Delay in engine procurement causing losses

While Pakistan Railways is facing acute shortage of locomotives, which has stalled the freight sector and resulted in suspension of main line passenger train linkages, causing extensive loss of revenue; the extensive delay in procurement of engines is also causing a recurring financial loss of Rs125,000 per day as commitment charges, Profit learnt on Monday.
Official documents made available to Profit reveal that Federal Secretary Railways Division Arif Azim has pointed out that in locomotives purchase, deviation from Public Procurement Regulatory Authority (PPRA) Rules has not only delayed engines purchase, but also led to a recurring loss of Rs125,000 per day as obligatory payments comprising commitment charges. In a summary prepared for the Economic Coordination Committee (ECC) of the Cabinet, Railways Division Secretary pointed out that some 50 locomotives were to be assembled at Locomotive Factory, Rislapur, but delay in finalisation of procurement deal had resulted in idling of the factory, besides creating an acute shortage of engines.
Official summary indicates that procurement of 75 diesel electric locomotives was approved by Executive Committee of the National Economic Council (ECNEC) in its meeting held on December 14, 2005 at a cost of Rs12.7 billion, with a foreign exchange component of Rs8.4 billion. Contract agreement of $105.143 million duly vetted by the Federal Law and Justice Division was signed between the Government of Pakistan and M/S Dongfang Electric Corporation, China on December 31, 2008.
It shows that a down payment of $15.771 million, comprising 15 per cent of the contract amount was released to the firm in June 2009. Buyer’s loan agreement was signed with Export-Import Bank of China on December 14, 2009 and an amount of $10.801 million was transferred to China Exim Bank and Sinosure in March 2010. However, letter of credit (LC) has not yet been established.
Official documents further point out that the National Assembly Standing Committee (NASC) on Railways referred to certain procedural flaws, like deviations from various clauses of the PPRA Rules 2004. However, on the advice of the Law and Justice Division, PPRA was requested by the Ministry of Railways to seek necessary exemption of PPRA Rules from the competent authority. But, PPRA informed that the authority has not been entrusted with the necessary power to condone violations of Public Procurement Rules, 2004. PPRA Ordinance provides powers to exempt which is ex-ante (before the event) exemption and the power is vested with the Federal Government to grant exemption under Section-21 of PPRA Ordinance, 2002.
Official summary highlights that process of procurement was stalled due to intervention of Lahore High Court Rawalpindi Bench. On establishment of the Islamabad High Court, the case was transferred to the Islamabad High Court. Restraining order of Lahore High Court against procurement of locomotives and disbursement of dues dated October 29, 2010, has been dismissed as withdrawn by virtue of the orders of the Islamabad High Court dated September 19, 2011.
It indicates that the Prime Minister constituted a committee headed by the Planning Commission Deputy Chairman and secretaries of the Ministries of Finance, Railways and Pakistan Railways General Manager to look into the allegations leveled in the media with regard to the procurement of locomotives from China for resolution of the case. Documents show that the Prime Minister has desired that request for exemption from PPRA Rules may be put up before ECC for consideration. Approval of the cabinet is solicited for granting exemption /condonation of non-observance of PPRA Rules 2004, referred to in paragraph 3 ante to enable Pakistan Railways to establish a Letter of Credit for expeditious procurement of locomotives.