Fri | May 29, 2020

UPDATED: Petrojam dispute - Insurer dismisses ministry's defence of costly contract

Published:Wednesday | June 27, 2018 | 12:00 AM

Chairman of Marathon Insurance Brokers (MIB) Richard Burgher has dismissed the "defence offered by Petrojam" through its parent ministry for extending an insurance contract for two years at a cost of $420 million more than available on the market.

MIB responded to a tender put out by Petrojam inviting a provider for insurance services to staff. But Burgher said that, in his opinion, Petrojam aborted the tender process without adequate explanation. Instead, the company retained the existing insurance carrier although MIB's bid to provide the services for a two-year period would be $420 million cheaper.

The Ministry of Science, Energy and Technology yesterday confirmed that Petrojam aborted the insurance tender after being advised by the then Office of the Contractor General (OCG) of its investigation of the tender process arising from a complaint by Marathon Insurance Brokers Limited.

However, Burgher contended that the contractor general did not ask Petrojam to extend the contract for two years.

The insurance broker said that officials at Petrojam should know that insurance coverage runs for one year. "So why ask Cabinet to do it for two years?" he queried.

He said that Petrojam should have asked Cabinet to use the substantially reduced bidding prices as guidelines. "They clearly did not do that," he added.

Further, he said that the contractor general could not have instructed Petrojam to extend the contract at a price that is "the highest possible price they can pay for insurance, which is what we call the expiring prices".

According to Burgher, the bidding prices were approximately 50 per cent lower than the expiring prices.

"The least I would expect from reasonable people is that they would consider extending the existing contract for no more than one year since insurance only runs for one year," said Burgher, noting that Petrojam could have used the bidding prices as a guideline.

He said that his decision to report the matter to the then contractor general and writing to the prime minister, as well as bringing the matter to the attention of the auditor general, was "because I believed then, and I continue to believe now, that the process is corrupt".

In its recent news release, the Ministry of Science, Energy and Technology pointed out that on October 6, 2016, Petrojam commenced a local competitive bidding process to secure insurance coverage. At the end of the tender process, four local brokers had responded to the tender.

According to the ministry, in February 2017, the then OCG advised Petrojam that an investigation had been launched, and as such, it should not award a contract until the conclusion of its investigation. "In keeping with the OCG's directive, Petrojam aborted the tender process."

"Recognising that the insurance contract in force was due to expire, as well as the considerable magnitude of the risks associated with operating an oil refinery without insurance coverage, Petrojam sought and received Cabinet's approval on April 3, 2017, to extend the existing contract," the ministry said in a release.

It said that Petrojam is now awaiting the formal report of the OCG, now Integrity Commission, in relation to its investigation into the complaint by Marathon Insurance Brokers Limited.

"Upon receipt, Petrojam will be guided by the report and re-tender to select a suitable insurance provider, on the basis of the evaluation criteria, which include cost," the ministry stated.

(EDITOR'S NOTE: A previous version of this article incorrectly gave the impression that MIB's bid for the insurance contract at Petrojam was for $420 million for a two-year period.)