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Petitioner: Khawaja MUHAMMAD ASIF VS Respondent: FEDERATION OF PAKISTAN and others
Court Name: Supreme Court of Pakistan Judge(s): Jawwad S. Khawaja, Iftikhar Muhammad Chaudhry, Gulzar Ahmed Title: Khawaja MUHAMMAD ASIF vs FEDERATION OF PAKISTAN and others Case No.:Constitutional Petition No,5 of 2011 and Human Rights Case No,15744-P of
2009Civil Appeals Nos. 149 and 150 of 2010Suo Motu Case No, 13 of 2009S.M.C. No, 18 of 2010 Date of Judgment:2013-12-04 Reported As: PLD 2014 Supreme Court 206 Result: Order accordingly Judgment JUDGEMENT JAWWAD S. KHAWAJA, J.---Although the record of this case is voluminous, the relevant facts necessary for its disposal are fairly simple. Pakistan has been blessed with a vast array of natural resources including mineral oil and natural gas. The people of Pakistan are the ultimate owners of such resources through their Governments and State enterprises such as Sui Southern Gas Co. Ltd. This petition filed under Article 184(3) of the Constitution raises issues of public importance relating to such natural resources with reference to the enforcement of the fundamental rights guaranteed by the Constitution. Parties and Background. 2.The matter relates to the award of a project through competitive bidding, by respondent No. 2 namely, Sui Southern Gas Company Limited (SSGCL) to the respondent No. 3 namely, Jamshoro Joint Venture Limited (JJVL). SSGCL is a State enterprise incorporated under the Companies Ordinance, 1984. SSGCL has an authorized capital of Rs.10 billion of which Rs.6.7 billion is issued and fully paid up. The Government along with State owned entities owns more than 67% of the shares of SSGCL. In 2003 when the aforesaid contract was awarded all 14 Directors on the Board of SSGCL were Government appointees. Today, 11 out of the 14 Directors are nominees of the Government. SSGCL is a Public Limited Company listed on the Karachi Stock Exchange. 3.JJVL is an unlisted limited Company incorporated under the Companies Ordinance, 1984. It was incorporated for the purpose of making a bid for the aforesaid project which was aimed at extraction of Liquified Petroleum Gas (LPG) from natural gas mined in Badin and supplied to
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SSGCL under a Gas' Sales Agreement (GSA) dated 12-8-2003. The contract was awarded to JJVL in circumstances which are considered below and provide the subject-matter of the petition. 4. To facilitate understanding of the issues arising in this petition it is appropriate to summarize briefly and in simple terms, some technical aspects of LPG. The natural gas which is received by SSGCL under the GSA is made up of a mix of gases. These include propane, butane and methane. Butane and propane, when extracted from the mix, are liquefied and sold as LPG. As a result of extraction of LPG from natural gas, there is a reduction in the remaining volume and calorific value of natural gas which reduction is known in technical terms, as "gas shrinkage". The volume of gas shrinkage is a factor to be considered in deciding the terms for awarding the project for extraction of LPG. LPG is presently being used in Pakistan amongst others, by persons who for various reasons are not receiving or using natural gas. 5.We can now state some relevant facts which, in the main, are not disputed. SSGCL invited Expressions of Interest (EoI) through public advertisements inter alia, in the Daily "Dawn" dated 13-3-2000. Bids for pre-qualification of prospective bidders were invited through public advertisements through the press, including the Daily "Express" dated 11-11-2000. The invitation to bid was for an LPG extraction Plant on a "Build Operate Own" (BOO) basis. Although bidding documents were obtained by nine parties only six of these were pre-qualified and from these only JJVL submitted a bid. It may be noted that this bid was made without a bid bond although this was an essential prerequisite for valid bid as per requirements of clause 5.0 of the Instructions to Bidders. 6.Notwithstanding the aforesaid defect in the bid made by. JJVL, SSGCL decided to accept the defective bid and to enter into negotiations with JJVL whereafter the two parties executed an Implementation Agreement (IA) on 12-8-2003. Under the IA, JJVL was to establish a Plant for extraction of LPG from natural gas supplied to it by SSGCL. JJVL was, inter alia, to pay a compensation price to SSGCL for gas shrinkage and also royalty payments on the LPG extracted by it. The rate of royalty and the differences between SSGCL and JJVL in respect of the same is an important aspect of this case as will be examined shortly. 7.The petitioner before us is Khawaja Muhammad Asif, who was a member of the opposition in the National Assembly in 2011 when this petition was filed. Currently he is a part of the Government being the Minister for Water and Power in the Federal Cabinet. Learned counsel for some of the respondents contended that the proceedings could not continue subsequent to the petitioner being appointed a Federal C Minister. We, however, are of the opinion, for reasons appearing below, that this petition raises issues of vital public importance impacting the fundamental rights of the people, and therefore, must be heard. It is by now well-settled that the Court's jurisdiction under Article 184(3) can be exercised even without a petitioner when information is, laid before the Court which justifies the exercise of such jurisdiction. Therefore, the proceedings can continue in the same manner as before. 8.The petitioner has approached this Court under Article 184(3) of the Constitution. It is his case that the extraction agreement awarded to JJVL was neither lawful or fair nor was it transparent. According to him, it was meant to extend illegal and undue favours to JJVL at the cost of the State and the People of Pakistan. He, referred firstly; to the acceptance of the bid submitted without a bid bond; secondly, to the calculation of royalty payments by JJVL at rates different from those agreed, thus causing a very substantial loss to SSGCL and; thirdly, to the changes made in the draft Implementation Agreement (forming part of the bid documents) to extend undue benefits to JJVL. 9.We can now consider these aspects and, the respective contentions of learned counsel representing the parties.
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Lack of Bid Bond. 10. At the outset it may be stated that as per Instructions to Bidders the bid submitted by JJVL on 12-9-2001 could not have been treated as valid because it was not accompanied by a bid bond. Part C Clause 5.0 of the Instructions to Bidders expressly stipulated that the "bidder at its cost shall submit a Bid Bond as part of its Bid for an amount of US$ 100,000 (United States one hundred thousand) or in equivalent Pakistani Rupees based on prevailing inter bank exchange rate". The bid bond was to be submitted as part of the Technical Proposal. The absence of a Bid Bond constituted a major defect in JJVL's bid because the Bid Bond constituted an integral aspect of the Bid. The envelope containing the Financial Proposal could not have even been opened when the Technical Proposal was not accompanied by the mandatory Bid Bond. This is apparent from Part C, Clause 5.4 of the Instructions to Bidders, which reads, "Any Bid not accompanied with Bid Bond of required amount will be considered as non-responsive, rejected by SSGC and D returned to the Bidder." It will thus be seen that rejection of the bid made by JJVL was obligatory. The unjustified acceptance of such bid also constituted unfairness and illegality in the bidding process inasmuch as other potential pre-qualified bidders were never informed that they could submit bids without bid bonds. It appears from the record that a bid bond was subsequently furnished when JJVL became sure that the other pre-qualified bidders had not submitted bids. Neither SSGCL nor JJVL were able to proffer any explanation to justify such a material departure from the requirements of a valid bid. Learned counsel on behalf of JJVL argued that the lack of a bid bond was a mere technical irregularity which could not be a ground for striking down the whole transaction. This contention cannot be accepted. As stated above, furnishing the Bid Bond was clearly an essential condition of the bid and therefore, could not be deviated from. It is apparent from this circumstance that the bidding process leading to the award of the LPG extraction project to JJVL was tainted from its very inception and was geared towards advancing benefits and unfair advantage to JJVL by eliminating potential pre-qualified bidders who were not afforded the same favourable treatment as had been given to JJVL. 11. There is another significant aspect of the case, arising from the failure of JJVL to submit a bid bond as required by clause 5.0 (Bid Bond) of the Instructions to Bidders. We have noted that in the 311th meeting of the Board of Directors of SSGCL held on 15-11-2001, one of the Directors had suggested re-bidding for the extraction project. This suggestion was not accepted and it was decided "to let the management proceed with evaluation and take the decision when the matter would [come to the Board] with management's recommendations". It is important to note that the decision of the Board of Directors of SSGCL was based on a rime prepared by the management of SSGCL. This note dated 13-11-2001, quite strangely, did not inform the Directors that the bid submitted by JJVL could not have been treated as valid because it was not accompanied by the mandatory bid bond. It does appear that the E aforesaid material defect was deliberately concealed from the Board of Directors with the object of eliminating competition and giving undue benefit to JJVL. The Board itself was kept in the dark and if informed, would- surely have taken note of the defective bid submitted by JJVL. There was no explanation forthcoming during the arguments advanced on behalf of JJVL as to why an essential condition of the bid had not been met by JJVL. Nor is there any justification given by SSGCL as to why such bid had not been rejected for this reason. It is pertinent to observe that the Note to the Board of Directors dated 13-11-2001 detailing the acceptance of JJVL's bid does not mention the fact that JJVL did not submit a bid bond. Thus, it appears that an attempt was made from the start, to conceal the fact that JJVL did not submit a valid bid. It is quite clear that such concealment could not have occurred in a transparent and fair transaction. Royalty Paym ents.
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12. We can now take up the matter of royalty payments. According to the petitioner the royalty payments under the IA were to be calculated with reference to the Saudi Aramco reference price. The essential feature of the tender documents, inter alia, was that the bidder offering- the highest amount of royalty and compensation for gas shrinkage etc., for the gas processed would be the successful bidder. Our attention was drawn to a letter dated 28-4-2003 written to SSGCL by Iqbal Z. Ahmad, Chairman/CEO of JJVL. In this letter it had been agreed that the Saudi Aramco ex-refinery price would be used as the basis for calculating royalties payable to SSGCL. It was also specifically stated in the said letter that Vor an apple-to-apple comparison, it is required that the Local Ex- Plant prices be compared with Saudi Aramco's Ex-Plant prices and not with C&F Karachi price that includes various third party costs and government fees and levies etc." 13. It is relevant in this Context to note the letter from JJVL to SSGCL dated 5-9-2002, wherein JJVL had expressly agreed to the following: "Reference price of LPG should be Saudi Aramco's prices of Propane and Butane in the ratio. Of 60:40 published in international Butane-Propane Newsletter plus LPG freight cost or local refineries cost other than PARCO, whichever is higher shall be taken for calculation of royalty." (emphasis added). Most importantly, as per Instructions to Bidders in relation to royalty payments, it was stipulated that "the bidders will be required to propose the maximum amount of such royalty on a per-MCF basis'. A Letter of Intent (LOI) was to be issued to the successful bidder. As noted elsewhere in this opinion, the LOI in terms of the Instructions to Bidders was issued to JJVL by SSGCL on 28-62002. The LOI was duly accepted by JJVL and as per accepted and agreed terms, the royalty payments were to be made on the basis. Of Saudi Aramco reference price plus freight if such price was higher than the price of locally produced LPG. It is thus abundantly clear that JJVL had been willing and had agreed not only to pay the Saudi Aramco price, but also to pay the freight cost if the same was higher than the local price. However, this entire scheme of royalty payments suddenly and inexplicably was altered in favour of JJVL in the final Implementation Agreement, clause 9.2 of which reads: "9.2. Royalty shall be calculated with reference to a "Reference Price". The highest ex-plant/ex-refinery price in Pakistan for LPG during a Month of one of the producers identified in Schedule 9 hereto will be used as the reference price for calculation of Royalty for such Month subject to a minimum price of US $250 per metric tonne." (emphasis added). There is no correspondence on record nor was any explanation offered on behalf of JJVL as to why this change occurred in the final Implementation Agreement despite the fact that JJVL had clearly agreed on multiple occasions to reference the royalty payments to the Saudi Aramco price with freight cost or local price, whichever is higher. This material change has, according to SSGCL, caused loss to it, of an amount in excess of Rs, 22 billion to date. Thus, it is clear that the Implementation Agreement was entered into in a non-transparent and highly questionable manner resulting in undue benefit to JJVL and very heavy losses to the State enterprise SSGCL and consequently to the People of Pakistan. 14. It is not disputed that since the date of the Implementation Agreement, JJVL is paying royalty at a rate which is well below the reference price based on the Saudi Aramco price plus freight cost as had been specifically agreed. This has caused billions of rupees worth of loss to the State enterprise SSGCL and this, in turn, has adversely impacted, inter alia, its ability to invest in the improvement of its facilities and services to its consumers. Instead of the pricing formula agreed as above, the ex-refinery price of LPG produced in Pakistan has been used even though it is substantially lower than the Saudi Aramco price plus LPG freight cost. When confronted with this material deviation from the agreed basis for royalty payments, learned counsel for JJVL could not dispute the deviation but stated that even in respect of the Saudi Aramco reference price, the same had to be on FOB basis and according to him, if so calculated, no loss had been caused to SSGCL. This submission is wholly contrary to the agreed basis which provided for royalties to be
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calculated on higher of the two i,e, FOB Saudi Aramco plus freight and the ex-refinery price of LPG produced in Pakistan. 14. SSGCL has calculated the difference in royalty payments on the agreed basis and those made so far. If this figure is taken as an approximation, JJVL owes more than Rs, 22 billion by way of royalty payments if freight is calculated at US $50 or over Rs, 23 billion if freight is calculated at US $60. For reasons appearing in the concluding paragraphs of this opinion, it is not necessary for us to determine in this opinion, the exact amount of short payment. We do, however, note that the royalty payments have not been made by JJVL to SSGCL in accordance with the agreed basis referencing such payments to Saudi Aramco prices FOB plus freight. Clause 9.2 of the Implementation Agreement constitutes a gratuitous and unlawful favour bestowed on JJVL. Furthermore, it must be noted that the first draft of the Implementation Agreement dated 6-11-2002 contained the wording of the letters dated 28-4-2003 and 5-9-2002 mentioned above; i,e, that JJVL would use the Saudi Aramco rate as reference price and also pay freight cost. However, with no justification or explanation, the "corrected draft" of the Implementation Agreement dated 19-5- 2003 (less than a month subsequent to the letter dated 28-4-2003) removed this stipulation of royalty that JJVL had expressly agreed to. There is no correspondence or minutes on record to indicate why this material change occurred which allowed JJVL to pay a much lower amount of royalty. The Implementation Agreement executed between SSGCL and JJVL thus represents a significant loss to the State owned utility and thus ultimately to the People of Pakistan. <u.material></u.material> Material Changes to the Implementation Agreement. 16. The next issue arising in the case relates to changes which were made in the Form of the Implementation Agreement. Such Form had been made part of the bid documents provided to the pre-qualified bidders. According to the petitioner, these changes were of a material nature and were meant to alter the terms of the Implementation Agreement to the advantage of JJVL. Learned counsel for JJVL did not dispute the fact that these changes constituted deviations from the Form of the Implementation Agreement which had been given to interested bidders. He, however, contended that such deviations were not of a material nature and further that. The changes did not bestow any advantage on JJVL. For reasons considered below, we have found these submissions to be untenable being without merit. 17. In order to examine the importance of the Implementation Agreement and the relevance of the changes made therein after the conclusion of the bidding process, it is necessary to set out the significant aspects of the bid documents, the bidding process and the form of the Implementation Agreement which was the most important element in the bidding documents. In the case of a fair and transparent process of competitive bidding, the bid documents constitute the basis on which assessm ents, calculations and the bid itself are prepared by the bidders. This is meant to ensure that the bidding is even-handed and provides for a fair, transparent and objective evaluation of bids received. 18. As noted above, the bid documents in the present case included a draft format of the Implementation Agreement which was to be the main instrument setting out the respective rights and obligations of SSGCL and J the successful bidder. It is understandable that some parts of the Implementation Agreement have to be filled in on the basis of bids received, for example the royalty payment formula, compensation for gas shrinkage, compensation for acquisition of the plant etc. Or to accommodate language etc. Which does not materially alter the terms of the Implementation Agreement. If material changes are brought about in the Implementation Agreement subsequent to the bidding, this will in fact negate the notion of a fair and open competitive bidding process. In the K present case, it has all along been urged by JJVL that the bidding for the LPG extraction plant was competitive i,e, that bids were to be submitted on the basis
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of the bidding documents (including the draft Implementation Agreement) which were given to all pre-qualified bidders. The fact, however, is that the Implementation Agreement which was executed by SSGCL in favour of JJVL was very substantially and materially different from the draft Implementation Agreement. As will be apparent from the changes made in the draft Implementation Agreement, all such changes as have been discussed below were material in nature and had been made to benefit JJVL. These changes were never available to other pre- qualified parties. 19. It is necessary to examine what these changes were to appreciate the submissions of the petitioner and JJVL. The Form of the Implementation Agreement which was part of the bidding documents defined GSA to mean "the Gas Sales Agreement between BP Pakistan Exploration and Production Inc., Oil and Gas Development Company Limited, Occidental Petroleum (Pakistan) Inc. And Government Holdings (GOP) dated 28-11-1988, as amended from time to time." This clause was altered in the Implementation Agreement which was executed between SSGCL and JJVL so that the last few words of the definition of GSA would read "as amended and extended from time to time " (emphasis added). The record before us, which is considered below, provides the context within which the significance and materiality of this change can be very easily seen. Likewise, Article 2 of the draft Implementation Agreement was changed. In the Form issued with the bidding documents given to all bidders, Article 2 stipulated that the Implementation Agreement "shall commence and be effective on the date hereof, and shall, unless terminated earlier in accordance with its terms, continue in full force and effect until the validity of the GSA, which is currently valid up to the 3rd of February, 2011" (emphasis added). To this stipulation of the Implementation Agreement, the words "It is agreed that the Agreement shall continue on the same terms and conditions for any extension of the GSA beyond 3rd February, 2011" were added. 20. According to the petitioner, the above noted two changes made in. The Implementation Agreement were meant to bestow undue favour and advantage to JJVL because these modified terms were materially in favour of JJVL but the same advantageous terms had not been provided to other potential bidders. It is thus clear that the Implementation Agreement which was finally executed between SSGCL and JJVL was significantly different from the Form of the Implementation Agreement which was handed out to at least six pre-qualified bidders who had received the bidding documents. 21. We can now examine the submissions made on behalf of the parties in the context of circumstances which emerge from the record. No reason whatsoever has been given as to why SSGCL would give up its potential and possibilities beyond 3rd February, 2011 on which date the Implementation Agreement was to expire. It was not argued on behalf of JJVL that it was at a disadvantage by continuing with the Implementation Agreement on the same terms and conditions, after 3rd February, 2011. In fact, to the contrary, JJVL filed a suit in the Sindh High Court (Suit No, 151 of 2011) seeking inter alia, an injunction to restrain SSGCL from terminating the Implementation Agreement. The plaint in the suit as well as the order dated 1-2-2011 passed by the Sindh High Court granting a temporary injunction make it abundantly clear that JJVL placed reliance on the wording which had been added to Article 2 whereby it had been agreed that the Implementation Agreement "shall continue on the same terms and conditions for any extension of the GSA beyond 3rd February, 2011". In this regard, it is useful to reproduce an extract from paragraph 14 of JJVL's plaint which avers "that by virtue of Article 2 thereof, the term of the Implementation Agreement is linked to the validity of the GSA. In plain words, Article 2 states that the Implementation Agreement will continue beyond 3 February, 2011 on the same terms and conditions if the GSA is extended beyond the said date... "(emphasis added). There can be no clearer proof of the fact firstly; that JJVL considered the aforesaid changes in the Implementation Agreement to be material and secondly; that these changes were favourable to JJVL and thirdly;
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that even today JJVL is receiving undue benefit (i,e, extension of the Implementation Agreement) after 3-2-2011 which would not be available to it but for the unwarranted and unlawful additions made in the Implementation Agreement noted above. 22. The learned Bench of the Sindh High Court, in its order dated 1-2-2011, has granted the interim injunction sought by JJVL, as a result of the changes introduced in the Form of the Implementation Agreement. This is evident from the fact that the said Order has prominently reproduced and relied on the aforesaid changes in the Implementation Agreement. JJVL is still continuing to operate the LPG extraction plant because of the changes made, inter alia, in Article 2 of the Implementation Agreement after the competitive bidding process had been concluded and even though the other pre qualified bidders had been given no opportunity of basing their bid on the Implementation Agreement as modified for JJVL. These circumstances substantiate the point that JJVL itself considers the aforesaid deviations to be material and also to its advantage. We, therefore, are unable to accept the contention of learned counsel for JJVL that the deviations were insignificant or that the same did not make any material change in the Implementation Agreement to favour JJVL. Considering that these changes were made gratuitously, and in a…
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