There are two issues at play in relation to the oxygen issues and both appears to have been conflated to create some amount of confusion in the public space.
This was ignited when IGL issued a statement which appears to have suggested that they have not received information from the government in relation to the current surge, which is the reason for the shortage of the life saving commodity.
The MOHW has however shotback indicating that IGL was in fact given a projection for the volume of oxygen required to meet the demand for the current surge and which IGL agreed to, but its IGL that has failed to deliver on that due to a disruption in its supply chain due to an act of force majeure, enforced by one of its key suppliers.
BTW at no point did Peter Graham say they were NOT provided a demand requirement for this surge, if someone can find where he did, please let me know
The big question is now, who is telling the truth.( the real question is the truth about what, given there are two issues that both parties have addressed.)
I won’t try to answer that question since IGL has not yet responded to the claims made by the Ministry, however what I want to do, is to take a closer look at both statement and then allow you to determine if either party is telling the truth as both statement could in fact be true. (Yes they addressed different issues, even though they appear to be dealing with the same problem. One issue is long-term planning , which is what the company wants to be addressed and the other is short term delivery of the product, which is the MOHW immediate concern )
IGL Statement
IGL has made it clear that it has suppliers contract with only one of the 4 regional health authorities that exist, and has failed to secure contracts with and or projections from the other 3.
Now why are these supplier contracts important to the business?
Well, having a suppliers contract presents an obligation on the part of the IGL to meet the performance criteria of such a contract, which would mean they are obligated to supply to the customer, the volume required to the customer on time and in full . The customer on the other hand is obligated to provide a rolling forecast as well as purchase orders ( commitment) to purchase the commodity overtime .
It’s this demand from the customer that will tell the CEO what he needs to do from a capacity perspective, so let me give you an example.
Lets say the combined annual demand for medical oxygen from all the regional health authorities is 1,000,000 m3 per annum and the production capacity of the plant at IGL at full utilization is currently 950,000m3 , then IGL would now be obligated to either
- Find suppliers to meet this additional 50,000 m3 per annum
- Upgrade the plant to not only meet this, but to exceed that, with additional capacity added for increased future demand
No CEO will make any significant capital investment without some knowledge of demand requirements, nor will they take a decision to make those investments without some definitive agreement aka a supplier contract in hand, as at any point the customer could simply say, I am not buying from you anymore, thus leaving them with stranded cost, which is essentially capital spend that you cannot recover.
So IGL would be right in saying it has only one contract in place and this is NOT enough for them to lay out huge capital expenditure unless there is some way for them to recover those investments over time, its just business.
(By the way IGL has not said this, but by virtue of how business operates, this would be the main reason)
MOHW Statement
In relation to the current crises, I am of the view that the MOH did in fact provide IGL with those projections for the expected surge only. IGL in its statement did say it experienced supply chain issues o one of which was related weather( a previous statement) the other being a supplier invoking the force majeure clause in its purchase agreement, which ended up with us being in this predicament.
Next Step
Government procurement guidelines are rigid and inflexible and are NOT designed for efficiency, but are instead designed to reduce corruption, which in turns suffocates the process . Any attempt to use emergency procurement is viewed with suspicion and as such most civil servants will NOT and I repeat will NOT put their career on the line by trying to act quickly by even using these emergency guidelines .
In addition the Integrity Commission has a way out putting out statements to suggest impropriety which will be latched unto by the opposition, so we end up with a process that is said to reduce corruption but CANNOT respond in a timely fashion to the requirements of the country especially in cases on emergency.
The MOHW I know will say they cannot engage IGL by giving them supplier contract for all 4 regional health authorities and must follow the procurement guidelines which goes like this
- Draft procurement documents ( no less that 100 pages)
- Have documents reviewed by legal team
- Send out this by way of public tender via local papers and on MOHW website( everyone free to bid even overseas suppliers)
- Respond to or clarify parts of the RFP
- Receive and open these proposals
- Have a committee , to review, legal, procurement team, maybe IT etc
- State who has won the bid
- Provide a written contract to the bidder
- Successful bidder can now deploy resources to the contract
- Time from 1 – 9 could easily be 1 year.
The simple fact is IGL cannot be expected to undertake any massive capital spend without contracts in hand, as handshake and telephone commitment cannot be used as the basis of these investments.
The Government must therefore put to tender if it must and allow IGL to tender to supply medical oxygen to all 4 regional health authorities , as without having such a process completed, we could very well be back here a few years from now.
IGL is private business and their must be a return on its investments plus there must be basis for such investments for them to be approved by their board of directors.
Just a final note, production facilities at never designed for maximum possible demand as we are seeing now , which is 400% above normal demand, they are designed for steady state or optimum demand, with the capacity to adjust for short term seasonal spikes .
Yeah it long I know
Bless
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