French Fry In A Hydel Soup

Has the government shortchanged its own PSU to favour a multinational company? Ignoring a cheaper offer from PSU navaratna Bharat Heavy Electricals Limited (BHEL), a mega contract worth over Rs 1,600 crore to build a 2,000 MW hydropower station in Arunachal Pradesh for the National Hydroelectric Power Corporation (NHPC) has gone to French conglomerate Alstom. Both the NHPC and the Union power ministry are being accused of a huge scandal involving the subversion of the bid evaluation process to favour Alstom. If sources are to be believed, the deal has been virtually sealed and all that is left to be done is to ink the contract.

Lending credence to these allegations is the fact that the Solicitor General of India, G.E. Vahanvati, has officially put it on record that NHPC's bid evaluation process was "absurd" and that BHEL had been discriminated against. BHEL, after losing out to Alstom, had sought an opinion from the solicitor general on the manner in which NHPC had evaluated its bid and ruled in favour of Alstom. He advised BHEL to move the court against NHPC "if NHPC acts in the manner it proposes to do, because such action will be entirely unreasonable, arbitrary and violative of Article 14 of the Constitution".

Vahanvati in his ex parte opinion of January 31 was categoric. "There is no arithmetic error. There is no confusion. There is no lack of clarity. On the contrary, to now suggest that the figure shown must be multiplied by '8' will make nonsense out of the bid. Indeed, I fail to see the purpose behind this exercise. Let me look at this from another point of view. Had the Querist (BHEL) been the only bidder, would NHPC have revised the price? And ended up giving the Querist what it did not ask for, and what it was not entitled to? Accordingly, NHPC's stand appears to my mind to be not only contrary to logic but also to common sense."

The NHPC fiddling in the evaluation process that Vahanvati was referring to was in inflating BHEL's bid. The cost quoted by the PSU and that cited by the NHPC in the final evaluation were not the same. BHEL was to have imported one generating unit and manufactured seven indigenously. But NHPC cited the cost of the imported unit as the base price for all units, thus inflating the project cost. It conveniently ignored the lower prices quoted by BHEL.

Vahanvati is not alone in questioning the deal favouring Alstom. Santosh Mohan Deb, the Union minister for heavy industries in charge of BHEL, had already sought Union power minister P.M. Sayeed's "kind intervention" on January 14, seeking fair play and adherence to government policy guidelines. Once Vahanvati tendered his opinion, Deb again wrote to Sayeed on February 2 seeking a reply to his earlier letter and referring to that advice. Deb sought Sayeed's intervention to stay any moves by NHPC to award the contract to the French company till the Central Electricity Authority or some other independent agency did a review.

NHPC chief Yogendra Prasad was not available for comment but when Outlook met power minister Sayeed, he claimed he did not remember any letter Deb had written to him or any demand for an independent inquiry. He said he is all for autonomy for public sector companies. "We don't want to poke our nose into somebody else's jurisdiction. The boards of PSUs take all decisions and they are supreme. Whether the decision was right or wrong would be decided by the due process of law. Let the aggrieved party go to court or take other remedial measures." The fact that the minister believes in complete autonomy was borne out by the fact that despite his assurance that power secretary R.V. Shahi would explain the technical aspects of the deal to this magazine, the latter was less than forthcoming.

The Rs 1,600-crore project is just the beginning of a grand plan to harness Arunachal's rivers with a power potential of 36,000 MW. This would be sufficient to light up the entire Northeast and possibly help power-starved states elsewhere. Already projects for 7,000 MW are in the pipeline and many of these do not entail any major displacement of local populations. Surely, the one who builds eight units generating 250 MW each in lower Subansiri would enjoy the early bird advantage of experience, expertise and mechanical parts.

Dipankar Mukherjee, CPI(M) deputy leader in the Rajya Sabha, has termed the deal "fishy" and has written to Prime Minister Manmohan Singh seeking investigation into the allegations over the mode of evaluation that has resulted in Alstom getting the nod. Power expert and former BHEL official Ashok Rao feels this deal has all the ingredients of a multi-crore scam because it eventually kills the PSU's prospects in a huge market and gives virtual monopoly to a foreign entity.

Says Mukherjee, "The tall claims of autonomy are nonsense because the power ministry sits for months and even rejects appointments of directors of ntpc, pfc and other PSUs cleared by the Public Enterprises Selection Board. What is the great haste in concluding the deal even after the opinion of the solicitor general against the NHPC's valuation procedure and the request of review by the heavy industries ministry? This unnecessary haste only means that the deal is fishy. Alstom has been reportedly favoured by NHPC and hence this deal has to be inquired into by an independent agency."

In fact, another PSU under the power ministry, the North Eastern Electric Power Corporation Ltd (NEEPC), asked NHPC chief Prasad to blacklist Alstom on January 5. In an official communication, it said that its board of directors had "advised blacklisting of M/s Alstom in view of their failure to execute the contract for which letter of intent was placed on them against tender for hydro-mechanical works on the Turial hydroelectric project and insistence of the company for incorporation of additional clauses which were not agreed to by the corporation."

NHPC, instead of considering the advice of its sister organisation, decided that BHEL's quote was higher than Alstom's and that the solicitor general's opinion was one-sided. But the heavy industries minister has alleged that a prequalification criterion of the major partner of the joint venture having the maximum share in the work was violated. Alstom, France, is the major partner in its bid along with its Indian arm. But the parent company's share according to the bid is just 34 per cent whereas BHEL's is 62 per cent (with Japanese company Marubeni as the collaborator). Further, the Indian arm of the French company has no experience or infrastructure to manufacture the required equipment and hence should have got disqualified on just that count.

Deb in his letter to Sayeed pointed out another fact, "It appears that Alstom have indicated a lower foreign component in Schedule 1 of the price bid with a view to reduce the loading on account of price preference granted for the bidders under the mega power policy." Interestingly, the government's policy to have a price preference of 15 per cent to promote indigenous industry has been used by Alstom to beat the Indian competitor. That too, by deliberately lowering the import content of the project. Whether it is permissible in the context of Alstom's Indian arm not having earlier manufactured crucial components like the main inlet valve, generator and turbine remains the moot question.

According to the heavy industries ministry sources, Alstom's bid did not include sales tax on various items and if you add the 15 per cent price preference to its initial price, the Alstom bid would eventually overshoot BHEL's by over Rs 130 crore. When PSUs don't love PSUs and ministers presiding over them can't see eye to eye on issues involving thousands of crores of public money, nothing short of prime ministerial intervention—or legal redress—would provide a level playing field to BHEL that has over the years competed globally to build complex power stations.