The Anti Corruption Commission (ACC) based on its findings with the BHEL case has clearly found that BHEL’s hiring of a local commission agent is wrong and it has asked for its removal in this and future projects as it inflates the cost of the hydro projects and to also safeguard against corruption risks in the hydropower sector.
The ACC report vindicates the findings of The Bhutanese paper which did a series of stories in 2014-15 of Bharat Heavy Electricals Limited (BHEL) hiring a local commission agent Bhutan Ventures Trading (BVT) that increased the financial burden for Bhutan on Mangdechu and PHPA-II projects.
However, given that ACC faced jurisdictional issues in India to get information the ACC could not find criminal culpability to pursue any legal prosecution.
An added issue was that there was a signed contract between the two companies, and in the MHPA tender which required disclosure of any agents, BHEL had declared BVT as its local agent.
Consequences for the nation
While there is no legal prosecution for any of the parties involved the ACC has confirmed that the appointment of the local agent BVT by BHEL cost an additional financial burden of Nu 197.897 mn to the country in buying equipment from BHEL for the 720 MW Mangdechu and 1020 MW Punatsangchu II project.
ACC in a 16th April letter to the Prime Minister says, ‘The case in point certainly rings an alarm bell to not only oversight institutions, but also to the government and leaders in decision making positions concerned or involved in hydro projects.”
The letter goes on to say, “With many larger if not the largest hydropower projects in the pipeline (like Sunkosh and Kuri Gongri) in the 12th FYP and beyond, such a trend if not nipped in the bud will proliferate in future mega hydropower projects with far reaching and irreparable consequences to the nation.”
The ACC’s letter sharing the synopsis of the BHEL case with the PM says, “ACC would like to share the following synopsis of a particular case which, in its opinion, insinuates the vulnerability of hydropower project to unethical practices and shady business arrangements.”
ACC case findings
The ACC letter says that in early 2015 ACC initiated its investigation of the case on alleged corruption issues on the appoint of BVT as the local agent for BHEL in connection to the awarding of electro-mechanical works for P II and Mangdechu at Nu 9.496 bn and Nu 5.162 bn respectively.
ACC says its investigation revealed that the appointment of BVT as BHEL’s local agent in Bhutan came about when the project authority during the 4th PHPA meeting in 26th December 2008 pushed for relaxation of the eligibility criteria to accommodate participation of competitive bidders like Alstom India, Andritz India and Voith Siemens.
On 2nd February 2009, Sangay Wangchuk obtained a retail trade license registered as BVT to become the agent of BHEL. Soon after, during the 5th PHPA meeting held in 16th March 2009 at New Delhi, the representatives from the Central Electricity Authority (CEA) strongly supported BHEL as the only qualified bidder for the contract as per the understanding between the two governments and eventually resolved that the participation of other competitors, may be considered in future.
Therefore, the eligibility criteria for PHPA II and Mangdechu was not relaxed and BHEL was the only firm that qualified to participate.
The ACC letter says that BHEL’s own internal record as well shows that its agreement with BVT leaves no doubt that the whole intent of appointing an agent in Bhutan was to secure the contract for BHEL on nomination or single tender basis.
Evidence also suggest that that BHEL’s own internal evaluation standards and guidelines were flouted while recommending and appointing the agent and there were questions within BHEL on the need to have an agent for a GoI project.
ACC says BVT and BHEL executed two agency contract agreements for PHPA II and Mangdechu on 9th January 2012.
ACC says that a disconcerting clause in the agreement states that ‘BVT’s obligation is to promote and convert the Enquiry into contract for BHEL on nomination or single tender basis’.
The Commission says that it finds it reasonable to infer as the use of one’s personal influence for the purpose of obtaining the contract.
The ACC found that the post-contract services specified in the agreements were never actually performed by BVT thereby questioning the credibility of the agreement itself. ACC says that as per the agreement BVT is to receive a ‘success linked fee of 1.35 percent of the contract value.’
The ACC also pointed out that BHEL in the past supplied equipment for Chukha, Kurichu and Tala projects all without involving any local agents. It pointed out that BHEL already had offices in Phuentsholing, Thimphu, Wangduephodrang, Gelephu etc. along with BHEL employees for all facilitation works and the BVT owner also confirmed that ‘there was nothing for BVT to do’.
ACC said the joint audit by RAA of Bhutan and CAG of India had raised the issue on the appointment of a local agent for MHPA and was reflected in the 2016 Annual Audit Report which remains unresolved to date.
In the case of PHPA II there was no provision to declare appointment of agents in the tender document and so the issue did not surface during the audit.
Three policy recommendations based on BHEL
The ACC based on its BHEL case investigation has come up with three policy recommendations to the government as so that systems of integrity and can be instituted to promote good governance and guard against corruption risks in the hydropower sector.
The first is to not allow the appointment of unwarranted and undesirable local agents or representatives in Bhutan for projects and in particular for Public Sector Undertakings.
The ACC says, “It should be made mandatory for every bidder to declare that it does not and will not appoint local agent or representatives in Bhutan.’
It’s second recommendation is a call upon the government to adopt open and competitive bidding process for future hydro projects in the interest of obtaining competitive prices, quality equipment etc. as decided during the eight Empowered Joint Group Meeting on 3rd February 2012, in New Delhi.
It says this might require revisiting the eligibility criteria.
This is to do with the fact that the first elected government in its hydro meetings with Indian counterparts considered allowing other competitors apart from BHEL to compete but later stuck to BHEL as the monopoly supplier on the insistence of some Indian officials representing the CEA.
The ACC also recommended to the government to withhold or stop payments of the remaining commission fee that BHEL is to pay to its agent BVT and to initiate discussions with BHEL authorities to terminate the two agreements signed with BVT.
The ACC letter says, “Besides enhancing the cost of the two projects and adding to the financial burden of the country, the appointment of a local agent by BHEL, a PSU of the Government of India, is a controversial issue and has invited much criticism in both India and Bhutan and must be stopped in the overall interest of the nation and Indo-Bhutan relations.”
Follow up on the recommendations
The ACC’s three recommendations has been followed up on by the government.
On not allowing agents, the Director of Department of Hydropower and Power Systems on the directives of the MoEA Minister has written to the MDs of PHPA I and II and the Kholongchu project.
The letter prohibits the appointment of local agents or representatives for any projects implemented by Public Sector Undertakings; makes it mandatory for every bidder to declare that it does not and will not appoint local agents or representatives in Bhutan; and directs them to incorporate the same provision in the Contract Agreements.
The MoEA Lyonpo followed up with the MHPA and PHPA II to stop any additional payment to BVT, discussed the issue with the BVT owner to not pursue the deal and the BVT license stands cancelled for now.
The MD of MHPA suggested to BHEL to not release any payment to BVT and to initiate the process to foreclose the existing Contract Agreements signed between BHEL and BVT with immediate effect.
The Executive Director of BHEL responded informing that the contract was signed on 9th January 2012 which is presently valid and in-force. The ED said BHEL has taken note of the suggestions and it will be dealt in line with the provision of the contract agreement.
This in plain speak means that BHEL will not cancel the contract which could also very well mean that it will continue with the payments.
As per the ACC investigation BVT claimed that it only received Nu 18.80 mn of which Nu 12.17 mn was from PHPA II and nu 6.62 mn from MHPA and after the 2014 media coverage (by The Bhutanese) it did not get further commission.
This 18.80 mn had not been divulged to tax authorities and got declared only when The Bhutanese did the commission story in 2014.
So a relevant question here is that if BVT got only Nu 18.80 mn of the total Nu 197.89 mn Commission and BHEL is still saying the Commission contract is valid who else apart from BVT is getting or has already got the remaining amount.
This is exactly what ACC cannot find out given the jurisdictional issues since it cannot conduct investigations in India to find out where or to whom the remaining amounts went to establish any corruption.
The ACC in its letter says that hydropower is a high-risk sector as it entails large investments which can attract varied forms of corruption opportunities and risks in many areas of the project cycle from planning stage, setting of eligibility criteria and selection and pre-qualification of contractors to project execution.
It says, “The potential for large scale corruption that might creep into the hydropower sector which, if not abated, will have far reaching and irreparable consequences to our national economy and future generations.”
The ACC has officially not said that the case is closed but it is a dead end in terms of criminal culpability and legal prosecution given the jurisdictional issues and how the arrangement was made between the two companies.