directly or indirectly control. (Business Recorder).

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