Follow Up Audit Results of the 2ndWest-East Gas Pipeline Project for 2010
(Announced on February 1, 2011)
(Announced on February 1, 2011)
In accordance with the provisions of the Audit Law of the People s Republic of China, from May to July 2010, the National Audit Office (CNAO), on the basis of the 2009 follow- up audit of the western section of the 2nd West-East Gas Pipeline Project (hereinafter referred to as West 2 Pipeline), conducted an audit on the construction management, investment control and environmental protection, etc.
, of the eastern section of the West 2 Pipeline, together with an audit investigation of the construction situation, etc., of supporting pipeline networks in the 4 provinces Henan, Hubei, Jiangxi and Guangdong. The audit findings are hereby announced as follows:
1. Overall Situation
The West 2 Pipeline has a total investment of 142.2 billion yuan, with a total length of 8645 km; it starts in the west in Huoerguosi, Xinjiang, ending in the south at Guangzhou and in the east in Shanghai, passing through 15 provinces, autonomous regions and municipalities. The project began construction in February 2008, and is expected to be completed by the end of 2011; of which, the section from Huoerguosi in Xinjiang to Zhongwei in Ningxia, and the section from Zhongwei in Ningxia to Huangpi in Hubei were completed in December 2009 and October 2010 respectively.
West 2 Pipeline is being constructed by the China National Petroleum Corporation (hereinafter referred to as CNPC), with the Pipeline Construction Project Management Department of the PetroChina Company Limited (hereinafter referred to as PetroChina Project Management Department) as the project owner.
The eastern section of West 2 Pipeline (from Zhongwei in Ningxia to Guangzhou in Guangdong) has a total investment of 93 billion yuan, and began construction in February 2009.
2. Construction of West 2 Pipeline Achieved Remarkable Interim Results
(1) CNPC rectified issues in earnest, and pointed out in the follow-up audit of the western section of West 2 Pipeline.
CNPC attached great importance to the rectification of issues found in the audit of the western section of West 2 Pipeline; as of October 2010, rectification of issues identified in the audit of the western section has been completed. In order to standardize management, CNPC has also issued 4 regulations including "Tender Management Rules (tentative)"; and together with the National Bureau of Energy and other departments jointly issued the "Notice on forest land use issues related to oil and gas pipeline construction", and "Notice or continuation to preserve cultural relics in the West 2 Pipeline project", etc.
(2) Construction management was gradually strengthened.
In conjunction with the characteristics of complex engineering geology, difficult construction conditions, and humid local climate of the eastern section of West 2 Pipeline, CNPC further strengthened construction management, improved 36 pipeline construction procedures and 104 task documents. The units participating in the construction and tided over various difficulties, actively adopted effective measures, took great efforts to ensure project quality; various items in construction management have been strengthened.
(3) West 2 Pipeline construction achieved remarkable initial results.
With strong support from local governments along the West 2 Pipeline, the western section of the West 2 Pipeline was completed in time at the end of December 2009, and from mid to late January of 2010, natural gas from Central Asia was being piped to the Bohai Sea rim and the Yangtze River Delta region. As of the end of October 2010, the West 2 Pipeline has received 2.97 billion cubic meters of natural gas from Central Asia, and has played an important role in optimizing the energy structure in cities along the route, easing the tight gas supply situation; and it has promoted economic and social development. The eastern section from Zhongwei in Ningxia to Huangpi in Hubei was also completed in October 2010.
3. Main Audit Findings and Rectification Situation
(1) In April 2009, PetroChina Project Management Department, without putting out for tender, directly procured from the Shanghai Tuofa Mechanical & Electrical Equipment Co., Ltd. 15,000 sets of heat shrinkable tape (pipeline anti-corrosion material), and without testing used them in project construction. Testing showed that the peel strength of these materials is lower than the fixed value, and it can easily lead to natural gas pipeline corrosion and damage. As of the time of the audit, 13,500 sets had already been used in project construction.
After the audit noted the above problem, CNPC replaced all the unqualified heat shrinkable tape, the relevant units and persons responsible were given punishment, and a notice was circulated within the CNPC system.
(2) Among the 71 supervisors from the Liaohe Dongyou Supervision Associates placed at the Ningxia-Shaanxi section of West 2 Pipeline, only 4 were registered supervision engineers; among the 89 supervisors from the Daqing Petroleum Engineering Supervision Company Ltd. placed at the Hunan-Jiangxi section, 25 lacked relevant qualification.
After the audit noted the above-mentioned problems, CNPC revised and improved management practices regarding admittance of construction supervision units and supervision personnel qualifications; it urged relevant supervision units to carry out thorough rectification, and held accountable the supervision units and personnel who were negligent in their responsibilities.
(3) As of July 2010, 4.501 billion yuan of construction bidding was irregular, including: contracts for 23 projects amounting to 518 million yuan were irregularly awarded directly without bidding, 73 projects with contracts amounting to 3.983 billion yuan were artificially split into bid sections, the winning bidders irregularly determined and adjusted, etc.
After the audit noted the above-mentioned problems, CNPC is holding relevant units and personnel responsible in accordance with the law and discipline, and analyzing in-depth reasons and identifying the root causes, in an effort to further improving the pipeline construction management system, and to eliminating artificial splitting of tendered sections, bidding irregularities and other issues in pipeline construction.
(4) As of July 2010, 233 million yuan of equipment and materials procurement was irregular, representing 12% of the 1.982 billion yuan equipment and materials procurement contract for the eastern section of the West 2 Pipeline (not including the on-line auction procurement of steel pipes), including irregular direct awarding of 177 million yuan of equipment and materials procurement contracts without tendering, irregular determination of the winning bidder for 5.6 million yuan of equipment and materials, etc.
After the audit noted the above-mentioned problems, CNPC is holding relevant units and personnel responsible in accordance with the law and discipline, and has taken relevant measures to improve the equipment and materials procurement tender procedures.
(5) Project investment increased by 800 million yuan due to irrational budget estimates approved for the preliminary design, lax in auditing of engineering cost settlements, etc. For example, in a 773 million yuan earthwork project spot-checked by the audit, CNPC system s construction unit subcontracted it to outsiders and received a spread of 329 million yuan, equivalent to 43% of the contract price. Although the construction unit treated the spread received as income, but this resulted in an increase of the project s investment.
After the audit noted the above-mentioned problems, CNPC has required its affiliated units to further optimize the program, to review project settlement price strictly in accordance with contract and completion data, to bring project investment under a reasonable range.
(6) Service fees were charged beyond state standards for winning bids in material procurement, materials processing fees were overstated in materials processing, etc., thus resulting in an increase in investment totaling more than 6 million yuan.
After the audit noted the above-mentioned problems, CNPC has adjusted standards for charging fees in accordance with relevant state provisions; it is cleaning up and paying back the fees charged in excess of standards, and will redetermine reasonable processing prices together with the relevant enterprises.
(7) There was a problem occurring in false invoices accounting to 43 million yuan and IOU notes. For example, PetroChina Project Management Department charged to accounts using false invoices, 7.1426 million yuan of training costs for the West 2 Pipeline and other projects. After the audit noted the above-mentioned problems, CNPC is checking false invoices and IOU notes, and will in future construction projects strictly control the invoice review process to ensure that invoices are true and reliable.
Regarding the above-mentioned items still under rectification, CNAO will pay attention to the problem in the next phase of the audit, and timely announce the final results.
