Essar and Valentine face tough ONGC negotiators

Vol 18, PW 1 (28 Aug 14) Exploration & Production

Essar Offshore and Valentine Maritime are learning the hard way that bidding lowest in an ONGC tender is no guarantee of a contract.

ONGC is expected to negotiate hard with both companies who bid lowest in two separate offshore Mumbai pipeline laying tenders. When ONGC opened price bids on August 11 to lay 14.7-km of pipeline at the C-26 cluster, Essar quoted lowest at $34.01m; Swiber came next with $34.24m; followed by Valentine with $42.10m and L&T with $66.99m.

Normally Essar would get the contract but ONGC’s internal estimate was just $15.7m. Why the big difference? ONGC’s estimate, explains a source, is based on the ongoing Rs1417cr ($236m) PRP-III project off Mumbai where 194.06-km of pipeline is being replaced for $1.6m/km.

But as the volume of work in the C-26 project is much smaller, unit costs increase. “Because overheads like barge rentals and operating expenses remain constant, unit costs of smaller projects rise,” says a source.

“Essar’s quote is reasonable. It has estimated unit costs at $2.1m/km.

” But ONGC is unlikely to be convinced: top management even wants negotiations with Valentine which bid close to ONGC’s internal estimate in the Mumbai High North Redevelopment tender to lay 21 pipelines adding up to 176.9-km. When ONGC opened price bids on July 22, Valentine quoted $215m (Rs1294cr), marginally higher than ONGC’s $211m (Rs1264cr) estimate.

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