One Step Forward, Two Steps Backwards
Note: This is the first part of the series of articles I will be writing about the power sector in Kerala. The high literacy level, high level of electrification and the dubious distinction of being the one of the last states which are resisting SEB unbundling – all these factors offer interesting perspectives which we will be discussing in these articles. Some of the matters being discussed in these article are sub judice and some of them are of political nature and hence the author has tried his best to maintain neutrality.
Introduction
“Ministry of defence: The ministry that defends India against its greatest enemy: not Pakistan, not China, but corruption. No decision, no corruption.” – From ‘A dictionary of our times’ by Pratabh Bhanu Mehta, Indian Express on 27 January 2011
The defence ministry is well known for its strictness and swiftness in acting against corruption ever since the Bofors scandal. But the strict procedures ensure that tenders and procurement processes get postponed/cancelled sometimes even due to vague allegations thereby delaying the modernisation of armed forces. According to rules, if it is found that bribe was paid in a defence deal, howsoever insignificant the amount of bribe is, the deal will have to be cancelled. In an ethical and legal viewpoint, this rule is valid and necessary. But from the perspective of National security, if it is found that bribes haven’t influenced the technical qualifications shouldn’t we have punished the official who accepted the bribe and gone forward with the deal? Each delay in defence projects are exposing more and more of our Nation to future vulnerabilities. For example, in 2009 the Defence Ministry cancelled a 155mm artillery gun tender after Bofors emerged as the frontrunner, since it was embroiled in a corruption case in the 1980s. If being involved in an old corruption scandal acts against winning a new bid, why did the Govt. initially allowed Bofors to participate in the process, thereby delaying the process by months.
But then we are here to discuss about power sector, not defence. When it comes to power sector, even though figures involved are large, the processes are more transparent than the defence ministry. In power sector, high level corruption allegations are not as rampant as that in Defence (ofcourse there are exceptions like Enron) and mostly such issues doesn’t threaten the overall project executions. Eventhough there still exists room in the rules and regulations for manipulations and corruption, the process is transparent and easily verifiable. In those circumstances, won’t it be strange if an Electricity Minister cancels a contract because the leader of opposition made some charges against the contract!!
The Contract
The Government of India had in 2008 announced the Restructured Accelerated Power Development and Reforms Programme (RAPDRP) for strengthening the distribution of State Power utilities and bringing down the Aggregate Technical and Commercial (AT&C) losses to 15% by the end of the project period. On July 2010 the first phase (worth Rs.240 Crores) of the program was awarded to Korea Electric Power Data Company - KEPCO Data Network (KDN), which is claimed to be a global leader in smart grid and is owned by the South Korean government. The major projects proposed for implementation are as follows
- Establishment of Wide Area Network for KSEB – For connecting all the major offices
- Establishment of Data Centre – For hosting all the Server systems of Software Applications
- Energy Auditing
- GIS based consumer indexing and asset mapping
- Centralised customer care and web services
In addition, SCADA/DMS project is also included in RAPDRP for which three towns have been qualified as per PFC guidelines. The scheme was unique because the State would not have to repay the loan provided by Central Government through Power Finance Corporation (PFC) if it was successfully implemented within three years, failing which it would have to repay the amount along with the interest. The State would also be eligible for Rs.1000 crore in the second phase of the project, of which 50 per cent would be Central aid. Accordingly KDN was expected to finish the work in November 2011.
The Allegations
On October 2010, Leader of the Opposition alleged that KSEB gave the project to KDN even when another company – Omni Agate Systems quoted a price which was lower by Rs. 51 crore. He also said that manipulation of tender specifications at the onset had prompted most bidders to back out. The Korean company KEPCO Data Network (KDN)'s bank guarantee, a crucial mechanism to protect the KSEB's financial interest, was drawn in favour of a non-existent entity and instead of disqualifying the company, the KSEB permitted it to change the bank guarantee. A former Electricity minister alleged that the use of free software was mandated to keep Indian IT majors like Infosys and Wipro out of the race.
The Clarifications
In response to the allegations, KSEB came out with three press releases in September 2010, October 2010 and in December 2010 the salient points of which are listed below.
- Tender process and evaluation was done under the guidelines and supervision of PFC which is a central sector utility. So there is no scope for state Government to go against the rules.
- In most states only 2-3 companies participated in bids for Phase 1 of APDRP while in the case of Kerala about 8 companies participated which disproves the theory of tender conditions being restricted and biased.
- KDN has submitted Bank Guarantee DD in favour of Chief Manager instead of Chief Engineer. The mistake happened because in most utilities, DD needs to be drawn in favour of Chief Manager and KSEB is one of the rare exceptions. This was pointed out to KDN and they promptly corrected it. Such corrections are allowed as per the existing rules.
- Even though Omni Agate Systems may have quoted a lower bid than KDN, they got only 33 points in technical evaluation while the qualification requirement was 35 and subsequently they were eliminated from the process without even opening their financial bid as per the conditions and rules stipulated by PFC. The software used for doing technical evaluation was also approved by PFC. Omni Agate Systems was also disqualified in technical evaluation of J&K Government for their RAPDRP projects.
- There was a Company – MIC which quoted a lower bid than KDN and passed the technical evaluation. But they have failed to include some items in the bid and when KSEB recalculated the bid adding those items too, their total bid amount became more than that quoted by KDN.
- Use of free software was mentioned as preferred but was not a mandatory condition.
Let us Retreat!!
Eventhough KSEB put up a brave front, the Government developed cold feet by the fear of the deal being equated with SNC-Lavalin scam (one of the biggest scams in Indian power sector which I will be covering in a later issue). The problem was aggravated by the fact that state elections are scheduled to be conducted on 2011 May.
The Kerala cabinet on 15 December 2010 decided to cancel the contract between KSEB and KDN and retender the work at the insistence of Chief Minister. But the Government couldn’t give any proof on any irregularity committed by either KDN or KSEB. The actual reason was that the Government feared that people may equate this deal with the previous SNC-Lavalin scam which also happened in the previous Government of the same political dispensation. Kerala’s Electricity Minister didn’t try to hide the fact and accepted it publicly -
“Soon, the opposition leader came up with a statement equating it with the SNC-Lavalin. Then came a letter from our own chief minister which left us with no option but to go for a re-tender,” he said. “Those who oppose these projects are giving great disservice to our state.”
Impact
KDN approached Kerala High Court against the decision of state Government. On 4 January 2011 the High Court granted a stay for two months on the state government’s directive on annulling the contract with KDN.
Now even if the Government goes for retendering after the expiry of stay order, there are only slim chances of the project meeting the deadline of November 2011. This means that the Government will lose Rs.214 crore grant and will also have to pay interest at the rate of 11%. Thus the total financial loss will be Rs.237 crore. There may be further expenses if court accepts KDN’s demand for financial compensation.
The delay in first phase implementation will also lead to the stalling of the second-phase assistance of RAPRDP, which is to the tune of Rs.5 billion. Thus KSEB will continue with the present AT&C losses thereby further increasing the potential losses.
Looking into the Future
It was not just a project that was blocked; the developmental aspirations and initiatives of a state were blocked. It is natural for people to cry foul after every major deal is signed. It is also in the interest of the Nation that such allegations of foul play be investigated to find if there is any truth in the allegations. But when the policy of court is to not let even a single innocent person get punished even if that means leaving a thousand guilty men free, won’t the policy apply equally in the case of such projects which were time consuming and capital intensive? Just like a person is not pronounced guilty till the Judge delivers the verdict, shouldn’t a project be also viewed as legally valid till a court declares it to be invalid or illegal? Sectors like Defence and Electricity are vital to the strategic interests of the Nation. It is true that we shouldn’t allow corruption in these sectors. But shouldn’t the corruption charges be fought with brain instead of heart and shouldn’t the rulers keep in mind of the next generation instead of next election while taking decisions?
References
- http://www.kseb.in/general/rapdrp-projects-in-kseb.html
- http://www.kseb.in/news/government-scraps-kseb-rapdrp-tender.html
- http://www.thehindu.com/2010/10/09/stories/2010100960360400.htm
- http://expressbuzz.com/cities/thiruvananthapuram/deal-with-korean-firm-scrapped-due-to-pressure/236452.html
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