SPM Contract Cost Rises by $31m Despite Tender Rules

The government risks paying an additional US$31 million for the operation and maintenance of Bangladesh’s first Single Point Mooring (SPM) facility after taxes and VAT were added to the winning bidder’s original offer, despite tender provisions requiring such charges to be included in the quoted price.

The contract value rose from US$128 million to US$159 million, an increase of about 24.2%, according to sources familiar with the procurement process.

Indonesia’s PT Pertamina Trans Kontinental (PTK) emerged as the lowest evaluated bidder with an offer of US$128 million, which its bid documents reportedly stated included VAT and taxes. The company was subsequently awarded the contract.

However, the evaluation committee reportedly treated the quoted amount as exclusive of VAT and taxes and added around US$31 million under those headings while finalising the contract value.

The addition has raised questions about compliance with the tender conditions, which required bidders to include all applicable taxes, VAT, duties and other charges in their quoted prices.

Clause 27.9 of the Invitation to Tender (ITT) stipulated that bidders must incorporate such costs into their submitted prices. PTK also declared in its bid documents that its offer complied with the ITT requirements.

The General Conditions of Contract further stipulated under Clause 18.1 that the contractor would be responsible for taxes and duties. Clause 62.2 stated that the contract price would not be adjusted for such costs unless explicitly provided for in the contract.

Industry insiders said adding taxes and VAT after evaluating the bid appeared inconsistent with these provisions and had effectively increased the contract value beyond the bidder’s original offer.

“The tender required all applicable taxes, VAT, duties and other charges to be incorporated into the unit rates and total bid price,” said an industry source familiar with the procurement process.

A senior Bangladesh Petroleum Corporation (BPC) official acknowledged that additional amounts had been added to PTK’s bid value. The official said the taxes and VAT were included following recommendations from a consultant on the Public Procurement Rules (PPR), but declined to elaborate further.

The contract dispute comes as the country’s first SPM facility has remained non-operational for more than two years, largely because of delays in appointing an operations and maintenance contractor.

The prolonged delay has forced BPC to continue using lighter vessels to transfer petroleum products from large tankers anchored offshore to onshore storage facilities, incurring substantial additional costs.

Built by China Petroleum Pipeline Engineering Co Ltd (CPPEC), the SPM project was formally handed over to BPC in August 2024. However, sources said the defect liability and guarantee period for rectifying operational faults expired in February this year before commercial operations could begin.

Initially estimated to cost Tk 49.36 billion, the project’s expenditure rose to around Tk 82.98 billion following repeated revisions, according to BPC officials.

Despite the increased expenditure, the facility has yet to complete successful testing and commissioning. Trial operations have failed more than once, preventing the start of full-scale commercial operations, sources said.

The SPM system is designed to transfer imported fuel directly from large offshore tankers to onshore storage tanks through a pipeline network, reducing reliance on lighter vessels.

The project includes a 220-kilometre pipeline network, much of it beneath the Bay of Bengal, and six storage tanks with a combined capacity of 240,000 tonnes. Of the total capacity, 150,000 tonnes are allocated for crude oil and 90,000 tonnes for gas oil.

Once operational, the facility is expected to enable BPC to unload a 100,000-deadweight-tonne tanker within 48 hours, compared with around 11 days under the existing system.

The project is also expected to eliminate lighterage operations, for which BPC currently pays around US$5.50 per tonne. Most of the lighter vessels involved are operated by the Bangladesh Shipping Corporation (BSC).

Transparency International Bangladesh Executive Director Dr Iftekharuzzaman described the reported increase as “a clear cut violation” of public procurement rules and the specific provisions of the tender documents.

He said it was unprecedented for the value of a service contract of this nature to be retroactively increased in a way that allegedly violated provisions intended to prevent such adjustments.

Iftekharuzzaman noted that VAT exemptions might sometimes be considered for infrastructure contracts involving high-value machinery and equipment. However, he said there was no scope for similar treatment in this service contract, particularly because the tender required both VAT and taxes to be included in the bid.

He also raised concerns about the possibility of collusion between individuals within the contracting authority and the international contractor, suggesting that a thorough investigation was needed to establish whether anyone had benefited from the alleged manipulation and the prolonged delay in bringing the facility into operation.

He urged the government not to accept the disputed adjustment and to investigate the matter to ensure accountability.

Market insiders estimate that operating the SPM facility could save the government around Tk 8 billion annually in fuel transportation and handling costs alone.

The latest dispute has intensified questions about procurement compliance, cost control and accountability in a major energy infrastructure project that has yet to deliver its intended operational benefits.