Indian journal uncovers a 1.5% ‘commission’ deal worth Nu 240 mn for a Bhutanese citizen in the Nu 16 bn electro-mechanical equipment tenders awarded for Punatsangchu II and Mangdechu

An Indian journal on sustainable energy and power, “ENERTIA” – in its monthly September issue has come out with a news article alleging improper payment or ‘commission’ made by Bharat Heavy Electricals Limited (BHEL) to a local Bhutanese company called Bhutan Ventures Trading (BVT) for a hydro project tender. The commission deal is alleged to have been made in the procurement of electro-mechanical hydropower equipment from BHEL by Punatsangchu II (P-II) and Mangdechu hydro projects.

The company BVT is owned by a Sangay Wangchuk who is a private businessman of the Riverview Hotel.

The letter

The journal, as proof, has in its possession a copy of a leaked letter (see main pic-ture) allegedly written by Sangay Wangchuk to Bharat Heavy Electricals Limited in September 14, 2010 talking about a 1.5% to 1.8% ‘fee’ on the total value of the order to be placed on BHEL for the 1020 MW Punatsangchu II and 720 MW Mangdechu projects.

P-II in June 2012 gave BHEL Nu 9.50 bn worth of electromechanical works while Mangdechu in January 2013 gave a total order worth around Nu 6.94 bn to BHEL. The total order is worth around Nu 16 bn.

This would mean that if an overall ‘fee’ of 1.5% is levied then the total payment to be made to BVT by BHEL would be around Nu 240 mn for only the two projects.

The letter addressed to the Head of International Operations, Mr Uppal, and written by Sangay Wangchuk states, “

As per the detailed discussions and negotiations we had with your team on September 6th 2010 and September 8th 2010 we agree on the following- (1) To be BHEL’s sole local agent in Bhutan. (2) For PHPA II we charge a fee of only 1.8% on the total value of the order. (3) For PHPA II and Mangdechu jointly we will charge a fee of 1.5% on the total value of the order. Hope you find everything in order. Looking forward to a successful partnership.”

The letter is then signed by Sangay Wangchuk as the Man-aging Director of BVT with a seal and logo of the company. The above specific agreement in question talks only about P-II and Mangdechu and though initially 1.8% has been charged on P II it is to be adjusted with Mangdechu to be become 1.5% for both projects combined.

The letter is both contro-versial and curious, because though the electromechanical works for P II and Mangdechu were floated and awarded in June 2012 and January 2013 respectively, the so far un-known agreement between BHEL and BVT had been reached as early as September 2010, which is a full two to three years before the respective bids for the two projects were even discussed between the two governments or at the project authority level.

The ENERTIA article raises the point that there was no need to appoint any local agent in Bhutan for BHEL as it was a monopoly supply order for BHEL and more-over BHEL, as a government company, is not authorized to nominate agents.

The procurement laws, both in Bhutan and India, neither allow nor have any provisions for agents or even lobbyists when it comes to tenders.

A senior hydropower of-ficial in Bhutan said that in India, even high profile politicians and bureaucrats have been legally charged for such deals, which are legally not permissible, especially for a government company like BHEL.

With BHEL being a mo-nopoly supplier and the projects not having any alternative or lower financial bids, the commissions paid on the tender would also push up the cost of the project. Though the letter is only for P II and Mangdechu, but if similar agreements are drawn up for all remaining hydro projects then the 1.5% commission could be approximately worth up to Nu 1.5 bn and even more.

BHEL is an Indian gov-ernment owned Public Sec-tor Undertaking (PSU) which recently supplied electromechanical equipment to the 1200 MW Punatsangchu I in 2010, Punatsangchu II in 2012 and Mangdechu in 2013 as the monopoly supplier. It had earlier supplied equip¬ment for Bhutan’s early projects, like Tala project, Chukha and Kurichu. There is, how-ever, no evidence, so far, to indicate that similar deals were struck for Tala or P I.

Electro-mechanical equip¬ment include the power gen¬erating and power house components, like runners, generators and other equip-ment that converts the water energy into electricity. It is second only in size to major civil construction works, like dam construction, tunnel construction and power house construction.

The Bhutanese has found that the company BVT was issued a license in 2009 by the Regional Trade Office in Thimphu in the name of San-gay Wangchuk. The license taken is for retail trade in ma¬chinery, equipment, textiles and readymade garments.

This paper also found that of the Nu 9.5 bn for P II, around Nu 1.317 bn has been released to BHEL as advance while of the Nu 6.94 bn of Mangdechu Nu 644 mn has been released also as advance to BHEL. The payments will keep getting released as the equipment comes to Bhutan.

“ENERTIA” is a private sustainable energy and power journal has, for quite some time, been pointing out mal-practices in BHEL in India.

Denials of any agent

The former BHEL rep-resentative and the Branch Manager of BHEL in Thim-phu, A.M Gupta, who finished his term in July 2014 and is back in Delhi when inter-viewed by The Bhutanese over the phone on Thursday morning denied that BHEL had any local agent in Bhutan. He made a similar denial to the same reporter around three years ago in 2011 when there were rumors of a local agent being hired by BHEL.

The new BHEL represen-tative and branch manager, S.K Gupta, when interviewed in his Thimphu office on Thursday afternoon also categorically denied that BHEL had any local agent in Bhutan. He, in fact said, “Why keep a local agent when BHEL em-ployees are here?”

S.K Gupta clarified that both in his capacity as the Ad-ditional General Manager in Delhi and as the branch man¬ager in Thimphu, he did not know of any local agent. He also explained that BHEL as a company policy does not hire agents, but it sends its own employees wherever they have some major works happening.

S.K Gupta explained that he handled all issues in Thimphu which was a mix of liaison, technical and commercial work.

He said it was his job to alert Delhi of upcoming works and tenders and to seek clarifications on them. He said his role was also to work with the government and also agencies like the immigration depart-ment, trade department, etc., to sort out any issues.

He said he also responded to all technical issues, be it with the project authori¬ties or with the Druk Green Power Corporation, and also explained technical proposals. He said he also did the liaison work when BHEL staff from Delhi and other places come to visit Thimphu.

He also said that in addi-tion to him, BHEL had posted another senior official named Pulak Mukherjee in Wangduephodrang to look after technical installation for both P II and Mangdechu.

When pressed again on the reports of a local agent in Bhutan again on Friday morning, S.K Gupta still denied of any knowledge with the mat-ter and asked the reporter to ask the commercial section of the company.

The background

BHEL was the monopoly supplier of electro-mechani-cal equipment for all projects until Tala was completed in 2006. International bidding outside India and Bhutan was not possible because, as per a larger hydropower agree-ment, all India-Bhutan hydro projects would get goods and services for the projects only from companies in India and Bhutan. With no major companies in Bhutan, this left only Indian companies.

This paper found that keeping within this agree-ment there were efforts by the former government from 2009 itself to allow open bid-ding for such works so that other private Indian companies apart from BHEL could participate in the bids.

In fact, the issue came up, specifically in 2009, during the fifth PHPA Authority meeting headed by the for-mer MoEA Minister Lyonpo Khandu Wangchuk as the Chairman and its members included the MoEA Secretary Dasho Sonam Tshering, Fi-nance Secretary Lam Dorji, and from the Indian side the members were the Joint Secretary North, Ministry of External Affairs, Additional Sec-retary MEA, Joint Secretary Hydro.

The Bhutanese officials, at the time led by Dasho So-nam Tshering raised the need to go for competitive bidding so that other private Indian companies could get a chance and attract the best price and quality. The Authority then decided to explore the market. It was found that there were Indian companies, like Alstom, Andritz and others who were the branch companies of much larger international companies specialized in hydropower equipment.

However, these companies could not meet the technical requirement framed by Indian government technical agen-cies like Central Electricity Authority (CEA) and Central Water Commission (CWC) which were finally approved by the then PHPA I Authority. The requirement was that the companies had to have manufactured machines of equivalent or near size in India and had it running successfully for three years. Though these private companies, as a branch of Multi National Companies had huge experience outside India, however, they did not have any commissioned works in India.

As a result the PHPA I Authority nominated BHEL as the sole supplier and ac-cordingly it won Nu 10 bn in electromechanical works in February 2010.

From the September 14, 2010 letter sent by BVT to BHEL, it is clear that there was a meeting between BHEL officials and BVT on September 6 and 8, 2010 and it was then that the 1.5 % ‘fee’ was finalized to be paid to BVT for P II and Mangdechu.

In March 2011, BHEL came under major public scrutiny for the quality of its equipment when two of its runners costing around Nu 60 to Nu 70 mn each mal-functioned in the Tala project. It was also found that BHEL did not supply the latest auto-mated technology to Tala for managing the power station and there were follow up is-sues. Also BHEL, at the time, only provided a limited liability of one-year for its products and not three to four years like other international companies.

An eight Empowered Joint Group (EJG) meeting was held in February 2012 in Delhi attended by a Bhutanese delegation led by former Lyonpo Khandu Wangchuk who was also the Chairman of the EJG. The Bhutanese delegation came back to Bhutan and reported that due to the Indian side pointing out and sticking to the earlier technical criteria, the EJG had decided to again stick with the technical clause of manufacturing and commissioning in India for three years to qualify for electro-mechanical works. This would mean that again only BHEL would qualify for the upcoming P II project.

For P II, a similar process to P 1 was adopted, and the PHPA Authority composed also of similar members first approved the qualifying technical aspects recom-mended by technical experts, and based on it, in June 2012 nominated BHEL as the monopoly supplier to get the Nu 9.50 bn works.

In Mangdechu, the MHPA Authority headed by the MoEA Minister and composed, again, of largely of the same PHPA members, such as MoEA Secretary, Finance Sec¬retary, Ministry of Labour and Hu-man Resources Secretary and from the Indian side Joint Secretary North, MEA, Additional Secretary MEA, Joint Secretary Hydro approved the qualifying technical recommenda-tions of technical experts, and based on it BHEL was nominated to get the Nu 6.94 bn works.

Dasho Sonam Tshering in a tel-ephonic interview with the paper said that apart from raising the issue on allowing more companies before P- I he had even written to R.N Khazanchi the Managing Director of PHPA before the tender of P II to explore getting in more private companies but even by then no other Indian compa¬nies qualified.

Dasho also clarified that the project authorities in all cases were not aware of any agent as the tender document does not require the bidder to reveal such details. He also said that even though BHEL was a monopoly supplier the Authority compared and looked at international rates before accepting any price given by BHEL.

Acceptance of an understanding

The Bhutanese contacted Sangay Wangchuk on Friday morning over the phone and asked him questions about the letter allegedly written by him and also other questions, in terms of his relationship with BHEL. Sangay Wangchuk was also informed of the ENERTIA article and the full extent of the evidence before the questions were asked.

Sangay Wangchuk said that he had nothing to hide. He said that he was not a ‘local agent’ but in fact a ‘local service provider’ for BHEL, like some other Bhutanese citizens who did work for major foreign companies in Bhutan.

He said the service was provided by his company BVT which is just one of his many other companies. He said that he got the opportunity to be the service provider due to his own initiative in approaching BHEL.

When asked about the services provided he said that it included ‘logistics and a 101 other things’. He also said that there was an agreement and terms of reference that had been drawn up with BHEL.

He also said that what he was getting was not a ‘commission’ and it was just a fee for his ‘services’.

Sangay Wangchuk also claimed that the 1.5% figure was not accurate and the actual payment would be much lower made to him over a period of seven years.

He also clarified that his agree¬ment with BHEL was only for P II and Mangdechu.

Later on Friday afternoon, a Ra-jinder Kumar Gupta from Delhi, claiming to be a retired BHEL Execu-tive Director of International Opera-tions, and currently a private ‘advisor’ to private companies entering foreign countries called the reporter.

He said that since he had retired in 2013 he was aware of an agreement to hire BVT as a ‘service provider’ for BHEL in Bhutan.

When asked on the specific nature of ‘services’ , Rajinder said that when a company does a big project in a foreign country it needs ‘handholding’ from a local service provider who has to do everything from legal help to medical help and other logistics. He claimed that it was natural for BHEL to hire such services.

When questioned why two senior and serving BHEL officers A.M Gupta and S.K Gupta both based in Bhutan denied the existence of any such ar-rangement, Rajinder claimed that they were simply denying that there was no ‘local agent’ and was not denying there was no ‘service provider’.

However, contrary to both Sangay Wangchuk’s and Rajinder’s statements on denial of a local agent, the letter signed by Sangay Wangchuk on September 14, 2010, specifically mentions agreement by Sangay Wangchuk ‘To be BHEL’s sole local agent in Bhutan’.

Rajinder claimed that the agree-ment to hire BVT as a service provider had been approved by an ‘internal BHEL’ committee and was later ap-proved by the senior BHEL manage-ment.

However, despite The Bhutanese scrutinizing the detailed public bal-ance sheets and annuals reports of BHEL from 2010, 2011, 2012 and 2013, there is no mention of any such ‘service provider’ in them or for that matter any payment being made to Bhutan for any such ‘services’.

When the reporter asked Rajinder why any ‘service provider’ would be given such a generous fee of 1.5 % of a major works for a monopoly supply with no rival bidders, Rajinder said that he was not aware of what amount and type of payments was made to BVT.

Despite claims of BVT having provided ‘services’, when The Bhutanese contacted the Ministry of Economic Affairs, PHPA I, PHPA II, MHPA and even DGPC, senior officials in all these agencies denied ever meeting or inter-acting with any BVT company or staff in relation to their multiple works and dealings with BHEL. Even the PHPA II and MHPA senior officials where BHEL is currently supplying equipment denied having any con-tact with BVT, and said that they never heard about BVT nor knew anything about it.

Officials in these agencies said that their only contact point with BHEL was the local BHEL official sent specifically from Delhi for pro-viding any explanation, communi-cation and other works. Both the former and current BHEL officials in Thimphu said they did not work with any local company (BVT) or any Bhutanese individual hired by BHEL and they were not aware of any such arrangement.

When contacted, the current MoEA Minister said, “It is the first time the issue has been brought to my notice since the alleged deal happened under the tenure of the previous government. However, the ministry will look into the matter to see if there is any breach of laws.”

Editors Note: The original article of ENERTIA journal makes several strong allegations against former ministers and bureaucrats of the former governments, in both Bhutan and India, from the 2010 to 2013 time period. The Bhutanese in this article has not mentioned the allegations and also their names in that context as the paper does not have any access to the evidence, information or sources for those claims made by the journal, ENERTIA. This paper given the evidence, has, for now, focused solely on the letter sent by BVT and the events and context around it.

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