$500m kickbacks feared in PIA 777 deal
24 February, 2012
ISLAMABAD: The controversial US$1.5 billion (Rs140 billion) PIA-Boeing deal has now become scandalous with the Transparency International Pakistan (TIP) smelling possible kickbacks of US$500 million (almost Rs46 billion) and the Public Procurement Regulatory Authority (PPRA) confirming that the PIA has gone for the purchase of five Boeing ER 777-300 without floating any tenders.
Following The News (a local newspaper) report on the controversial deal as published on Thursday; the National Accountability Bureau has also started looking into this deal but without any clear indication if it could dare touch the case for a fair probe.
On Thursday, the TIP approached the top managements of both the PIA and Boeing Company with all its reservations vis-a-vis this agreement, signed between the two only a few days back. Adil Gillani has told this correspondent that hehad sought the copies of the Evaluation Report and Contract Agreement.
He said the under the deal, each Boeing ES777-300 is to be purchased for an exorbitant price of US$300 million. This price of one aircraft, he explained, is 50% higher than the current market price.
Referring to a complaint the TIP received, Gillani said that it was reported that Saleem Sayani, the Deputy Managing Director of the PIA in a meeting held last week of January 2012, had informed about the PIA plans to procure five widebodied new Boeing ER777-300, at an estimated cost of around US$200 million each. Gillani says he does not know how the price shot up to US$300 million for each plane.
Quoting the complaint, he said even Saleem Sayani's proposal was vehemently opposed by Aziz Suharwardy, flight Engineers National Association (FENA), Capt Sohail Baloch, President Pakistan Airline Pilots Association (PALPA), Shaukat Jamshaid, President Society of Aircraft Engineers of Pakistan (SAEP), and Najeeb ur Rehman, President Aircraft Technologists Association of Pakistan (ATAP).
"If this is correct, then the exchequer is losing US$100 million per plane, which is US$500 million," Adil Gillani said. He added that the complainant has also reported that one Boeing ER777-300 was also sold in similar clandestine manner by Boeing to M/S TAAG Angola Airlines in June 2011, and the cost was US$256 million, almost US$44 million less than the price announced in the PIA-Boeing deal.
The TIP, in its letter, warned the PIA top management that in case the allegations are found to be true, this procurement is to be examined under Public Procurement Rules 2004, Rule No 2(f) "corrupt and fraudulent practices" which covers collusive practices among bidders (prior to or after bid submission) designed to establish bid prices at artificial, non-competitive levels and to deprive the procuring agencies of the benefits of free and open competition.
"This is to inform PIA and Boeing that TIP has confirmed from PIA and PPRA websites that this procurement of five new Boeing ER 777-300, (380-400 passenger seater) wide body long haul planes is/was never advertised on PIA and PPRA websites. The tender invited for narrow body 39 aircraft by PIA and opened on 23rd January 2012 was the following; "Pakistan International Airline (PIA) invites "sealed bids" from interested parties for the Dry Lease of same type of thirty nine (39) narrow body jet aircraft with seating capacity of around 140 passenger seats for ten (10) year lease period. PIA will prefer new aircraft."
When The News (a local newspaper) contacted PPRA authorities, they also confirmed that the PIA had never floated any tender, which under the rules is not only shared with PPRA but is also displayed at its website. On condition of not being named, a PPRA source said that it seems that the PIA had wrongly used an alternative method to avoid tendering process.
He explained that Rule 42C of the PPRA Rules do allow an alternate method of procurement without tenders. But such purchases are allowed only where the item required falls in the category of "proprietary items", which means the item required is of proprietary nature and is produced by only one company.
The PPRA source said that such an application of Rule 42C for the purchase of Boeing ER 777-300 does not make any sense because there are other companies in the world that build aircraft, including bigger planes like Airbus.
PIA spokesman Syed Sultan Hasan had denied the TIP's claim on Wednesday and insisted that the procurement of five new Boeing ER 777-300 worth US$1.5 billion were being purchased from Boeing company only after following proper tendering procedure and with the knowledge of the PPRA.
The spokesman had also claimed that the PPRA had vetted their case (contract), a fact that was categorically denied by PPRA. Meanwhile PIA has issued a detailed clarification saying Ansar Abbasi's story is not based on facts.
The PIA spokesman said the correspondent has mixed up the tender floated for acquisition of Narrow Body Aircraft (A) with the agreement with Boeing Co for Boeing 777 aircraft (B), where as the two cases have no link.
Giving out what the spokesman said were the facts, the clarification said: PIA Board has approved PIA's Fleet Plan 2020. For better economics of operation, PIA shall have three types of fleet:
1. B-777 family for operation on USA, Canada, UK, Europe and Saudi Routes of high density;
2. Narrow Body aircraft for operation on all routes to the East Asia, Gulf, Middle East, Regional and High Density Domestic Routes and
3. ATR family for operation on Low Density Domestic and Regional Routes.
"PIA plans to phase out its aged B-737 aircraft, the choice of selecting the Narrow Body Aircraft is open. PIA has not selected any particular aircraft as replacement. Following the PPRA Rules, PIA floated a tender on December 04, 2011, for offers of 39 Narrow Body aircraft to be delivered between 2012 and 2020, as per the schedule of deliveries given in the tender document. The document stated that "two stage two envelope method" shall be followed.
The technical and financial evaluation criteria were part of the tender document placed on PPRA and PIA websites. The advertisement was printed in two international and two Pakistani newspapers/magazines.
The document was very elaborate and the process was completely transparent.
The tenders were opened on 23rd January 2012 (49 days after placement of advertisement and uploading of tender on the websites). None of the proposals met PIA requirements. Financial proposals, therefore, were not even opened.
(B). Boeing 777 Aircraft: The decision to select Boeing 777 family was taken in 2002. PIA operates a fleet of nine 777 aircraft. PIA shall be disposing of five aged B-747 and 12 A-310 aircraft very soon. It needs replacement of capacity shortfall of Boeing 747 and A-310 on the long haul routes. Additional aircraft are also required to meet growing capacity requirements of future. The approved fleet plan, therefore, envisages induction of 7 additional wide body aircraft of Boeing 777 family up to 2020.
Why Boeing 777? PIA is operating B-777. Therefore, logically additional wide body aircraft have to be of the same family. Induction of any other type will be un-economical as additional training and additional spares inventory will increase the cost. Mixed fleet will not allow inter changeability of aircraft as well. PIA, therefore decided to induct aircraft of the same family i.e. Boeing 777.
Boeing made its last offer to PIA in October 2011. The Boeing B-777 aircraft are in demand and it is difficult to get slots from Boeing. PIA and Boeing Co were engaged in negotiations since Oct 2011. After negotiating the concessions and discounts and receiving confirmed offer for deliveries in March to November 2015, PIA decided to finalise the arrangements. MoU was concluded on 15th November 2011 during Dubai Air Show (before floating of tender for Narrow Body) and the agreement for five confirmed 777 and purchase rights for additional five was signed on 14th Feb 2012 at Islamabad.
PPRA Article 42 provides for "Alternate Methods of Procurements", and clause (c) sub-clause ii & iii, elaborate these exceptions as under: Direct Contracting: A procuring agency shall only engage in direct contracting if the following conditions exist, namely: (ii) Only one manufacturer or supplier exists for the required procurement:
Provided that procuring agencies shall specify the appropriate fora, which may authorize procurement of proprietary object after due diligence; and
(iii) Where a change of supplier would oblige the procuring agency to acquire material having different technical specifications or characteristics and would result in incompatibility or disproportionate technical difficulties in operation and maintenance:
Provided that contract or contracts do not exceed three years in duration."
Besides the above 2 conditions, there are five other conditions in this article. As the PPRA article stated CONDITIONS and not any of the conditions PIA sought clarification from PPRA on December 13, 2011. PPRA replied on December 20, 2011 that for invoking rule 42 (c) any one of the condition listed there under, from (i) to (vii), is required to be met.
After receiving the clarification, PIA decided to conclude agreement with Boeing through "Direct Contracting". The agreement was inked on 14th Feb 2012 and not on 21st Feb 2012, as mentioned in the press report.
The correspondent has mixed up the two cases and the date of signing of the agreement is also not correct. Ansar Abbasi adds: The report was based on the letter of Transparency International and The News (a local newspaper) stands by what it had reported.
