Bapex finally breaks free from red tape, to buy €20m rig

January 31, 2009

Sharier Khan
Bangladesh Petroleum Exploration Company (Bapex) has outwitted a five- year-old vicious cycle of bureaucratic bottleneck to procure a drilling rig for 20 million euro to expand its oil and gas exploration capacity.
After four rounds of failed tender bids since 2004, Bapex succeeded in its fifth round tender opened in April last year.
On January 20, the company finally signed a deal with Sichuan Hong Hua Petroleum Equipment Co (Shhpec) of China to supply a “2000 HP” rig along with accessories. The sophisticated parts of the rig would come from west Europe and the US and the rest from China.
“We expect the rig well before the end of 2010,” says Muhammad Imaduddin, managing director of Bapex.
While it now produces a paltry 40 million cubic feet gas per day (mmcfd), Bapex’s production is set to grow up to 140 mmcfd from 2011.
During that time, Bapex as the country’s lowest cost operator is expected to be involved in several drilling programmes for itself and as contractor for other companies operating in the country and thus help increase local gas production.
All the four previous bids to purchase the rig, except the first one, fell flat because every time Bapex floated a tender, the lowest price offer turned out to be 20-30 percent higher than the government approved budget.
Each time Bapex went back to the authorities and returned with a revised budget the price offers in the next tender turned out to be higher than the revised budget. Each re-tender process was claiming a year’s time.
Just when this was becoming a perpetual cycle, Bapex did something different to break the vicious cycle.
“This time we went for the fifth re-tender without revising the budget first,” Imaduddin said.
Typically the tender evaluation process for selecting complicated equipment like a drilling rig needs three months. Bapex utilised these three months for fixing a new budget on the basis of the initial impression of the price offers submitted by six bidders. This revised budget was sent to the Executive Committee on National Economic Council (Ecnec) for approval within three months of opening the tender.
Being used to budget revision and re-tendering, Ecnec sought to know that there would not be a re-tendering. Bapex explained how it devised the budget and why it believed that this would be successful.
The Ecnec has approved the budget. Now with a letter from the energy ministry, Bapex will obtain an approval of the Bangladesh Bank to open a Letter of Credit (LC) against which the Chinese company would build and supply the rig.
The first bid held in 2004 drew a price offer of Tk 70 crore but was cancelled due to pressure from the then state minister for energy AKM Mosharraf Hossain.
Apparently Hossain did so under pressure from a local agent of a bidder that was not the lowest responsive one. The next tender drew a lowest price offer of around Tk 140 crore. From then on, the project was hovering around budget revision.
A Bapex official said: “Of course the project price has increased. Given the dollar and euro exchange rates, the 20 million euro rig in terms of taka was costing us around Tk 210 crore last year. The same has come down to Tk 182 crore now.”
An influential retired army official cum politician campaigned hard with the caretaker government to cancel this bid on ground of high project cost. Actually, the price of the rig increased by $2 million between 2004 and 2008.
Bapex presently has three rigs — two capable of deep drilling — but all are old. The need for the new rig was felt long ago. “In its absence, Bapex could not expedite enough works. We hope from 2011, we’ll expedite a higher number of drilling activities,” Imaduddin noted.
Since its inception in 1989 as an independent national exploration organ, Bapex was allowed to take up only seven projects till last year.
The caretaker government took an interest in gearing up the country’s only exploration arm by allowing it to take up a seven-year plan under which an investment of Tk 3,200 crore will be pumped into Bapex in the next seven years.
The schemes are workover of Fenchuganj well-3 and drilling a new well, procuring a workover rig, undertaking appraisal drilling of well in Srikail hydrocarbon structure, development drilling on Saldanadi Gas Field, Begumganj Gas Field Development Project, drilling four exploratory wells in Block-8 and 11, Shailokupa Exploratory Well Drilling Project, Jaldi Exploratory Well Drilling Project and Sitakundu Exploratory Well Drilling Project.


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