Digital Transformation of Procurement Systems: Addressing Transparency & Fraud Risks In Pakistan State Oil

Abstract

The largest corporation within Pakistan is the oil marketing company, Pakistan State Oil or commonly referred as PSO, with trailing revenues of about USD 11.2 billion for the last twelve months amounting to Pakistan's biggest oil marketing company. Its procurement role is a significant one that involves two million orders every day for over three thousand retail outlets for the purchase of petroleum products, maintenance contracts, IT products and services as well as procurement of logistics services. This report explores the structural changes that PSO has delivered through digitalization in its tender process is as a response to reported transparency issues and potential fraud risks in the tendering process. The study examines PPRA existing procurement ecosystem – drawn from publicly available audit report data, PPRA complaints data and secondary literature – and systematically assesses how PPRA technologies, namely SAP Ariba (introduced in 2021) supported by blockchain based ledgers, AI-powered analytics and IoT tracking use could take the cogs out of identified governance gaps. This study shows ten key fraud and transparency risk categories such as bid rigging, single source awards (compliant), non-compliant single source awards, ERP data tampering, and ghost vendor payments. The digital base for PSO is working well with SAP Ariba and SAP ERP, but gaps created by poor visibility and/or governance aspects of the procurement process exist, specifically in regards to materials. This analysis has led to the introduction of a four-phase Digital Transformation Framework which goes from standardization, analytics integration to full digitalization and global benchmarking. The report concludes that digital transformation at PSO is not a technology upgrade, but rather a Governance matter. Results from implementation will translate to the estimated saving of 30-40 per cent in procurement fraud, 25-35 per cent in procurement cycle times and making PSO a public sector governance benchmark for the wider public sector in Pakistan.