Thromde tied up in pipe procurement knot worth Nu 4M

Officials did not show prudence, probity and due diligence: RAA

Tshering Palden and Tashi Dema 

Thimphu thromde officials allegedly paid more than Nu 4M as excess payment to a contractor involved in procuring pipes and accessories without showing prudence, probity and due diligence.

According to a report issued by the Royal Audit Authority (RAA), the payment was released at an inflated rate.

The case pertains to pipes procured from a contractor to retain budget from a World Bank-funded project, Bhutan Urban Development Project (BUDP), the thromde executed.

Thromde officials conducted a meeting in 2019 and decided to retain Nu 30 million (M) from BUDP to lay the pipeline from Samtenling to three tanks in Motithang.

In the meeting, it was decided that the project implementation unit (PIU) should procure the pipes even if they could not execute the work. “The tender committee, instead of tendering the procurement of pipes and accessories, decided to purchase directly from a contractor involved in the Dodena water supply line as decided in the meeting,” the report stated. “It was also decided that payment should be released to the contractor against the original invoice of the supplier from India.”

However, contrary to the decision, Nu 20.6M was allegedly released to the contractor based on pro forma invoice, which is a preliminary bill of sale sent to buyers in advance of shipment or delivery of goods.  The PIU did not even obtain original invoices for the final settlement of bills.

Rate analysis conducted by RAA showed overpayment.

PIU officials responded that payment to the contractor was released on a pro forma invoice to utilise savings under the project and augment water shortage.

It stated that RAA has worked out the excess payment made to the contractor based on tax invoice produced by customs office in Phuentsholing. “PIU was not aware of it unlike the RAA, who has access to and authority to verify at that stage.”

PIU requested RAA to further review excess payment based on the prevailing market rate and not on the basis of the tax invoice, which may have been undervalued by the contractor at the entry point.

The contractor involved also responded that the rate for the pipes was not static and it changed every month due to market forces.

RAA concluded that, while taking cognisance of the need for DI pipes, as water shortage complaints are increasing, funds available from the World Bank for the project had huge cost implications to the government exchequer, as it was a loan contributing to public debt. “Therefore, the decision to utilise the savings for future activities was devoid of any prudence and probity.”

It asked the PIU to investigate its claim of undervaluation by the contractor at the point of entry. “Such unethical practices, if true, should be reported to the appropriate authority for further investigation as per the law.

RAA, however, opined that the price declared at the entry point on the basis of the original export tax invoice might not have been undervalued, as there was no apparent incentive to the company resorting to such means.

It stated that the exporter in India could instead benefit from the CGST, SGST and IGST credits for those exports, which are considered zero-rated supplies as is evident from the export tax invoice declared at the customs office in Phuentsholing.

RAA also stated that thromde’s decision to pay the contractor based on the original invoice of the supplier from India shows it did not exercise due diligence to ascertain the actual input costs of DI pipes. “Instead, the PIU was apathetic about its decision and without appropriate diligence and prudence made huge excess payment.”

It also opined excess payment could have resulted due to direct award of supplies to the contractor forgoing procurement norms. “The project manager also did not verify the analysed rate project engineer submitted. It was a gross oversight.”

RAA asked thromde to recover Nu 4M and deposit in the audit recoveries account. “The management should take appropriate actions against the officials responsible for the lapses and making excess payment from the loan amount, which has implications on the public debt.”

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