Gujarat encashes PSL guarantee

ADB-backed water pipeline project for earthquake affected areas delayed further

The Gujarat Water Supply and Sewage Board (GWSSB) has encashed PSL's Rs 14 crore bank guarantee. This follows the failure of the Mumbai-based firm to supply pipes for the Asian Development Bank-funded 383 kilometre-long water supply pipeline project in Gujarat.

The state government body has also issued a fresh international bidding notice for the ambitious project.

K Kailashnathan, member-secretary of GWSSB said: "We have recently encashed PSL's bank guarantee. The Gujarat High Court has issued an order allowing us the encash the guarantee. It thus overruled a lower court order. We have also issued a fresh tender notice for the supply of mild steel (MS) pipes."

The project for supplying drinking water to the earthquake affected Jamnagar district has thus got delayed further, causing losses to the tune of Rs 50 crore to GWSSB.

"In spite of the initial delays in the project because the supplier failed to meet the terms and conditions of the contract it signed in last November, we hope to finalise the new vendor within next two to three months," Kailashnathan said.

Admitting that GWSSB has encashed its bank guarantee because of PSL failed to execute the order in time, Balbir Punj, director of PSL, said: "Within few days of signing the contract in last November, price of steel soared. The GWSSB order was not a cost effective proposition given that we had to import steel for such a pipeline contract. There were definitely delays on our part to execute the order, but GWSSB also caused certain delays in finalising formalities."

Asked whether the Board will blacklist PSL for failing to execute the contract on time, Punj said: "So far their is no such reason for PSL getting blacklisted and I can not comment further as the matter is presently subjudice."

The GWSSB project is part of several ADB-funded earthquake rehabilitation projects. The water supply pipeline project cost for Jamnagar district is pegged at around Rs 200 crore.

Following a notice inviting international players to take part in the bidding, PSL bagged the GWSSB contract in November 2003. It was asked to supply four lots of MS pipes by May this year.

On July 21, in an order issued, Justice Jayant Patel of Gujarat High Court (HC) said: "The respondent No 1 (GWSSB) shall be at the liberty to encash the full bank guarantee furnished for performance of contract."

The HC order came following an earlier order issued by Assistant Judge of Gandhinagar District Court on May 17, issuing an interim relief in the process of encashing bank guarantee by the Board as the application was filed by PSL.

This comes as a second such blow to PSL. Earlier, Gail India had blacklisted the company for supplying sub-standard pipe coatings.

Chronology of the pipeline dispute

• November 2003: PSL bags contract for ADB-backed water pipeline project in Jamnagar
• May 2004: Company fails to supply pipes on time
• May 17: Gandhinagar District court issues interim relief to PSL. Restricts GWSSB from encashing bank guarantee
• July 21: HC quashes lower court order. Clears way for encashing of guaranty