House backs Saipem for pipeline project
JAKARTA (JP): House of Representatives' Commission V has recommended that Italian firm Saipem receive priority to take over the natural gas pipeline project in the South China Sea from the Indonesian unit of American construction company J. Ray McDermott SA.
The head of the commission, Marzuki Achmad, told The Jakarta Post on Friday that it recommended state oil and gas company Pertamina cancel McDermott's selection for the project after evidence was found that the company engaged in corrupt practices to win the tender. The commission's scope of supervision includes mines and energy.
Marzuki said Saipem, which placed second in the bidding for the project, should be given priority to take over the project, based on stipulations in presidential decrees No. 16 1994 and No. 7 1999 concerning tenders for government projects.
"If Saipem is not ready to take over the project, ETPM (of France), which placed third, may take over the project," Marzuki said.
"If ETPM is not ready to take over the project, the project should be given to Nippon Steel, which placed fourth."
McDermott won the project with the lowest bid of US$335 million, followed by Saipem ($373 million), ETPM ($383 million) and Nippon Steel ($484 million).
The project entails construction of a 560-kilometer underwater pipeline for the transportation of natural gas from the gas fields, owned by Pertamina's production sharing contractors grouped in the West Natuna Gas Consortium, to Singapore.
The consortium comprises Premier Oil of Britain, Conoco Inc. of the United States and Gulf Resources of Canada.
Pertamina reached a deal early last year to supply natural gas to Sembawang Gas of Singapore for 22 years starting in April 2001.
Pertamina has come under fire for approving the selection of McDermott by the tendering team formed by the consortium.
Several legislators said McDermott Indonesia was unsuitable to handle the project due the involvement of tycoon Mohamad "Bob" Hasan, a close associate of former president Soeharto.
A special team formed by the commission to study the tendering process determined that McDermott benefited from insider information on the project, which was reportedly leaked by employees who formerly worked with Conoco.
The information enabled McDermott to offer lower costs than those offered by competing bidders, the investigation found.
It also found documents showing that Conoco asked Pertamina to award the project to McDermott without competitive bidding, but it quickly withdrew the request after Soeharto resigned in May last year.
The special team recommended the government and Pertamina nullify the selection of McDermott.
Marzuki said the commission approved the recommendation and submitted its final approval to the House's leadership board on Friday.
"House leaders will submit the recommendation to the government," Marzuki said.
He said some commission members wanted Pertamina to retender the project, but most members proposed that the projects be transferred to McDermott's competitors in the bidding.
"It may take four months to retender the project that there is a possibility that the construction of the pipeline will not be finished on schedule," Marzuki said.
"As such, the recommendation explicitly says that the projects should be transferred to McDermott's competitors, with those offering the lowest bid given the first chance to take over the project."
Pertamina earlier said McDermott might demand compensation for the losses caused by the cancellation of its contract.
Marzuki and head of the special team Rahardi Sayoga said both the special team and the commission anticipated the worst possible consequences of the annulment of the contract.
"The contract does not clearly state the consequences of the cancellation of the contract.
"Furthermore, the most important thing for us is that we are going to uphold correct ways of business in this era of reform," Rahardi told Post. (jsk)