Chinese firm bids low for retendered Iraq pipeline deal

30 July 2012

New round of prices for Zubair to Al-Fao pipeline in Iraq

China Petroleum Pipeline Bureau has submitted the lowest-priced bid for a pipeline construction contract in the south of Iraq.

Eight engineering, procurement and construction (EPC) firms submitted bids on 22 July for the contract to build an 18-inch, 105-kilometre pipeline from the Zubair field to Al-Fao storage facility. Prices ranged from $72m to $128m, according to a source close to the project.

Technical proposals for the pipeline were submitted in early-May. Firms bidding for the contract include:

  • A Hak International (Netherlands)
  • China Petroleum Engineering & Construction Corporation (China)
  • China Petroleum Pipeline Bureau (China)
  • Dodsal (Dubai-based)
  • EID (Turkish)
  • Saipem (Italy)

The pipeline construction contract was first tendered by state-owned South Oil Company (SOC), a subsidiary of the Oil Ministry, in February 2011. The first round of commercial proposals resulted in a spread of bids between $65-230m, leading to the contract being retendered several times. With a Chinese firm as the frontrunner, one contractor bidding on the deal says the contract is now more likely to proceed compared with previous attempts, which had local firms as the low bidders.

According to the source, this is now the sixth time the project has been tendered, with the lowest priced bids in the past having usually come from local Iraqi EPC firms. More than 20 local and international firms had previously submitted bids.

The huge spread in prices is in the past has been attributed to incomplete data in the tender documents. EPC contractors in Iraq often complain that the front-end engineering and design (feed) requirements are incomplete when tenders are issued, which draws out the bidding process.

At the same time, the execution schedules demanded by state-owned clients can be tight and sometimes unrealistic. This goes someway to explaining the spread, as bidders factor in differing views of the risks involved and the higher contingencies needed, sometimes based on an incomplete picture, particularly for pipeline deals.

The carbon steel gas pipeline is to carry up to 100 million cubic feet a day (cf/d) of gas from a depot at the Zubair field near Basra to the Al-Fao depot. Construction is expected to take 10 months.

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