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Petroleum Ministry lowers domestic content criteria, purchase preference advantage for homegrown firms in oil & gas PSUs LSTK, EPC projects
Prime Minister Narendra Modi’s push for Make in India suffered a setback on Tuesday with Petroleum Ministry lowering the domestic content criteria as well as purchase preference advantage for homegrown firms in lumpsum turnkey (LSTK) or engineering, procurement and construction (EPC) projects floated by oil and gas public sector undertakings (PSUs
To give preference to local suppliers and to promote domestic manufacturing and production of goods and services, India in 2017 classified a Class-I local supplier, with local content ‘equal to or more than 50 per cent’, as the winner in all PSU global contracts provided the Class-I supplier sourced 50 per cent of its content locally and matched the lowest bid, even if it had quoted 20 per cent higher than the lowest bid.
These thresholds were greatly reduced on Tuesday through a Ministry order whereby the domestic content contribution was lowered to 30 per cent — gradually escalating to 50 per cent — and the purchase preference price differential reduced to 10 per cent across the board and for all years to come.
That, in essence, means that any foreign firm stands a chance to win LSTK and EPC contracts even if it domestically sources 30 per cent of the project value (instead earlier 50 per cent) and majorly, that domestic Class-I firms would have to be well within 10 per cent price range (instead of the earlier 20 per cent) quoted by a foreign firm to bag the purchase preference advantage.
“…to increase competition and to incentivize progressive increase in Minimum Local Content (MLC) in high value oil and gas LSTK/EPC contracts/projects, it has been decided under para 14 of the Public Procurement (Preference to Make in India) Order 2017 to revise the MLC for getting the purchase preference and Margin of PP for such contracts/projects on progressive basis with predictable trajectory,” says the Ministry’s July 11 order.
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