CPC gets US$1.5 mln from failed tender

Ceylon Petroleum Corporation (CPC) Chairman Asantha De Mel, in defence of last week’s report in The Sunday Times FT on the failed agreement to purchase 500,000 metric tons of gas oil from Indonesian company Titis Sampurna, said there was no improprietysurrounding the agreement.

He believed the reason the company never came through with the goods, was due to a clause inserted into the agreement which called for the cargo to be inspected at the point of origin as well as the Colombo port. The clause specified that payment to the supplier would only be made once the CPC was able to inspect and verify the contents of the cargo. If the CPC rejected the cargo for any reason, it would be considered distress cargo and its value would decrease. This, De Mel said, was the reason why the deal fell through.

De Mel added the CPC went for a one year term contract in order to get a better price from the supplier. Expressions of interest were called for the one year term contracts. The CPC has a list of registered suppliers but De Mel pointed out that there is no point in buying from these registered suppliers as they are unwilling to give any discount. "There is no point in calling these people again because I will get the same price."

An agreement between the CPC and a Singaporean party in the late 1970's for the purchase of bitumen in which the CPC was swindled with fabricated documents led to a huge loss for the Corporation. The Sunday Times FT said last week that after the bitumen incident, the CPC devised an almost foolproof system in order to prevent situations of such nature where potential sellers had to register themselves with the CPC, having proved their credentials.

It was also reported that the present CPC management had deviated from the Cabinet Appointed Tender Board (CATB) approved system of inviting offers for its requirements only from already registered suppliers with the CPC. But De Mel vehemently denied that there was anything foolproof about the system and also explained that to get cheaper and better prices, tenders must be called from everyone, not just the registered companies.

"There is no foolproof system, even after the bitumen problem," De Mel said. "The goods are inspected at the port of loading, even for the companies registered with us. En route, if the cargo is changed and it comes here, the company still gets paid. Whether it is water or oil, the bank has to pay. Now when calling for new tenders, I changed that." De Mel explained that the CPC is asking for an inspection of the cargo in Colombo because when dealing with an unknown party or an unregistered company, additional precautions must be taken. Therefore, the supplier will only be paid upon inspection of the goods. "That means we put in a foolproof system which we introduced because we were going to deal with parties we didn't know.

The problem is that when you add these clauses, none of these guys wants to supply. The suppliers will say that once the cargo comes here and is not accepted, it becomes distress cargo."

De Mel also said a Technical Evaluation Committee (TEC) and the CATB are responsible for selecting the supplier and awarding the contract. "We simply want to get better prices for the CPC and we called for a tender to get the best price." He said he had absolutely nothing to do with the tender board and its decision making.

"If there is any party that the CATB feels is not good, they can reject it. The allegation that this party had bid because I am involved is not true. I don't get involved in the tenders. I have no influence on the tender board." He also added that the company, Titis Sampurna complied with all the conditions set forth by the CATB and submitted a bid bond at the time of submitting their tender and a performance bond once they were awarded the tender.

De Mel also said that Titis Sampurna met with the CPC who also invited bank officials to be present at the meeting, urging the removal of the clause. He said it would have been easy for him to agree to its removal but felt it was necessary and therefore, did not concede to the supplier's demands. "I can't take a US$40 million chance." De Mel also said a tender cannot be accepted without a bid bond. The value of the bid bond submitted by Titis Sampurna was US$1.5 million or Rs.175 million. In the end, the supplier ended up losing the money and De Mel said the CPC became richer by US$1.5 million. A letter dated 15 August 2007 written to Standard Chartered Bank by the CPC shows US$1.5 million as credited to the CPC account.

De Mel further explained that Titis Samurna was offered gas oil at US$ - 3.35 per barrel for a year long contract as opposed to the US$ -0.40 offered by SGG Lead UK, the second lowest bidder and US$ +0.40 offered by Shell U.A.E. which was the third lowest bid. Official documents confirm these bid offers. He said irregardless of whether Titis Sampurna was an unknown company, their offer was far less than SGG Lead and Shell. "How can I take Shell?" he questioned. "There is no comparison."

The CPC is getting ready to call for another tender for better prices. "The only way we can reduce prices is to buy cheaper and the only way we can buy .cheaper is to call for tenders," De Mel said. "I only tried to create a situation where we can earn money. If someone chooses to bid, there is nothing I can do. This was a genuine tender. They bid, they didn't perform and they lost the money. We got US$1.5 million just by advertising for a tender." He also said he has collected over US$700,000 in fines against companies which didn't adhere to certain conditions.

"I'm only trying to do a service to the country," De Mel said. "There is no benefit to me. In purchasing oil, there are approved practices that have to be followed whether I like it or not. We are under a national procurement agency and there are guidelines that have to be followed." He also said that dealing with a registered company does not make it foolproof. "All we know is that they are oil suppliers. They can play us out at anytime.

The cargo is checked here but whether it is right or wrong, the supplier has to be paid."

At the moment, he said the system is not the best but it is hard to change because suppliers don't want it. "Unless we deal with the registered companies, we have to put in more safeguards. I have done everything in the best interest of the CPC." (NG)