The government risks paying an additional $31 million from the public purse for operations 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 bid price.

The contract value for the operation and maintenance (O&M) was raised from US$128 million to US$159 million, an increase of around 24.2 percent, 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, including VAT and taxes, and 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 heads 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. UNB has reviewed these documents.

The General Conditions of Contract (GCC) further stipulated that the contractor would be responsible for taxes and duties under clause 18.1, while 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 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.

When contacted, 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 O&M 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 cost, 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's Executive Director Dr Iftekharuzzaman said the findings represent “a clear cut violation” of the public procurement rules in general and the specific provisions of the tender document in particular.

He also said it was  unprecedented in the awarding of service contracts such as this (operation and maintenance of the SPM facility) for the contract value to be retroactively inflated like this, violating specific provisions of the bid document that prevent such manipulations.

“Sometimes, when import of high value machineries and equipment may be involved in contracts for infrastructure projects, the government may have waived VAT under special consideration. But in a service contract like this there is no scope of such consideration, more so because both VAT and tax were to be included in the bid as per ITT,” he added.

He also expressed concern if  there are enablers for kickbacks within the contracting authority who may have colluded with the international contractor to indulge in such manipulation and benefit from the prolonged failure to start using the SPM facility.

The Government should not only refrain from giving in to this manipulation but also conduct a thorough investigation to ensure accountability of those behind this evil design to add to the public burden, he added.

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 raised further questions about procurement compliance and cost control in a major energy infrastructure project that has yet to deliver its intended operational benefits.