‘Economically advantageous’ bid to be considered, not lowest-cost one
Pulled up often for underachieving its production targets but looking at a prospective diminishing of its subsidy burden, state-run ONGC has decided to overhaul its tendering process with an aim to massively cut down delays in project implementation and thereby increase oil and gas output.
A key feature of the new process recommended by Boston Consulting Group (BCG) and approved by the Maharatna’s board lately is to select the “most economically advantageous” tender instead of the lowest-cost one, as is the practice now.
The proposed mechanism, ONGC sources said, would allow to objectively select the right vendor to take up key jobs like drilling, field development, etc, for the PSU and would bring in technical efficiency at economical costs. The idea is to evolve ONGC’s existing material management processes, keeping in mind eight different parameters including quality-and cost-based management, category management, lifecycle costing, ratings of vendors and budgeting and long-term forecasting, the sources explained. What is being attempted is to develop a strategic view to procurement, improved vendor management and accuracy in budgeting.
In the new system, vendors will have to register themselves with the corporation through a designated web portal providing basic information and indicating the category of goods they want to supply. All vendors’ inputs will be stored at a data server that can be accessed by all work centres. Moreover, the vendors would be rated. “Vendor ratings will give an objective view to ONGC about its performance and quality delivery without delays,” it said.
ONGC claims that its reserve replacement ratio (RRR) is 1.87, and it has been maintained at more than 1 for the last nine years. However, the biggest exploration company in India saw its standalone crude oil output falling from 24.67 million tonnes in FY10 to 22.25 million tonnes in FY14. Similarly, gas output has increased marginally from 23.11 billion cubic metres in FY10 to 23.28 billion cubic metres in FY14.
Petroleum minister Dharmendra Pradhan has raised concerns about inordinate delays in project implementation by ONGC that has been an obstacle to raising the firm's hydrocarbon output. A review by the government early this year on performance of 41 ongoing projects of ONGC worth R78,265 crore brought to light that nearly half the projects, amounting to R41,259 crore, are behind schedule, with delays in some cases being as long as 9-10 years. “The ONGC board has approved implementing the BCG recommendations. It should drastically cut down the delays. Even Oil India is looking at the process and may implement a similar mechanism,” a top oil ministry official said.
Kaustav Mukherjee, partner and director at BCG, said: “BCG has aligned ONGC's procurement processes to international practices. This would help ONGC to have the right balance between desired technical expertise and cost.” According to Mukherjee, many international service providers find the current practices relatively cumbersome when compared with those of other global oil and gas majors. “BCG has objectively looked at multiple criteria and come up with a set of redesigned processes to help ONGC attract service providers with proven technical expertise and global repute. This should help them to get access to the right technology and, consequently, improved performance,” he said.
Sources said only incorporated joint ventures (or consortia) would now be allowed to bid for ONGC's projects. There would be forecasting on a three-year rolling period that would help maintain economies of scale, reduce procurement effort, increase ease of contracting and reduce tender finalisation time.
Pulled up often for underachieving its production targets but looking at a prospective diminishing of its subsidy burden, state-run ONGC has decided to overhaul its tendering process with an aim to massively cut down delays in project implementation and thereby increase oil and gas output.
A key feature of the new process recommended by Boston Consulting Group (BCG) and approved by the Maharatna’s board lately is to select the “most economically advantageous” tender instead of the lowest-cost one, as is the practice now.
The proposed mechanism, ONGC sources said, would allow to objectively select the right vendor to take up key jobs like drilling, field development, etc, for the PSU and would bring in technical efficiency at economical costs. The idea is to evolve ONGC’s existing material management processes, keeping in mind eight different parameters including quality-and cost-based management, category management, lifecycle costing, ratings of vendors and budgeting and long-term forecasting, the sources explained. What is being attempted is to develop a strategic view to procurement, improved vendor management and accuracy in budgeting.
In the new system, vendors will have to register themselves with the corporation through a designated web portal providing basic information and indicating the category of goods they want to supply. All vendors’ inputs will be stored at a data server that can be accessed by all work centres. Moreover, the vendors would be rated. “Vendor ratings will give an objective view to ONGC about its performance and quality delivery without delays,” it said.
ONGC claims that its reserve replacement ratio (RRR) is 1.87, and it has been maintained at more than 1 for the last nine years. However, the biggest exploration company in India saw its standalone crude oil output falling from 24.67 million tonnes in FY10 to 22.25 million tonnes in FY14. Similarly, gas output has increased marginally from 23.11 billion cubic metres in FY10 to 23.28 billion cubic metres in FY14.
Petroleum minister Dharmendra Pradhan has raised concerns about inordinate delays in project implementation by ONGC that has been an obstacle to raising the firm's hydrocarbon output. A review by the government early this year on performance of 41 ongoing projects of ONGC worth R78,265 crore brought to light that nearly half the projects, amounting to R41,259 crore, are behind schedule, with delays in some cases being as long as 9-10 years. “The ONGC board has approved implementing the BCG recommendations. It should drastically cut down the delays. Even Oil India is looking at the process and may implement a similar mechanism,” a top oil ministry official said.
Kaustav Mukherjee, partner and director at BCG, said: “BCG has aligned ONGC's procurement processes to international practices. This would help ONGC to have the right balance between desired technical expertise and cost.” According to Mukherjee, many international service providers find the current practices relatively cumbersome when compared with those of other global oil and gas majors. “BCG has objectively looked at multiple criteria and come up with a set of redesigned processes to help ONGC attract service providers with proven technical expertise and global repute. This should help them to get access to the right technology and, consequently, improved performance,” he said.
Sources said only incorporated joint ventures (or consortia) would now be allowed to bid for ONGC's projects. There would be forecasting on a three-year rolling period that would help maintain economies of scale, reduce procurement effort, increase ease of contracting and reduce tender finalisation time.
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