The Ghost Comes Back

Why did MTNL’s Managed Leased Line Data Network (MLDN) project got

extra-ordinarily delayed? Why did Alcatel, the L1 bidder for MLDN equipment did

not get the order? In spite of getting the approval from Tender Evaluation

Committee, Telecom Engineering Center, and the board of directors, the minister

of state for communications overruled the decision, and the contract was awarded

to L2 and L3. VOICE&DATA uncovers behind the scene manipulations and

intrigue that led to the fiasco. And now, Congress party is threatening to bring

back the ghost of the telecom scam.

One cannot rule out the interference of bureaucrats and

politicians in the day-to-day affairs of any public sector organization. But if

the decision leads to an extra burden on the company, it should be quite

alarming for the company as well as its investors, both present and future.

First, it delays the process of procurement and substantially increases the cost

for the company. Second, in a competitive scenario where private companies are

becoming more aggressive, it becomes all the more difficult for the public

sector organizations to compete with their competitors.

Take the case of MTNL, which released a global tender on 19

June 2000, for the turnkey project of Managed Leased Line Data Network (MLDN)

equipment, for Mumbai and Delhi. Though Alcatel was the lowest bidder in the

tender, the purchase order was allotted to the L2 and L3 bidders, which is quite

surprising. And MTNL had to pay the price of procuring the equipment at a higher

price when the L1 vendor was planning to provide it at a much lower price.

Thanks to the interest and interference of the bureaucrats and the minister.

On the due date of the tender (31 July 2000), companies which

submitted their bids were Alcatel with NewBridge, ITI with Tellabs, HTL with

Tellabs, Ascom with Rad, and Mro-Tek with Rad. A month later, the Tender

Evaluation Committee consisting of the three members–SS Nijjar, GM (T&MM),

CO, convener; PK Agarwal, GM (IT), CO, member; and Udita C Kumar, DGM (F), CO,

member–submitted its report and evaluated the ranking. The report is as

follows:

M/s Alcatel Network System India Ltd bid meets all the

conditions of techno-commercial part of the tender except the AMC clause, which

as per Telecom Engineering Center (TEC) shall be taken care of during the LoI

stage, in case their bids are found successful. TEC recommended opening up of

their financial bids.

In the report, Alcatel was the L1 bidder at Rs 63.16 crore.

ITI was the L2 bidder at Rs 139.12 crore (120 percent higher than L1 bidder) and

HTL was the L3 bidder at Rs 183 crore (190 percent higher than L1 bidder).

It is amply clear that Alcatel should have been given the

order. However, it is here that the games start. Unable to be the L1 bidder,

Tellabs wrote to MTNL, on 4 September 2000, pointing out certain technical

deficiencies in the bid. Then Tellabs partner ITI persuaded AP Jithender Reddy,

a Lok Sabha MP, who wrote on the same day to the minister of state for

communications complaining about the injustice done to ITI. On 7 September 2000,

C Ramesh, CMD, MTNL, replied to the MP clarifying all the issues and explaining

how the bidder had complied to the requirements of the tender, and concluded by

saying that in the view of these facts, MTNL is going ahead with the process to

award the MTNL tender to the L1 bidder.

On 8 September 2000, MTNL issued a Letter of Intent (LoI) to

the L1 bidder, Alcatel, with a note that "In addition to the items and

quantity mentioned above, any extra items or quantity required for successful

commissioning and operation of the system, shall be supplied free-of-cost by M/s

Alcatel Network Systems India Limited".

Not convinced with MTNL’s response, AP Jithender Reddy

again wrote to the minister of state for communications on 13 September 2001,

which read as "The response from the CMD, MTNL, is not at all satisfactory

and does not address some of the issues raised by me. I request you to get the

matter investigated thoroughly, in view of the injustice being done to ITI, in a

business involving approximately Rs 139 crore".

After receiving the letter, the minister of state for

communications, wrote to CMD, MTNL, on 13 September 2000, to keep in abeyance

the LoI issued to Alcatel till further instructions, and calls for the MLDN file

to have a look at it. After this, on 22 September 2000, instruction was given by

AK Roy, APS to the minister of state for communications, to MTNL not to issue

any purchase order regarding the MLDN tender. Interestingly it is on the same

date, i.e 22 September, Narender Sharma takes over as the new CMD of MTNL.

In response to the MP’s letter, the office of the minister

of state for communications directed MTNL to appoint a group in TEC to

technically re-evaluate the tender and then submit its report. Responding to the

minister, the CMD of MTNL sent a letter to TEC on 11 October 2000, to look into

the technical re-evaluation of Alcatel and ITI. On 27 October 2000, NK Gupta,

DDG (I), TEC submitted its report to CMD, MTNL, saying both the bidders have

complied to all the clauses.

This clearly shows that Alcatel bid had no technical

deficiencies, and on the basis of price it is rightly the L1 bidder. But this

apparently did not satisfy the detractors. Even after the TEC’s re-approval in

favor of Alcatel, CMD of MTNL, appointed a "High Powered Committee" of

three members to look into the MTNL MLDN equipment tender, and asked the

committee to submit its report within a week’s time. The committee constituted

of Ramani Iyer, CGM, Mumbai; KH Khan, CGM, Delhi; and S Sundresan, director,

finance. Interestingly and strangely, the committee in its report submitted that

the bid is not completely compliant with respect to some items of technical

requirements. Remember that it has been approved twice by the Tender Evaluation

Committee and Telecommmunications Engineering Center.

Commenting on the formation of High Powered Committee and its

decision, Mani Shankar Aiyar, senior congressman who raised the MLDN case of

MTNL in the Parliament said, "After a competent technical director in the

Tender Evaluation Committee, and the Telecom Engineering Center, not to mention

two separate chairmen of MTNL and Telecom Engineering Center, and the entire

board of MTNL have certified technical compliance, what is one to make of a

minister who imposes a committee headed by the finance director and two

relatively, junior officers of the organization, to cast some marginal doubt on

technical compliance and then pretend that this committee’s opinion is

paramount by describing a low-level committee as a "High Powered

Committee". Why should this so-called "High Powered Committee",

on a purely-technical question, have been headed by a finance director, instead

of a technical director, and since when has the English language accepted that

the chairmen of the two regional offices are more "High Powered " than

the chairman of the enterprise and the members of the Telecom Commission?"

Mani Shanker Iyer might not be very generous in calling CGMs of MTNL as ‘junior

officers’ but it is very difficult to understand how the earlier

recommendations of a range of more senior and technically-qualified people at

MTNL and Telecom Engineering Center were over-ruled.

Of course, the story does not ends here. Since there was a

difference of opinion, MTNL sought legal advice from the New Delhi Law Office on

18 October 2000. The New Delhi Law Office submitted its opinion on 14 November

2000, stating that the LoI cannot be canceled, as all the conditions of the LoI

were fulfilled by the bidder. The text says:

"On the receipt of an unconditional acceptance of the

said LoI along with the performance bank guarantee, which has been found valid

by the CAO, Banking of MTNL, is obliged to issue the purchase order to Alcatel

as per the set clause 35.1 of the general terms and conditions of the tender

document. In the event, MTNL supersedes the LoI issued to Alcatel, the same may

result in the breach of tender conditions by MTNL, thereby tendering MTNL liable

for legal consequences".

The mystery deepens further. In spite of the New Delhi Law

Office, another legal opinion was sought from the additional solicitor general

of India who advices MTNL to cancel the LoI, since no purchase order has been

issued so far, and then issue the LoI to ITI–the L2 bidder.

In the meanwhile, ITI was contacted to match the price of L1

bid, but it showed its inability to do so. Nobody at MTNL can explain why was L2

contacted? As according to the central vigilance commissioner’s guidelines,

"Tenders are generally a major source of corruption. In order to avoid

corruption, a more transparent and effective system must be introduced. As

post-tender negotiations are the main source of corruption, post-tender

negotiations are banned with an immediate effect except in the case of

negotiations with L1".

In the midst of all this drama, on 6 January 2001, CMD, MTNL,

decided to go ahead with L1 Alcatel and adviced bill of material as per the TEC

requirement. Alcatel submitted a detailed bill of requirement to MTNL, which was

approved by CMD, MTNL, for issuance of the purchase order.

However the drama refuses to end and the plot thickens. On 30

January 2001, the GM, IT, on the instructions of director, finance, met the

minister of state for communications where two officials from the L2 bidder

along with AK Roy and Samdev Dasgupta, MD, India Laminating & Packaging Ltd

(Kolkata-based company) were present. Interestingly, according to a confidential

report of SC Ahuja, company secretary, MTNL, on the 30 January meeting,

"......Samdev Dasgupta, who appears to be an outsider was also

present". This clearly points to the suspicious nature of the meeting as

well as one of its participants.

Reacting on the people present in the meeting, Mani Shankar

Aiyar has raised two valid points. First, how can the minister possibly justify

the presence of his additional private secretary, a Kolkata-based businessman

who is personally known to the minister but has no business connection with

telecom, in the meeting with the MTNL GM. Secondly, why were the representatives

of L2 and L3, not present in the meeting of the additional private secretary

with the MTNL GM?

No wonder that on 9 February 2001, the minister issued a

directive to MTNL giving the following options: (i)to cancel the LoI of the L1

bidder, and place an order on L2 at the offered price; or (ii) tender be

scrapped and a fresh tender be called. It also ordered that the L1 had mis-represented

product and technical facts in its tender bid and therefore role of L1 be

investigated, and disciplinary action to be initiated against the MTNL

personnel.

In the meanwhile, L1 bidder had already approached the High

Court. On 14 March 2001, the High Court asked MTNL to tell what is the final

decision to be taken, and should inform on the next hearing on 21 March 2001.

Defying minister of state’s directives, on 19 March 2001,

MTNL had its 147th meeting and after a detailed discussion among the board

members, it was decided to convert the LoI placed on Alcatel into a purchase

order. On 20 March 2001, the file was sent to Ramvilas Paswan, then cabinet

minister for communications. Paswan noted on the file that his colleague, the

minister of state, has raised certain doubts on the technical compliance of the

L1 bidder, and directed the MTNL board to take an appropriate decision in this

regard, at the earliest. In effect Paswan stuck to his colleagues view on the

matter, and threw the ball back in MTNL’s court.

Reacting about the meeting Mani Shankar Aiyar said, "Is

it not a fact that the MTNL board in its meeting on 19 March 2001, decided,

without dissent, to convert the LoI issued to Alcatel into a purchase order? Is

it also not a fact that the same director, finance, on whose report the ministry

is relying for cover was a part of that unanimous decision. Is it also not a

fact that CGM, Delhi and Mumbai, were present in the 19 March 2001 board

meeting, and expressed no-dissent from the unanimous decision? What right then

did this minister or his senior ministerial colleague have to force yet another

board meeting of MTNL, the following day? "

An another interesting thing about the 147th meeting was that

it was the only meeting in the history of MTNL’s board whose minutes were not

issued. Expressing his views, Mani Shankar Aiyar said, "Was the minister

not aware of that he cannot save himself on those grounds alone, as the entire

proceedings were taped and audio tapes of the proceedings were freely

available?"

In the 148th board meeting of MTNL held on 20 March 2001, the

case was referred to Soli Sorabjee, the attorney general of India. Soli Sorabjee’s

opinion was as follows:

"In view of the technical non-compliance by Alcatel, as

confirmed by both TEC and and the High Powered Committee, it would neither be

prudent nor in the public interest, to award the contract to Alcatel. I am

however not in favor of awarding the contract to L2 bidder, namely, ITI,

considering the facts and circumstance of the case, and also the tendency of the

Write Petition in the Delhi High Court. In my opinion, re-tendering would be the

most appropriate course to be adopted by the queerest (MTNL)".

Since the tender was scrapped, the single judge (Delhi High

Court) and the division bench (Delhi High Court), felt that there was no merit

in the appeal and dismissed the appeal. Though the minister might claim that he

is covered by two judgments (27 April 2001 and I June 2001) of the Delhi High

Court (by a single judge and then by a bench). But it is not the case.

"However, the question referred to the High Court was whether the issue of

natural intent and its acceptance, does or does not constitute a binding

contract", says Mani Shankar Aiyar. "Of course, it does not and I

believe Alcatel made a serious error of judgment in taking the wrong question to

the court", he added.

In the next meeting of the MTNL board on the MLDN case, the

board was unable to come at an unanimous decision, and there was a tie of 5:5

and the CMD voted its casting vote against the release of purchase order to

Alcatel, and it was decided that the tender will be scrapped and fresh tender

will be called for.

The result, the MLDN equipment tender was scrapped. Since

MTNL had an urgent requirement for MLDN equipment, MTNL, Mumbai, decided to

place the order on L3 bidder–HTL whereas MTNL, Delhi, put its plan on hold.

Seeing, MTNL, Delhi, backing out; MTNL, Mumbai, reduced the price of the

purchase order by 10 percent after the purchase order was given, which is again

very surprising.

"The real question is whether in a purely commercial

affair, the minister is entitled to overrule the entire board of directors, and

their commercial and technical judgment, to force the Navratna to award the

contract to L2 and L3 after L1 had proved its technical capacity to meet the

requirement at virtually, half the price demanded by other suppliers", says

Mani Shankar Aiyar. "I do not have any proof of corruption but as I said in

the Parliament, I do believe the minister’s action constitutes impropriety,

amounting to the possible corruption of this order, which is keeping

multinationals away from the Indian market, giving India such a bad name in the

international business circles, and therefore, a call for a thorough

probe", he added. "The minister is mistaken if the issue is dead and I

intend to pursue the matter and press for a JPC when the House intervenes in the

winter session of the Parliament", said Mani Shankar Aiyar. If Congress

really lets out the ghost of telecom scam again, the government will be once

gain in an embarrassing situation.

While the ministry may now debate the merits and demerits of

the entire drama that took place, the fact is that there were too many

controversies and un-answered questions. All this will have a very negative

impact on the work culture of the telecom ministry, which now needs to think and

work in a radically different manner, given the critical nature of

communications in the future of the country. And last but not the least, the

vendors and investors will only be demoralized with such happenings. One expects

that Tapan Sikdar, as well as the new communications minister, Pramod Mahajan,

takes note of the seriousness of this issue and ensure that it is not repeated

in the future.

Pravin Prashant