The other telecom mess

Rational Expectations

But while this mess has now been left to the group of wise men to deal with, there's another huge mess that Shourie has to deal with "" that of the complete rot in the procurement systems of the state-owned telecom firms, MTNL and BSNL, that come under the administrative charge of his ministry.

To cite the most recent example, reported in this newspaper on September 25, while costs of cellular equipment have been falling each year the world over, prices quoted in BSNL's latest tender were not only 50 per cent higher than what BSNL itself paid in 2001, they are much higher than those quoted by the same firms for MTNL just some months ago "" Motorola, for instance, has quoted a price of Rs 4,875 per line to set up new cellular systems for MTNL in Delhi, but quoted a price of Rs 7,350 for BSNL! Had it not been for the embarrassment caused by the details being published, the tender was to be finalised soon.

Similarly, while the bids for BSNL's CDMA tender (CDMA technology is what WiLL-mobiles run on) were for around Rs 5,200 per line in January this year, these fell to a mere Rs 2,260 when a new tender was called for last month (BSNL was asked to let their earlier tender lapse).

Following these, as well as a series of complaints of other such cases, the CBI began monitoring certain vendors supplying equipment to MTNL/BSNL, and got to know that Rs 50 lakh was to be delivered to an official of Nirvana Management Group which represents in India, among others, Motorola of the US.

Since, however, there was no public official involved as yet, the CBI got the income-tax department to conduct the raid (making such a huge payment in cash is illegal under tax laws). The entire operation, in fact, almost went for a toss because a top CBI official was on leave, and so there was no one to coordinate with the taxmen!

While the CBI is yet to decode the official's computer, even what it has got so far is terribly damaging "" which is why, for instance, the FIR registered contains the names of a few top Motorola representatives as well as those of "unknown officials of MTNL and BSNL".

One e-mail to the Nirvana official to whom the Rs 50 lakh was being delivered, for instance, talks of how top MTNL official's have to be persuaded to clear certain aspects of a tender.

Another letter seized by the CBI, allegedly from BSNL's protocol department, asks for tickets and hotel arrangements to be made for top BSNL officials, including its chief Prithipal Singh, when they travel to Geneva for the International Telecom Union meet on October 12 (yesterday).

Going by the record of previous such investigations, the current case could take a long time to get completed, but the fact is the procurement procedure in these PSUs is a complete mess "" not only is there rampant cartelisation, there is no real attempt to fix things either.

In the case of a telecom switches tender a few years ago, for instance, prices fell by over half, from Rs 4,500 a switch to Rs 2,000 when the cartel was broken.

The breaking up of the cartel, however, took place after the intervention of the Prime Minister's Office, after newspaper reports exposed the cartel's functioning. The trick was simple: while there were four vendors whose technology was being considered, the BSNL tender made it clear that all four would get some part of the bid "" according to the rules, the lowest bidder gets the maximum share of the tender, and the rest get to share the remaining part at the lowest bidder's price-quote. All that the PMO asked BSNL to do was to say that only three of the four vendors would get the tender "" this made cartelisation difficult, and caused the dramatic price fall.

The reason why I mention this case is that in several other bids, neither BSNL nor MTNL designed their tenders in a manner to prevent cartelisation. And while the tenders are designed in such a manner, few top officials in either company appear to be doing any kind of benchmarking with the competition.

In the cellular case I mentioned first, BSNL officials were routinely processing the tender without paying the scantest of attention to another fact "" that if prices for a first-time installation are, say, X rupees per line, prices for an expansion project of the type BSNL was going in for (just expanding the number of lines in the same city, using the same infrastructure used in the original project) are usually 40-50 per cent lower.

Similarly, no one looked at the fact, as the Business Standard report pointed out, that some of the components were priced the same by different bidders, right down to the last rupee. Nor was any attention paid to the fact that private sector players have been getting quotes for their networks at prices vastly lower than those being paid by the PSU giants.

But as you judge Shourie by his ability to fix the mess here, the one thing in his favour is that few other telecom ministers, and there've been many in the last few years, have been able to do much about the rotten procurement systems in MTNL/BSNL either!

suniljain@business-standard.com