Anyone looking for case study on how not to deal with bids for public property, and how state governments can brazen their way out of anything, would do well to read the Himachal Pradesh High Court’s judgment in the Jangi Thopan and Thopan Powari (480 Mw each) hydroelectric power projects in the state (http://hphighcourt.nic.in/inetjudord/judgements/CWP27482008.pdf).
In October 2005, the judgment tells us, the Himachal government issued an advertisement inviting bids for these two power plants, the last date for submission of bids was March 2006, and the bid was won by a consortium headed by a firm called Brakel Corporation NV after it promised to pay the government Rs 36 lakh per megawatt. Since the consortium did not pay the upfront deposit of 50 per cent, Reliance Infrastructure which was the second-highest bidder, offered to match Brakel’s bid if it was given the projects. Since there was no response, it filed a case in the Himachal court. Pretty straightforward so far.
Before replying to the court’s notice, the state government issued a show cause notice to Brakel in January 2008 and, a few weeks later, got a reply from a company called Brakel Kinnaur saying it wished to deposit Rs 173 crore and this was accepted by the government. Meanwhile, after hearing all parties, the court said, in June 2008, that the government’s stand was contradictory and inconsistent and told the government to explain its stand.
Meanwhile, partly due to the Opposition (which is now in government!) casting doubts, an investigation was carried out and a memo was put up to the Cabinet saying Brakel had misstated facts, that it was actually incorporated in February 2006 and not February 2005 as it had said in its bid, that its consortium partners (SNC-Lavalin, Standard Bank of South Africa and others) had not actually agreed to put money into the consortium, that it was only a $1 company bidding for a project that would likely cost Rs 6,000 crore, and so on. The Cabinet, in July 2008, decided to issue a show cause notice to Brakel and re-advertise for fresh bids.
Brakel replied to the show cause, Reliance Infrastructure went to the court and a Committee of Secretaries (CoS) was set up to examine the matter afresh. The special secretary, power, prepared a detailed draft order detailing all the shortcomings in the Brakel bid. Read what the high court has to say about how the draft was dealt with by the CoS: “The Committee of Secretaries should have dealt with the various points raised ... and dealt with in the draft order. We are constrained to observe that the Committee of Secretaries dealt with (it) … in a very slipshod manner … Surprisingly, there is no mention of the draft order in the report of the Committee of Secretaries … The serious allegations leveled against Brakel were not dealt with by the Committee of Secretaries … The Committee also came to the conclusion that suppression of material facts by Brakel cannot be established. To say the least this part of the report of the Committee of Secretaries is totally baseless.”
So, what did the CoS say that so angered the court? It said the technical bid by Brakel “suffered from one serious infirmity” since its financial strength was based on the commitments made by the consortium partners but there was actually no such commitment made. This should have been noticed, it continued, at the evaluation stage but “had been consciously over looked by the then Whole Time Members of the HPSEB”.
What followed was hilarious. The Committee was unanimously of the view that though the evaluation process made by the previous government was vitiated on the grounds that the Brakel consortium didn’t have the requisite financial strength, “the blame thereof cannot now at this belated stage be laid on M/s Brakel”. The matter was then referred to the state’s Cabinet.
Not surprisingly, given how the issues were framed, the Cabinet, in November 2008, took the view that “because legally a successor Government cannot put the blame for said infirmities now on M/s Brakel, it would now not be legally possible to back out from the allotment made by the previous Government, especially since in the eyes of law the contract has been established with the payment by M/s Brakel of the Up-Front and penal interest imposed by the present Government” (that’s called creating facts on the ground!). Lest you should think the meeting was a complete copout, the Cabinet ended up with asking the HPSEB to change its bid document as well as the technical evaluation process further “so that it does not allow financial bids to be opened of such parties which cannot display the required financial strength”.
In October 2009, the court quashed the Cabinet’s decision to give Brakel the contract as “being arbitrary, illegal and irrational”. A few weeks later, the Himachal government cancelled the allotment and issued a show cause notice to Brakel for causing delays and financial losses to the government, and decided to call for fresh bids. The chief secretary said the state government would not appeal to the Supreme Court — Brakel did and so did Reliance since it didn’t want rebids but wanted to get the project since it had agreed to match Brakel’s bid. In December, the government decided it would impose a penalty of Rs 281 crore on Brakel for the loss of revenue caused by the delay.
End of story? Not quite. A few days ago, the Himachal government filed its affidavit in the Supreme Court in Brakel’s appeal saying “all decisions taken from time to time … were keeping the interest of the State as supreme” and then repeated the arguments given by the CoS — that Brakel couldn’t be held responsible for the fact that the previous government had got it wrong and, in any case, Brakel had paid the money eventually!
