Alstom in 2 letters to GoI alleged that BHEL overcharged by up to 30% for P II and Mangdechu

Letters from Alstom and Andritz also complain of being left out of P II and Mangdechu even though they were capable

In two letters sent in 2013, one to the then Minister for External Affairs Salman Khurshid, and another to the then Deputy Chairman of the Planning Commission Montek Singh Alhuwalia, Alstom alleged that Bharat Heavy Electricals Limited had overcharged by up to 30% for Punatsangchu II and Mangdechu.

The letter also claims that it was left out of the bidding even though it was competent to supply the equipment and even after it had successfully proved that it was an Indian company.

Another letter in 2010 sent to the Ministry of Commerce and Industry in India by another company Andritz also complained of being left out even though it was manufacturing in India. Alstom and Andritz are Multi National Companies that among other things specialize in making power generation equipment. The letters were sent by their India based companies.

BHEL had been given the P II and Mangdechu bid in 2012 June and 2013 January respectively on a nomination basis by the two governments after all other private Indian companies were disqualified on the technical criteria.

The letter to the former MEA Minister by Alstom says, “What is even more serious is the fact that the nomination route is ensuring that BHEL is offering prices for the supply and erection of the equipment at highly inflated rates.”

The letter claims that in both the cases of P II and Mangdechu the price at which the project was awarded to BHEL is approximately 28 to 30 % higher then what would be the offer price by the other global manufacturers.

It says that the original bid price of BHEL would have been even higher and only after negotiations it would have been brought down to the 28 to 30% higher level which became the bid price.

Alstom based on its own analysis of global prices offered by vendors said that while BHEL charged Nu 9.50 bn for P II other global vendors prices were around Nu 7.50 bn.

In the case of Mangdechu it says the Nu 4.60 bn award price (excluding other works) of BHEL was higher than the Nu 3.20 bn that other global vendors would have charged for it.

The letter says, “Thus, it is evident that the overall costs of these two projects are highly inflated.”

The letter does not stop there; it says that the final cost would be even higher when inflation is factored in. It gives the example of P I where it says the tender was awarded to BHEL at Nu 1.05 bn in March 2007, but it was hiked by 35% to Nu 1.43 bn by the Central Electricity Authority (CEA) for inflation adjusted prices.

According to the letter this will result in the Indian exchequer paying out higher amounts then it should and it will also result in higher debt burden for Bhutan.

“All of this is contrary to what are the obvious objectives that lied behind these projects of both India benefitting from commercially competitive tariffs for electricity and Bhutan being an economic beneficiary of cost competitive projects,” says the letter.

The letter says that given the logic of the circumstances, it is not too late for BHEL prices to be brought down by 30% for P II and Mangdechu projects. The company to put the proof in its pudding says that if BHEL cannot bring down its ‘atrocious price’ by 30% then there would be other vendors who could take the order.

It says that to know the true economical and commercial cost of a project, there should be more than just one bidder.

‘Flimsy technical criteria’ to leave out other bidders

Referring to the Tala project, the letter says that in the past it was understandable that power plant supply was placed on BHEL as there was no Indian company with the relevant experience and technology. It says that even then BHEL had imported sub-sets of the electro-mechanical equipment from South Korea.

According to the letter the situation of BHEL being the only Indian supplier has changed as companies like Alstom India manufactured and supplied in India. It says that Alstom had even supplied equipments in the range of 250 MW per unit for the Subansari project which should have been completed by 2010 but was delayed due to civil works not being undertaken.

It says that there are also other companies like Andritz who are also equally qualified manufacturers but in the case of P I both Alstom and Andritz were denied on the grounds that they could not be considered and Indian company as it did not have 51% Indian equity holding.

A separate letter by Alstom to the Deputy Chairman of the Planning Commission says that this 51% definition was put up by EXIM bank and was in contravention of the Companies Act of India. After raising the issue at the highest levels including with the Prime Minister of India the issue was resolved and the 51% equity provision was dropped.

The letter says that then the ‘flimsy technical criteria’ was put forth to stop the competition. The technical criteria for P II and Mangdechu were that the company should not only have manufactured in India but it should also have the machine commissioned and running successfully for three years.

A separate Andritz letter was sent in 2010 on the same issue to the Ministry of Commerce and Industry who sought the view of the competent Ministry of Power.

The reply from the Ministry of Commerce and Industry said, “Ministry of Power is of the view that Indian subsidiaries of MNC’s registered in India with full-fledged manufacturing facilities should be allowed to bid for hydro electric projects in Bhutan funded by the Government of India. However the equipment sourcing and all other decisions relating to the Hydroelectric projects in Bhutan are made by the Authorities set up for each HEP, which are autonomous bodies.”

It is interesting to note that in the fifth Authority meeting of the PHPA I held on March 2009 it was decided that though the Authority had decided to award the works for P I to BHEL it was decided that for future projects other bidders apart from BHEL could be considered for the supply of generating plants and equipments. BHEL, however, still got the monopoly order for P II and Mangdechu.

The view from Punatsangchu and Mangdechu

The Punatsangchu Hydroelectric Project Authority (PHPA) MD R.N Khazanchi when contacted said that the price for P I and P II were both fair as the consultants hired by PHPA had done their own research looking at global prices. “Any competing company that has lost or not got a bid can go ahead and say that they would have charged lower,” said Khazanchi questioning the credibility of the price claims of Alstom.

A senior Mangdechu Hydroelectric Project Authority (MHPA) official on the condition of anonymity also refuted the claims of Alstom and said that in fact the price had been reduced by Nu 1.1 bn from what was quoted through negotiations. The official also said that what a competitor said after not getting a bid is not credible.

The Bhutanese sent a question on the issue to BHEL on October 9th but there was no response from the organization.

In terms of involving Indian companies both the former Minister for Economic Affairs Khandu Wangchuk and the current MoEA Secretary Dasho Sonam Tshering in earlier interviews said that the Bhutanese side had pushed for allowing in private Indian companies in several meetings.

The Former Minister said that this issue was raised by the Bhutanese side on several occasions and the minutes of the meeting of various meetings would prove that point

Dasho Sonam Tshering said that he had even written to the PHPA MD before the P II bidding to look at the possibility of including other private Indian companies. This statement is borne out by a copy of a letter sent to the PHPA MD stressing the need to consider other companies.

Both Khazanchi and a senior MHPA official earlier said that the technical criteria of manufacturing in India and commissioning it for three years is help set by consultants from the Central Electricity Authority for Electro Mechanical equipment and from the Central Water Commission for civil works like dam and tunnel.

The senior MHPA official said that the consultants who are the experts sit with the project people and draw up technical criteria for qualification. This is then forwarded to the respective project Authority which gives the technical criteria approval after which it is then announced. The official also said that the bid documents for both PHPA and MHPA are prepared by the National Hydropower Corporation in consultation with the project as the project by itself will not have the expertise to come up with the document alone.

The official also stated that the requirement to manufacture and commission for three years is not a very harsh requirement as it is important for the projects to know if the company can supply the equipment and also have it running for a certain time period.

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