The “racketeering” of the electricity sector discovered by the BM

ISLAMABAD: The World Bank has unearthed a “racketeering” of 23 Pakistani companies which have won all the contracts for projects undertaken by the distribution companies (Discos) and the National Transmission and Despatch Company (NTDC). This report was prepared by the Integrity Vice-Presidency (INT) of the World Bank Group (WBG), which provides the findings of an administrative investigation into allegations of corrupt, fraudulent, collusive and / or 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, whose funding was supplemented by two international development projects Association Credits (IDA). The project was closed in February 2014.

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

INT opened its investigation in response to a report of a “cartel” operating in Pakistan’s electricity sector. The report indicated that at least 23 companies had organized themselves into “cartels”.

INT’s administrative investigation focused on six contracts financed by the Project for the supply of certain electricity transmission equipment. The companies’ bidders were described by the authors of the report as “members of the cartel”.

According to the World Bank, “evidence” indicates that for years Pakistan’s public market for certain power transmission equipment was controlled by a group of companies; more specifically, the “evidence” indicates that Panel members determined in advance which companies would win particular contracts, including contracts financed by the World Bank, and collaborated on bid prices.

The “evidence” indicates that the Group has covered all tenders for this type of equipment from electricity distribution companies, including those financed by the project. The “evidence” indicates that before 2007, four companies had captured almost 80% of the market. Four companies make up the Group, decide to avoid competition and divide up public contracts. Subsequently, two new market entrants joined the Group.

Although the Group is an informal association, without legal status or offices, it was the platform for settling or cooperating on the prices of upcoming tenders, and for nominating the winners. The members of the group appear to have awarded contracts to each other to ensure that each member receives their predetermined market share. More specifically, the evidence indicates that the allocation was based on the size of the company and its production capacity. When a group member’s market share deviated from their agreed allocation, the member would or would not be allocated future bids accordingly.

The “evidence” indicates that the prices of the offers were fixed either at a Group meeting or before the opening of the tenders, so that other companies knew what price to offer to support the winner of the selected contract. In some cases, the predetermined winner would indicate to other group members the appropriate bid prices.

The World Bank Group further states that the “evidence” indicates that the Group was chaired by a Chairman and that whoever called a meeting of the Group acted as the Chairman of that meeting. Group meetings appear to have been called by phone or fax to members and usually took place after the formal announcement of a tender, but before the tender opening date.

The “evidence” indicates that the group members arranged the winner and the price of the contracts by manipulation or recommended for a new offer.

The “evidence” indicates that at a group meeting in July 2009, members agreed that this or that company would be the lowest bidder and thus win the contract; if the Group had initially awarded the contract to another member company, it agreed to reassign the contract to a third company because, at the time, one company was behind in its agreed market share. In October 2010, the contract was awarded to a third company.

Initially, the Group awarded the contract to a company. Although the company offered the lowest price, when the 1% federal excise tax included in another company’s bid was deducted from the bid price, its bid became the lowest. . The “evidence” indicates that at a subsequent meeting of the Group, the third contract was awarded to the second number company. The evidence also indicates that the first company considered this to be a simple error on the part of the second company and did not challenge the award as it expected to be compensated in other offers. In May 2009, the second company won the contract.

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

Copyright Business Recorder, 2021

About Charles D. Goolsby

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