BSNL under CVC scanner in network deal

The Central Vigilance Commissioner (CVC) has launched an investigation into a Rs 591 crore contract awarded by state-owned Bharat Sanchar Nigam Ltd (BSNL) to HCL Infosystems Ltd to set up a communications network for the Indian Air Force (IAF).

india Updated: Dec 18, 2006 15:33 IST

The Central Vigilance Commissioner (CVC) has launched an investigation into a Rs 591 crore contract awarded by state-owned Bharat Sanchar Nigam Ltd (BSNL) to HCL Infosystems Ltd to set up a communications network for the Indian Air Force (IAF).

The CVC is probing questions relating to the deal’s value having been inflated by BSNL, and its tailoring of the tender by inserting convoluted conditions. Certain curious rules framed by BSNL led to key players being eliminated, until Cisco Systems Inc. emerged as the sole supplier of key equipment for not only HCL, but also its rivals for the BSNL tender, Wipro and Tata Consultancy Services (TCS).

BSNL’s terms converted the tender into a one-horse race at the very early stage of ‘expression of interest’ (EOI). The CVC ordered the probe after the Telecom Industry and Services Association (TISA) of India filed a complaint in September. TISA alleged that BSNL flouted rules specified by the Defence Procurement Procedure and the CVC, which require that, in the interests of national security, orders of this kind should be given to multiple vendors and not to a single vendor.

TISA said the conditions set were unprecedented in BSNL’s tender norms. It also claimed that the contract’s value had been bloated unnecessarily. P.K. Sandell, TISA’s president, told Hindustan Times that equipment of comparable quality could have been obtained from other vendors for Rs 350 crore if the “artificial” conditions included by BSNL had been removed. He pointed out that the budget provision for the tender was Rs 400 crore, well below the final award amount.
NK Goyal, president of the Indian Manufacturing Association would not comment on the deal but noted that prices of network equipment had fallen in recent years.

“Why is the price high when equipment prices are falling all over the world?” Sandell asked. He said the same type of equipment, in a smaller number, had been supplied to BSNL by Cisco in 2003 at lower prices. Documents reveal that BSNL decided to award the contract to HCL for Rs 591 crore, despite an offer from Wipro to reduce its initial bid from Rs 552 crore to Rs 489 crore.

The awarding of the contract was questioned and opposed even within BSNL. HT has in its possession documents which include a note of dissent by S Sridhar, joint deputy director-general, BSNL, one of the members of the evaluation panel. Yet when asked about it by the CVC, BSNL official P.K. Pandey went on record saying: “None of the officers gave any dissenting note in the decision-making process of finalisation of the EOI.”

Defence Minister AK Antony is looking into the details of the case. When contacted, A.K. Sinha, BSNL's chairman and managing director, told the Hindustan Times : "I am aware that the CVC is probing the matter. Such probes are carried out regularly. We have placed an advance purchase order with HCL. Since the CVC is looking into the matter, I do not wish to make any further comment."

The IAF needed the communication network as an alternative, so that it could vacate 45 megahertz (MHz) of frequency currently under its control for the use of mobile telephone networks. As they add lakhs of new subscribers every month, mobile operators badly require more wireless bandwidth to ease the growing congestion in their own networks. Early this year, the Department of Telecommunication's (DoT) asked BSNL to set up an Internet Protocol (IP) network based on Multi Protocol Label Switching (MPLS) for the IAF.

Cisco, whose chief executive officer (CEO) John Chambers earlier this month announced a pilot plant to make IP phones in Chennai, faced no rivals and in effect got a free hand to fix MPLS equipment prices, industry officials say. Alcatel, which partnered winner HCL in a separate bid for the same tender, was ejected from the race. BSNL was fully aware that despite HCL, Wipro and TCS all submitting bids, Cisco remained the sole vendor for all three. Cisco's equipment forms the major components of the network being built under the tender.

Cisco Corporate Communications Manager Verghese M. Thomas told the Hindustan Times: "Cisco as a policy does not comment on the commercial aspects of any deal."

Cisco gained in the race because the contract's terms specified that the Indian subsidiary of the bidders should have a profitable track record in the past three years, irrespective of what the parent company's global position was, TISA said in its complaint to the CVC. This condition had not been stipulated in an earlier similar contract awarded by BSNL in 2003.

However, the profitability condition in the contract was relaxed for Hewlett-Packard and Sun Microsystems, which supplied equipment to the same HCL-led team. When an evaluation panel suggested a similar relaxation for MPLS gear, it was overruled by BSNL.

First Published: Dec 18, 2006 15:33 IST