Inside story - Corruption at $ 500 million road project - D Baloch, KM Sharif
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This is an inside story of corruption at a Japanese funded US$ 500 million road construction program in Pakistan. The key players are the Mandokhel clan, the Jatoi clan, and the Solangi clan. After a thorough investigation and reports from confirmed insiders, the below was put together to expose the billions of rupees being siphoned off by corrupt contractors such as KM Sharif & Co owned by Nawaz Khan Mandokhel and department officials at the Works & Services Department.
The Japanese are a resilient nation that bounced back after the devastating tsunami, earthquake nuclear meltdown combo. Valuables that could be were returned to their rightful owners and the Japanese banded together to rebuild their country. Even in the midst of such crisis, Japan International Cooperation Agency (JICA) continued to provide Pakistan the funds it needed for its own disaster relief and construction work.
Why are the Japanese giving Pakistan so much aid? How are they benefitting from this and how can we benefit if there is so much corruption in the process? All such development and aid agencies really should figure out a way to achieve their objectives without feeding the cycle of corruption in countries like Pakistan. The problem starts because these aid agencies work almost exclusively through the government and in Pakistan that is where all the kleptocrats are. In this particular case, JICA is working through the Works & Services Department of the Government of Sindh.....how can we possibly expect any different results?!!
Japan International Cooperation Agency has been giving billions of dollars of aid and soft loans to the government of Pakistan for various projects for decades now, but much of this money gets siphoned off by public and private officials instead of being used for its intended purpose. It is a well known fact that public procurement in the civil works sector is one of the most lucrative sources of revenue for government officials and their cronies. The Japanese are providing soft loans for the circular railway in Karachi, new highways, new roads, education, training programs, schools, hospitals and so much more infrastructure..but what is the point if that infrastructure isn’t going to last and Pakistan will just be saddled with more debt? As it is, our entire budget is met through borrowing and we can barely afford to pay the interest on our national debt. The only real beneficiaries are the public officials that are involved in such projects and often siphon off more than half the amount. It usually works in the same way, so let us look more closely at a particular program titled ‘The Rural Roads Construction Project’ which is a US$ 450 - 500 million program to construct roads throughout Sindh. The purpose is to connect rural areas to the national infrastructure and thereby make interaction, trade and life generally much easier and cheaper for those living in distant villages. Noble thoughts but in practice, the reality is not so ideal when you have experts in corruption such as Nawaz Khan Mandokhel ready to jump on such opportunities to exploit them to their benefit…the losers will always be the poor public of Pakistan. They have established a Project Office within the Government of Sindh and all the work is done through that office. It is this office that has crafted a fixed game involving about a dozen influential contractors each of which is acting through multiple companies to benefit from this free-for-all.
The Japan Funded Rural Roads Construction Project has been an ongoing program for several years and involves the construction of hundreds of small roads throughout the province of Sindh. A prequalification notice was called in 2010 in which approximately 30 contractors were selected to carry out all the work. Well known names such as Sikandar Jatoi own at least 3 of these companies while the Mandokheils own another 3 and Qaim Ali Shah`s son just uses the companies of others, even without their knowledge at first. While the Japanese Yen got stronger after the crisis because Japanese people all over the world were sending their remittances back home, in Pakistan the Rupee is constantly falling because the leadership and their favorites are constantly robbing the nation blind and shifting their money abroad. The contractors that did get prequalified were the friends and relatives of our politicians and bureaucrats. The Minister in charge of the Works & Services Department before was Zulfiqar (Zulfikar) Mirza and later became Manzur (Manzoor) Wassan. Chief Minister Qaim Ali Shah’s son got personally involved as a contractor because of the prospect of Japanese aid money.
Every few months there is another round of about 12-15 tenders under this program. If any investigation took place during this time, it would create chaos since neither the contractors nor the officials are accustomed to any concerns about scrutiny or accountability. Whenever the round of tenders is about to come up, the contractors lobby the Project Director, Saindad Solangi, and he decides who gets awarded how many contracts in that round and who goes home empty handed. This Project Office of the Rural Roads Construction Project has imposed a limit on the per kilometer amount that the contractors are allowed to quote. Usually in public tenders, a notice is placed in a newspaper and everybody is invited but because they already had a prequalification in 2010…nobody new is allowed to enter into this exclusive ring. Therefore no ads are placed in any newspapers and its odd that the Japanese allow this to continue when they know that this is one of the key factors in allowing the corrupt ring to continue. Another critical aspect of public procurement is ensuring that there is competitive bidding between unrelated parties that are not colluding. The fact that all successful bids for all projects come in around the same limit of Rs 12 million per km imposed by the project director (Saindad Solangi) automatically shows collusion to any rational being. What is incredible is that this project office hands out ALL the tenders for a project to a SINGLE contractor who walks away with 3-5 sets of tender documents only 1-2 days before the bid date. This one contractor is supposed to create the impression that those documents were given out to separate parties, so he is required to provide 2% pay orders for the bid from separate banks and to fill out the tender documents in such a manner as to ensure that their own firm remains within the limit while all others exceed it thereby ensuring a successful AND FIXED bid. Considering that there are anywhere from 12-15 projects being tendered in each round every few months and that the above is the way it is handled, there is total chaos in the project office from a few days before the tender. Even the Japanese observers who attend during the tender process are fully aware of what
s going on but they turn a blind eye to it because they likely feel that this is the only way to function in Pakistan…and it seems that theyre probably right. Insiders reveal that the Japanese Team Leader Nabuo Kobayashi and Deputy Team Leader Piryano are present in the room and watching when each contractor walks in with ALL 3-5 tender documents for the project. They are fully aware and watching when 12 contractors come to bid on 12 projects and none of them has the documents for more than 1 project. They are fully aware because they are watching when the each of the contractors delivers all 3-5 pay orders for a single project in their presence. JICA Country Head JICA Takatoshi has likely been taught how to deal with corruption in third world countries; the policies of the developed world permit them to give contracts to favored parties if that is the only way the job will get done, but they insist on a process they can use to justify their actions. Here however, the corruption is so open, so pervasive and so disruptive to the short and long term purposes of such aid and loans that there really doesn’t seem to be any justifiable reason why Mr Takatoshi and his bosses at the Japan International Cooperation Agency (JICA) would continue to saddle this poor nation with debt through such clearly failed programs. The developed world must come up with a better solution or else Pakistan will continue to suffer from debt and budget issues and will never be able to escape the vicious cycle.
There is no work involved in evaluating tenders that you know you have fixed, but greed is such an insatiable thing and the department officials often find themselves trying to convince the contractors not to ruin the game and to remain within the limit. The contractors always trying to squeeze as much as possible out of public coffers constantly push the project office to allow them to exceed the limit and this is a game that they play every time there is a round of tenders. Another factor is the sheer incompetence of the contractors who aren`t there on the basis of merit…they often fail to fill out the tender documents properly or they make mistakes in the other attachments such as their pay orders. Therefore, the work of officials is not to evaluate the bids but to ensure that their friends didn’t disqualify themselves and the entire tender for that particular project.
Once the bids have been evaluated and work orders start getting handed out, the contractors start showing up to the project office with bags and boxes full of cash. They are required to pay 5% of the contract amount to the Project Director, Saindad Solangi. Mr Solangis key man at the department who handles much of the wheeling and dealing is a bureaucrat at the same department by the name of Agha Sikandar Hayat. Since the round of tenders and work orders takes place for several tenders at once, the project office is flooded with contractors and department officials have a heyday in the collection of funds. 5% of US$ 500 million being US$ 25 million, this is an amount that gets paid before the work even starts. Mr Saindad Solangi incidentally is already a controversial character since his term expired years ago and his higher ups have refused to remove him despite court orders to do so. Instead, they placed him as a contract official which means that he can now stay on indefinitely without concern for any term limits for bureaucrats in such positions of influence. The News covered this story - http://www.thenews.com.pk/Todays-News-4-30559-Efforts-on-to-save-contract-officials without really asking why so much effort is being put into keeping him in his position. Clearly he
s making enough money for his superiors for them to want to stand by him. Also in his corner is his tribal status in Sindh and relations with other tribals in the province. Another 15% of the contract amount is paid to the department and its officials at various stages of the project, including over 7% on every bill. Part of the contract is that 10% of every bill is deducted asretention money which is held back from the contractor pending substantial completion of the work a sort of warranty period. The department only returns half of the retention money and keeps the other half itself. At the end of the program, these few officials will have walked away with at least US$ 100 million from direct kickbacks and whatever other amounts they could siphon by acting as the contractors themselves. The contractor will take at least 20% of the contract amount for his part in the game so another US$ 100 million goes into their pockets in the form of profits. Another important factor is that such large and privileged contractors that carry out multiple sites usually sub-let substantial portions of the work, their staff usually pilferages the project since they know they are part of a corrupt enterprise and their salaries are so low and their suppliers usually provide them with short quantities of material at higher prices because they need credit. All of this means that at least another 20% goes into the pockets of suppliers, staff and subcontractors and this only leaves 40%, or US$ 200 million worth of actual substandard infrastructure on the ground. The argument that this corruption money also gets fed into our economy really shouldn`t be made, particularly in light of the fact that such money usually ends up in the property markets of foreign countries. This situation is like providing a poor patient who is bleeding to death a leaky transfusion in which over half of the blood is lost before it gets into the patients veins. It may be more worthwhile to first stop the bleeding, or try to correct the leakage in the method of transfusion, but neither is done. The result is that if the massive bleeding doesn’t kill the patient, the bill for so many wasteful transfusions certainly will.
So what do the contractors get in exchange for this money? Guaranteed contracts when payments are made on time and the department officials are satisfied. The first stage of work is when the department and the contractor perform what is called a joint survey. This is a process in which the consultant (In this case Techno-Consult International of Karachi whose Managing Director-Owner is Mr Saleem Ahmed) to the client (the Government of Sindh) along with representatives of the client and the contractor carry out a physical survey of the project site to determine whether the levels stated in the original estimate are correct and what the actual quantities on site are. Usually if the process is done correctly there is supposed to be significant saving because the engineer provides the initial cushion to ensure that an appropriate budget is approved. The tender documents and the contract quantities are based on an engineer
s estimate with sufficient cushion built in to ensure that the approved contract amount does not fall short of work required on the site. Therefore one can expect there to be a saving to the client in the quantities of the project as compared to the estimate. Since the contractor fills in a bidding document and fixes his rates, it is the quantities and inflation that can increase the contract amount. Inflation doesnt help the contractor, but the quantities are where he plays his game. In the joint survey, representatives of Techno-Consult International are bribed by the contractors such as KM Sharif & Co (aka KM Shareef & Co) and the project site is shown to be lower than it actually is. What this means is that additional quantities would be required to fill this non-existent gap…the result of which is that on day one, the contractor only needs to run his blade to clear the area and claim that he has already done earthwork of that quantity that he fictitiously created in collusion with the department officials and the consultants. This is 100% pure profit for work that never even existed! Not only that, but since it is the first item and no work actually needs to be performed, the department passes the bill and the contractor is suddenly flush with cash. And all road contractors do it in the Japan Assisted Rural Roads Construction Project as well as all other programs and projects throughout Pakistan. The amount that a contractor can walk away with in just one such act fraud in earthwork like this is over 3% of the contract amount…this figure runs into the tens of millions very quickly. Contractors and surveyors have many tricks to inflate their profits..these tricks range from shifting the original survey benchmarks to show an artificial need for additional fill material to actually building a narrower road at certain points but declaring full width in the documentation. Everybody already knows these tricks and yet the Japanese (JICA) and their Consultant, Katahari Engineers International (KEI), turn a complete blind eye to it.
During the course of the work, the engineers`estimates once again come into question when various items are found not to be needed in the quantities stated. Miraculously somehow every time some item is deleted or reduced because it isn’t required, the contractor is compensated by increasing other items to bring the contract amount back up and to avoid saving the client any money. This is done because the department has been paid a fixed percentage of that contract amount and they are responsible to ensure that there are no savings to the client. One example is Sultan Mehmood & Company brother in law, Prime Construction, yet another Mandokheil (aka Mandokhail aka Mandokhel). His project which was estimated to require almost two dozen concrete structures was then found not to need them....somehow the quantities of their earthwork suddenly doubled and their contract amount was fulfilled for them. These are agreements between
gentlemenand are almost always honored. Another trick used by these seasoned crooks is to send in samples of material from nearby sources to the laboratory for approval. Once their sample arrives, the bribe paid to the lab technicians and department officials helps in switching the samples for a material that is guaranteed to be approved. The result is that the contractor is able to procure his cheaper and more closely located materials even if they don’t meet specifications or may be blatantly substandard. The same switching trick is used for all materials from steel to cement to sand to whatever is used in the project….the entire idea of an approval process has been made totally useless and redundant by this corrupt nexus.
With such cosy arrangements in place between public officials and contractors, one can only expect such results. The quality of work is never up to specification since these contractors are too busy doing things other than actually managing the work they have been awarded. Since the Asian Development Bank has opened up its program for Provincial Roads, these same contractors have made it there in order to repeat the pattern. Who has time to deliver quality when there is so much money to be made among friends? The public should be grateful that they get anything at all. The contractors often hire relatives and friends of government officials and pay them salaries even if they don`t come to work for a single day. There is so much give and take between Katahari Engineers International - Techno-Consult International, the Works & Services Department of the Government of Sindh, The Project Director Saindad Solangi, and contractors such as Nawaz Khan Mandokheil (aka Mandokhail aka Mandokhel) owned KM Sharif & Co (aka KM Shareef & Co) and Prime Construction and Sikandar Jatoi owned Ashraf D Baloch, Shahrukh, Lilly and other companies belonging to powerful and corrupt individuals that there is no chance that the public interest could ever be served through this Japan Assisted Rural Roads Construction Project Sindh.
Sikandar Jatoi through his company Ashraf D Baloch (D-Baloch) usually undertakes very large projects. Being a relative of Sikandar Jatoi also has its perks; his nephews have set up several companies by the names of Shahrukh, Lilly and some other names and these companies have been making sweetheart deals in smoke filled government offices. Other companies involved in this project include Shaheen Construction, Romance Construction, and Majeed Arain (Pir Pagaro`s special associate).
KM Sharif & Co, (aka KM Shareef & Co) owned by Nawaz Khan Mandokheil (aka Nawaz Khan Mandokhail aka Nawaz Khan Mandokheil) is also constructing the Sindh Assembly Building since the last few years and has gone well over the original estimate. The project which was originally tendered to them at Rupees 800 million has already reached Rupees 1.2 billion and is still not complete. In a previous Asian Development Bank Project in Mirpurkhas, Sindh, KM Sharif & Co attempted to conceal gross violations of the specifications agreed to. In other words, even the usual lax standards applied in government projects in Pakistan was too much for them and they attempted to do even less. Luckily for the public interest, KM Sharif was caught, forced to rip apart the road they constructed and made to rebuild it with the appropriate specifications. Their projects ALWAYS involve such shenanigans, delays, claims, litigation and disputes among the partners at KM Sharif & Co. They come from the infamous Mandokhel (Mandokhail, Mandokheil) clan to which belong their cousins Asad Mandokhel (owner of Sultan Mehmood & Co), Kamal Nasser Mandokhel (owner of Kamal Nasser Construction), Qasim Khan Mandokhel (owner of Qasim Khan & Company), Subedar Mandokhel, and a list of other influential politicians and contractors. Together these cousins are responsible for many major projects including the KPT flyover, Gharo to Ketibandar road, Karachi to Hyderabad Motorway M9, Sindh Assembly Building and many other major projects around the country. They have colluded with officials at the highest levels, they have built extremely poor quality infrastructure and they have over-charged for it many times over. They have a great deal of expertise in finding loopholes in their industry and just one colluding official is often enough to create the basis for major escalations or claims, which the Mandokhels never fail to exploit. Highway projects which get stalled in the middle of construction don
t just cost in terms of money, people die in car accidents in poorly constructed diversions. Sultan Mehmood & Co has done plenty of work on the Karachi to Hyderabad Highway and their diversions are always a mess. Their method of working often leaves the project mid-stage while they fight it out with the department or suppliers over one issue or another; this happened at the Ranipur by-pass where they simply abandoned the road without completing the last remaining 2 km. Over the last two years, dozens of people have died on that 2km stretch because a family of billionaire contractors needed to make an additional few million. The Larkana to Moenjedaro road project they were awarded was a complete disaster that cost the lives of dozens of people during the years it remained in virtual standstill. A few claims and escalations later the Mandokheils inflate the contract amount by billions and restart the work when theyre satisfied that they
re making enough money despite their mismanagement. With each major project, another nephew, brother in law, cousin or other relative is introduced into the business and thus begins the career of another contractor working on the same pattern. There are literally over 100 companies registered at the Pakistan Engineering Council that are owned by one of the Mandokhails and theyre almost all getting hundreds of millions if not billions worth of contracts from all the various public entities of the country. When one family has politicians in every party i.e. PMLN, PMLQ, PPP, JUI, ANP, etc…. it is a given that this family will continue to tighten the noose on public coffers. The fact that there is no honor among thieves is demonstrated by the fact that upon the death of the late Khan Mohammad Sharif, Mr KM Sharif himself, his sons disputed over their father`s property for years. The eldest son was deposed by the 2nd son, Nawaz Khan, who during the lifetime of his father was exiled due to a marriage his family did not approve of. During his period of exile, he enjoyed the goodwill, hospitality and charity of his wealthier cousins who owned SKB Construction. Now that Nawaz, the 2nd eldest had taken over the family business, his brothers were slowly eliminated from the family business. Not only that, but all favors from his cousins at SKB were forgotten, money which was owed to them was never repaid and disputes arose with Nawaz Khan claiming his cousins had cheated him out of money. This individual is also known to use his wealth and position to pressure women into dishonorable situations. He regularly places advertisements in newspapers for tenants for his many properties and has been known to boast to anyone that will listen that he has been able to get many young female students coming from other parts of the country to stay at his accommodations in exchange for sexual favors for him and his friends. Being a corrupt contractor usually means that properties are kept in major cities for exactly this type of entertainment and Nawaz Khan Mandokhail is well prepared; he usually takes groups of friends and officials to his apartments to enjoy the company of the girls KM Sharif (http://kmsharif.com/) has kept. Girls who come from Lahore, Peshawar, Islamabad and other parts of the country to study in Karachi and attempt to rent out a room or an apartment are likely to encounter an Ad for the same by Nawaz Khan Mandokhel. Another lady whose husband passed away and was unable to afford the rent for the property was allegedly coerced by Nawaz Khan into a sexual relationship in exchange for rent leniency. Investigations are currently ongoing into the locations of these properties and complaints by women, but considering the cultural implications in our society of such a public admission, none of the women are willing to go on the record as yet.
It seems that the construction industry too, like everything else in Pakistan, is dominated by a handful of families. The family of Sikandar Jatoi who owns Ashraf D Baloch has made billions upon billions through their network of contracting companies. Their project in Gambat was every bit as much of a failure as KM Sharif
s Mirpurkhas project. They did not compact the layers at all and totally ignored any concept of process or quality control. As a result, the multibillion rupee project went over budget by billions of rupees and still virtually collapsed in various sections where this third rate infrastructure couldnt even sustain its own load. A widespread anecdote about D Baloch is that one of its engineer employees once complained to Sikandar Jatoi about his salary of Rs 8,000 per month being too low to survive. The story goes that the engineer was reminded that his salary is only a stipend to survive and he is expected to make his money through creative thefts at the construction site. He was immediately terminated with Mr Jatoi informing him that if he was unable to steal for himself, he would also be unable to steal for the D Baloch Construction Company.
The Japanese, particularly the Japan International Cooperation Agency, and Mr Takatoshi should seriously evaluate the pros and cons of their approach to corruption in Pakistan. The Japanese Team Leader of the Project in question, Mr Nabuo Kobayashi, could be said to be actually complicit in the corruption since he is always present at every tender and witnessing these activities taking place and yet allows them to continue while Japan continues to fund this program and line the pockets of all these corrupt contractors and officials. The debt will have to be paid by the people of Pakistan…how does that in any way constitute "Aid" or "Cooperation"? Clearly it does not constitute either and is in fact of great detriment to Pakistan…so how can the Japanese continue to fund this? They SHOULD NOT!! Sooner or later these funding entities, including JICA, will have to suffer court cases and losses for knowingly contributing to, aiding and abetting corruption. They know full well that this money is not being used for its intended purpose and they know that the debt being placed on the public of Pakistan is unfair…so it makes sense that in the future there would be some action taken on this matter. In the meantime, the budget of this poor country will continue to take a beating due to the massive debts being undertaken by this PPP government. How did they carry out Rupees 7,000 billion in corruption? Exactly through schemes like this Japanese funded road project!
Below are some specific recommendations
Do a basic audit of all previous bids and you will notice patterns in the total price per km..they are almost all roughly the same because the department instructed them to remain under a certain figure. When the limit was set by the department as Rs 10.5 million per km, the contractor miraculously all came around that amount for every project. When they raised the limit to Rs 12 million, once again, all the bidders for all the different projects somehow arrived at that figure after filling out a tender document containing many items. Someone should ask how come this pattern is so consistent throughout ALL the tenders if they are being bid on as they are supposed to, and that would create some differences between tenders and their final cost per kilometer.
Considering that the Bill of Quantities is an estimate made by an engineer with sufficient cushion built into it to not be below the required amount, the natural conclusion should always be some amount of saving to the client in the contract amount. Often it happens that some items are not required at all and the savings to the client is significant. However, miraculously somehow every time some item is deleted because it isn’t required, the contractor is compensated by increasing other items to bring the contract amount back up and to avoid saving the client any money. This is done because the department has been paid a fixed percentage of that contract amount and they are responsible to ensure that there are no savings to the client.
Do pit tests and inspect whether the thickness of layers is as claimed by contractors. They already do rubber stamp tests to pass the contractor’s work, but absolutely reliable sources reveal that the first survey taken jointly between the contractor and the consultant is where they collude to artificially show the area as being lower than it is, thereby requiring more material to fill it than is actually required. KM Sharif, D Baloch, SMC and all the major companies are known to engage in this practice. It has been revealed that KM Sharif in particular artificially increased its quantities by as much as 35%. Such pit tests cannot be done by the same consultant, Techno-Consult International, since they are involved in the corruption. A neutral third party should be selected to perform independent pit tests on these projects.
Call a new pre-qualification notice and have it conducted by a neutral third party. The unusual method maintaining a closed loop of contractors for a program that spans many years is clearly intended to serve special interests. There can be no justifiable reason for this method of doing things.
Inspect the signatures of all previous bidding documents and the attendance registers and you will notice that the signatures are all off. The reason for that is because this process was fraudulent. The required process is to provide the tender documents to different bidding parties at least two weeks before the bid date. At this program, the project office hands out all the tenders for each bid to one contractor a day or two before the bid. This way they decide who gets which job and each contractor walks in with anywhere from 3-5 sets of tender documents for the same project. He may or may not have bothered to get the proper signatures from the right people because corruption was so open and nobody bothered to take care. Some contractors took care to make their pay-orders for the 2% bid amount from different banks...some didnt even bother to do that and they made the pay orders for all 3-5 tenders from the same branch of the same bank.
During the next round of tenders, inspect how much time before the tender date the documents are handed out and to whom.
Do not allow close family members to be responsible for key positions in the projects. Currently the Japan Assisted programs are completely infested with nepotism and family based hiring. There can be no check and balance or accountability when several of the key officials for this US$ 500 million Japan Assisted Rural Road Construction Project belong to the same family. Obviously the Japanese are literate enough to recognize the similarity of last names, why they feel that turning a blind eye to and funding blatant corruption is serving any purpose for either side is a mystery.