Crucial repairs to petroleum pipelines in limbo | Sunday Observer

Crucial repairs to petroleum pipelines in limbo

Despite a strong direction by a three-member Cabinet Sub-Committee in November 2017 to reconstruct and make operational Sri Lanka´s main pipelines which carry refined petroleum products from the Colombo Port to the Kollonnawa storage tanks, ‘within three months’ of the order from the Cabinet, Ceylon Petroleum Storage and Terminals Ltd, (CPSTL) has been unable to carry out the necessary repairs.

According to a letter sent by the Operations Manager of the CPSTL, a joint venture company where the majority of the shares are held by the Petroleum Corporation, to its Managing Director, in April this year, five months after the direction from the Cabinet, only one out of the three pipelines from the Harbour to Kolonnawa is currently operational. “Only the 10 inch diameter gas oil line is remaining for all white oil (refined petroleum products) unloading operations,” the letter states.

According to the Operations Manager, the existing line, said to be more than 80 years old, is also experiencing frequent leakages. “If any leakage happens in a place where it’s inaccessible, we are unable to unload Jet A-1, 95 Petrol and Super Diesel to the country,” the letter, sighted by Sunday Observer, states.

“This will be a big threat to the energy security of the country,” the Operations Manager states while pointing out that long delays in unloading using only a single 10” diameter pipe, around 160 hours, or around six and half days to unload a typical tanker of 40,000 metric tons, is causing “ huge costs” due to lay time and demurrage costs to shipping lines and the port.

The Cabinet Sub-Committee was appointed by President Maithripala Sirisena to inquire into reasons behind the petroleum shortage crisis that occurred last October. The Committee, headed by Minister Sarath Amunugama, attributed the lack of functioning oil transport pipelines to Sapugaskanda, Kolonnawa and Muthurajawela storage installations as one the three main reasons for the structural weaknesses that contributed to the shortage, recommending that these structural weaknesses must be reconstructed and be operational within three months.

While rehabilitation of a 12-inch diameter pipeline that was abandoned in 2015 was tendered early in 2017, the tender is yet to be finalised with unsuccessful bidders appealing to the Presidential Procurement Appeals Board (PAB) against the award of the project to a Malaysian Company, whose bid amount was nearly twice that of the lowest substantially responsive bidder, a Sri Lankan company with an Indian joint venture partner.

In a note to the Cabinet in January this year, Minister of Petroleum Resources Development, submitted that the lowest substantially responsive bidder had extended the validity of the bid security with conditions and that therefore their bid cannot be accepted. The bidder appealed against this decision to the PAB.

The Minister, in his note, also recommended to negotiate with the second lowest bidder to have a “fair reduction of the price quoted” as the difference in pricing was more than Rs. 230 million. However, the reduction offered by the second lowest bidder was less than four million rupees. According to the appeal made by the lowest bidder to the PAB, the second lowest bidder should be disqualified from the bidding process as they had not complied with a mandatory requirement to quote for all of the options, but had quoted for only two of the four options for the rehabilitation of the pipeline.

According to the note to Cabinet from Minister Ranatunga, if the tender cannot be awarded to the second lowest bidder, it is recommended to call for fresh bids, using the Limited International Competitive Bidding (LICB) method where only the substantially responsive bidders from the earlier bid are re-invited, with a very limited time frame for a response and to follow the single envelop method where the technical proposal and the financial proposal are evaluated at the same time.

Despite Sunday Observer making repeated calls to the Secretary of Petroleum Resources Development Ministry, Upali Marasinghe, we were not able to contact him.

However, speaking to the Sunday Observer, Managing Director of CPSTL, Sanjeewa Wijeratne said that it is unethical for him to comment on tenders as he is not involved in the Tender Board.

Pointing out that more than 90 percent of the 12-inch pipeline has been rehabilitated, except for a single section in Mahawatta where the traverse of the pipeline is through a series of illegal structures he said that they are waiting for a direction by relevant authorities as removal of illegal squatters cannot be handled by them.

“There are about 140 families. We are waiting for a direction from the National Economic Council as to what to do with them. We have neither legal obligation nor legal right to give housing to illegal squatters on a land that does not belong to us. We are trying to resolve the issue soon,” Wijeratne said.

In the meantime, a stopgap measure taken by the CPSTL to repair a shorter 24-inch pipeline has also ended in controversy. A National Competitive Bidding Procedure was followed to award a tender to lay a ‘trenchless’ casing pipe (without digging a trench) across and under the Orugodawatta rail crossing with an internal engineer’s estimate of Rs. 30 million where the tender was published on January 4 and closed a week later on the January 11 given the exigencies involved. The lowest bidder for this tender was a company that had an Indian registration (and therefore not qualified to bid for a national competitive bid) and the bid amount was Rs. 5.175 million, substantially lower than the engineer’s estimate of Rs. 30 million. The next most substantially responsive bid was at Rs. 32 million, much closer to the engineer´s estimate.

One of the main conditions of this bid was that all work must be completed within ten days of the award.

However, according to a document signed by the Procurement Manager of CPSTL on April 23 this year as a Procurement Committee submission to the management of CPSTL, “it was noted that project progress was very slow”, nearly three months after awarding the contract where it was specifically noted the work must be completed within ten days of the award.

The Procurement Manager had stated that the delayed progress of work was due to a delay in obtaining “approval for design from the Ceylon Government Railways (CGR) and Central Engineering and Construction Bureau” and reports that it was decided to terminate the existing contract, forfeit the performance security of the original contractor and recall bids after revising the bidding document to transfer the cost and responsibility of obtaining permission to CPSTL.

According to the minutes of the CPSTL Department Procurement Committee of January 17, three days after the original tender closed, the Indian company had admitted “that being an overseas company, he has no idea regarding payments for CGR and other authorities”… but “had agreed to carry out the tender with all the terms and conditions of the bidding document.”

Despite the track record and an immediate disqualification that must be imposed on the original contractor according to Procurement Guidelines which state that no bidder whose performance security is forfeited can partake in a subsequent tender for the same contract, the tender was re-awarded to the Indian company on April 27.

According to an appeal sent to the Chairman, Parliamentary Committee On Public Enterprises (COPE) by one of the unsuccessful bidders in the subsequent tender, the original Indian company had offered a price of Rs. 21.7 million with a 64m long drilling path instead of 34m path which is specified in the Bid Document. “For these additional 30m drilling length, CPSTL has to buy additional carbon steel pipes that cost around Rs. 20 million and takes more time to complete. With the client’s additional cost involved, the total cost for the project would be more than Rs. 40 million which is higher than our cost,” the appeal states pointing out that they “are dismayed and surprised that, this lowest bidder, who was blacklisted for not executing the previous tender after it was awarded was allowed to participate in this tender.”

While the new bid value is nearly four times more than their original bid, bid conditions were changed only to minimise the cost and that should not have had a cost increase, but a cost decrease, the appeal states.

CPSTL MD, Wijeratne speaking on the issue said that the design given by the Central Engineering Consultancy Bureau (CECB) was not approved by the CGR.

“Therefore, instead of a 32-line cut we had to increase it to 62 metres. So it is not the contractor’s fault but a design change. We have selected the lowest bidder and we have saved the company nearly Rs. 14 million. Because the second lowest offer was around Rs. 33 million and the bid was awarded it to a party which has offered us Rs. 17 million,” Wijeratne said while reminding that the price is not the only factor that is taken into consideration while awarding tenders.

Despite the increased bid amount, Sunday Observer has learnt that up to now, the work has not been completed, nearly two months after the award of the second tender, which also stipulated the work must be completed within ten days.