Uch gas field compression project in jeopardy

ISLAMABAD: The fate of $82.3 million Uch gas field compression project is in jeopardy as the joint venture of the Sui Northern Gas Pipelines Limited (SNGPL) and a local emerging firm that had won the contract of the project is in shambles.

The firm has enchased the bid bond of Sui Northern worth Rs135 million on March 3, 2023 over a failure of depositing the performance guarantee of Rs1 billion.

The decision made Oil and Gas Development Company (OGDCL) unhappy as the company doesn’t want to afford any delay in completion of the project.

The Uch gas field compression project is scheduled to get completed and commissioned by July-September 2024 under the gas sales agreement (GSA) with the French company owning Uch power plant.

If the project gets delayed, then OGDCL’s repute will not only be at stake but it will have to pay a penalty of $6,60,000 per day to the French company.

When contacted, a spokesman of the OGDCL said the joint venture rifts were not welcoming. However, he added, OGDCL management was committed to completion of the project on time and it has all rights to evaluate all options, including encashment of bid bond of the local firm of worth Rs267 million.

“We cannot afford any delay and do not want to waste the time anymore,” the spokesman said, adding OGDCL was likely to encash today (March 17, 2023) the bid bond of Rs267 million for not providing the performance bank guarantee, which is the 10 percent of the total cost of the project.

“Fifteen days have elapsed but the firm has not deposited performance bank guarantee,” the source said.

A spokesman of Sui Northern confirmed that the firm had encashed its bid bond of Rs135 million over the failure of depositing Rs1 billion performance guarantee.

When asked if Sui Northern management had engaged the firm not to encash its bid bond, he said the BoD would meet next week and would take a decision if it was to be part of the JV with the firm or not.

The spokesperson said if Sui Northern’s BoD extended its performance guarantee, the firm might re-deposit SNGPL bid bond with the bank.

However, OGDCL top management sensed that Sui Northern was not in a state of urgency about the Uch gas filed compression project, and the firm had not deposited the performance guarantee even after a lapse of 15 days. OGDCL has made up its mind to encash the PDIL bid bond today (Friday) so that it could float fresh tender to complete the project on time, according to OGDCL management. The flow of low BTU gas in the Uch gas field has gone down and to maintain the flow of the gas to Uch power plant with the required pressure, OGDCL had announced to initiate the Uch gas field compression project and floated the tender for the project.

Sui Northern and the firm inked the joint venture between them for installing the compressors after the firm had won the tender. It deposited the bid of Rs267 million in favour of OGDCL for ensuring the performance bank guarantee on time. The total cost of the project stands at $82.3 million out of which the share of Sui Northern is $39 million, which was to be arranged by the management through the bridge or short-term finance. Around $4.9 million out of $39 million pertained to local services to be provided by SNGPL.

"SNGPL was to earn $2 million after the investment of $39 million. The share of the firm was at $43.3 million. The MD, under the rules, had the financial powers to ink the project worth Rs140 million for local and $5 million for imports,” the spokesperson said.