Grain storage facility project fails to attract bidders
November 20, 2012
‘Modern grain bulk storage facility project’ has failed to attract investors/bidders due to strict conditions, and not a single company has participated in the tenders. Sources told BR on Monday that with an aim to introduce latest technology and international best practices in grain storage and handling and enhance the provinces’ food security, the two provincial governments (Punjab and Sindh) has decided to setup grain storage capacity in their 12 different cities.
In this regard the governments of Sindh and Punjab appointed International Finance Corporation (IFC) as its transaction advisor for implementation of Public Private Partnership (PPP) project for the transaction and operational of modern grain bulk storage facilities (BSFs).
The basic aim behind this project was to encourage private investment in the agricultural industry leading to improved operational efficiencies and reduce financial loss to the government and consumers from wastage/ damages during grain handling and storage. Presently, thousands of tons wheat every year has been damaged in these two provinces because of unavailability of proper storage facility. Under project it was planned to encourage private sector for setting up of storage facility, which will be solely used by Punjab and Sindh governments for storage of wheat and other grains.
Construct, finance and operate BSFs under long-term Build-Own-Operate (BOO) Concession Agreement (CA) with provincial Food Department was basic role of the private sector in this project. Initially, some seven firms in Punjab and three in Sindh were pre-qualified for bidding and accordingly invited to participate in the tendering process of grain storage PPP project.
Macto Rice (Pvt) Ltd, Khwaja Bashir group consortium, Pak-Turk Consortium, Sadiq Feeds (Pvt) Ltd, Fauji Akbar Portia & China Harbour Engineering Company Consortium, Chawalwalls Consortium and Multi Grain Consortium pre-qualified for Punjab Multi-Grain Storage PPP Project, while in Sindh three companies including Macto Rice (Pvt) Ltd, Pak-Turk Consortium and Fauji Akbar Portia & China Harbour Engineering Company Consortium pre-qualified.
Before bidding, a pre-bid meeting was also arranged by IFC to discuss the investment and technical issues. In pre-bid meeting investors/ pre-qualified parties also showed their reservations on strict tender conditions and in the light of companies concerns, some changes were made.
As per revised schedule for submission of bids for Multi-Grain Storage project of Punjab government, October 5 was the last date for bid submission, however not a single pre-qualified party/investor participated in the tender. The same situation was appeared in Sindh government’s tender for Modern Grain Storage Facility, whose last date for bidding was fixed October 16, but no company participated in the bid.
Sources said that strict tender conditions had restricted investors/companies to participate in the tender of Grain Storage Facility projects of both provinces. Although some demands of investors/pre-qualified companies were accepted in the pre-bid meeting, however there were many conditions, which did not allow the companies to participate in the tender.
The project is very expensive as it has been designed to incorporate modern grain storage system and technology to ensure the quality of stored grain to be maintained as per agreed specifications. While, on the other hand investors have concerns that provincial governments will not be able to pay high storage cost of these storage system. “It’s a mega project and needs billions of rupees investment to build the storage facility. However, as per tender condition, it was mandatory for a company to complete all storage units planed under the projects in any province,” they added.
The project aims at adding approximately 250,000 metric tons of storage capacity in Sindh and some 350,000 tons in Punjab, which were tendered together as part of the proposed transaction. BSFs to be built in five districts including Karachi, Ghotki, Sanghar, Khairpur, S Benazirabad, identified by the government of Sindh, while each site will comprise 50,000 tons of storage facility.
In Punjab, two groups were designed for 350,000 tons of multi-grain storage facility. Under the Group A, 200,000 tons of storage was planned in Lahore, Sahiwal, Bahawalpur and Bahawalnagar, while in Group B, 150,000 tons of storage facility was designed in Multan, Muzaffar Garh and Rajanpur. Each site also has storage facility for 50,000 tons. As per initial estimates, an amount of over two billion rupees will be required for establishment of one unit of 50,000 tons of storage facility according to demand/specification announced by the provincial governments and IFC.
According to tender term and conditions, a single party can bid only for the complete project not for the single unit (50,000 tons), it mean if a party bids for development of storage facility in Sindh it has to arrange an amount of over Rs 10-12 billion to initiate the project. “This is a huge amount and not possible for single company to manage funds” the sources added.
“They were also asking for a fully automation storage facility, of which wheat storage expanses will rise by 200 percent and we don’t think that government will pay this huge amount,” they said. Not only the provincial government, but bidder would also require to pay 0.1 million dollar to IFC on account of consultancy fee, as IFC was working as a transaction advisor on the project, they pointed out.
They said multiple fines, high cost, high consultancy fee and strict conditions were some of the reasons of which not a single company had participated in both tenders and a modern storage facility project in danger. According to terms, winning bidder was required to create a Special Purpose Vehicle (SPV) that will be an entity created specifically to only undertake operations under the CA and Ownership of all projects related asset/liabilities will remain with this SPV.
In addition, Performance Operator will be responsible for ensuring BSFs operation as per detailed performance specification in the CA- failure to do this can lead to the termination of the PPP agreement. They have suggested provincial governments to issue a tender for setting up of silos, which will also work like these planned storage facility. Silos can be setup with a very minimum cost, which will be half of current project.
“In addition, if government wants to setup storage facility suggested by IFC, it should allow pre-qualified parties/company/investors to bid for a single unit of 50,000 tons instead of complete project and revise the tender conditions. This will attract investors to participate in the tender,” they added.
Although, both governments agreed for guaranteed payment to the operator under long-term PPP contract for provision of grain storage and handling services, despite that investors did not bid for a single project ahead of their concerns. Meanwhile, an official working on the project has said that conditions were being revised and new bidding date will be announced soon. “We are in touch with all investors/ parties and consulting for changes in the tender term and condition,” he said, adding a meeting with companies was scheduled next week and hopefully all matter would be resolved.