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The oil ministry’s latest policy to provide purchase preference on local content to firms participating in tenders floated by oil Public Sector Undertakings (PSUs) will not be applicable for deep-water and difficult areas including high-temperature and high-pressure upstream operations, the oil ministry said.
The new policy, that came into effect 1 April, also provides for PSUs to penalize companies in violation of local content provision by either blacklisting them or financially penalising them, a policy document published today by the oil ministry said.
The Cabinet Committee on Economic Affairs (CCEA) earlier this month approved the PP-LC policy, in line with Prime Minister Modi’s flagship Make in India initiative. To give further thrust to the purchase preference policy, the government has progressively increased targets of local content to be procured by oil PSU’s.
According to the detailed policy released by the oil ministry, manufactures and service providers meeting the local content criteria will be granted a 10 percent purchase preference. However, such purchase preference will be granted only if the manufacturer or service provider’s quoted bid is within 10 percent of the lowest bid price and he agrees on matching the price quoted by the lowest bidder.
All tender documents related to procurement of goods by oil PSU’s will specify giving 50 percent contract quantity to be awarded to the lowest techno-commercially qualified local content manufacturer, if the manufacturer matches the lowest bid. However, if the lowest bidder happens to be a local content manufacturer then the entire procurement value shall be awarded to such bidder.
The policy has stipulated a formula to be used to determine the percentage of local content procurement done by a bidding company. At the bidding stage, the bidder will have to provide a break-up of ‘local component’ and ‘imported component’ in the price format provided by the policy. The bidder will also have to submit an undertaking stating that the bidding company meets the mandatory minimum local content requirement. Also, the bidder will have to support its claims by furnishing a certificate from a statutory auditor.
A steering committee formed by the oil ministry will be in-charge of overseeing the implementation of the policy including reviewing and amending the policy if needed. The PP-LC policy will be applicable for five years, only if the steering committee concludes a review of the policy and recommends continuation of it. The policy will be in force from the current financial year (2017-18) and subsequently, the steering committee will meet on September 30 every year to take a call on continuation.
The policy also provides for different local content criteria for different kind of goods and services. Also, the targets for local content procurement have been progressively increased to provide further thrust to the policy.
A machinery and equipment supplier will have to source 20 per cent domestic equipment in order to be applicable under purchase preference in 2017-2018. Subsequently, the local content requirement will be increased to 25 percent for 2018-2020 and 30 percent in 2020-2022. The policy has provided an exhaustive list of goods and services with their respective local content criteria and the progressively increased targets.
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