-

Bharat Sanchar Nigam Limited's (BSNL) 93 million GSM line contract, worth over $10 billion, which was announced in 2009 in the hope that it would help the company tide over its crippling capacity crunch, has suffered a big setback. In December 2009, the Central Vigilance Commission (CVC) clamped down on the company, asking it to put the tender order on hold as it had launched a fresh probe into BSNL's tendering process.

The CVC's contention was that its anti-corruption guidelines forbade posttender negotiations with successful bidders, which BSNL had been doing. It was in post-tender talks with shortlisted bidder Ericsson.

After more than a year of delay, mid2009, BSNL selected Sweden's Ericsson, the lowest bidder in the north and southeast zones, and China's Huawei, in the south and west zones, for supplying GSM equipment. However, it could not move ahead with awarding the contracts. First, Nokia Siemens Networks (NSN) protested against its disqualification (on technical grounds) and dragged BSNL to court. Next, national security concerns were raised about Huawei for its China connections. And now, the CVC probe has all but derailed the tender execution process.

The CVC angle came at a time when BSNL was almost in its final phase of post-tender negotiations with Ericsson to get a further 20-25 per cent reduction in the bid price. This would have amounted to a minimum $1 billion saving for the company. According to a company official, Ericsson had initially quoted Rs 62.78 billion for the 20 million line contract for the north zone, but subsequent negotiations resulted in it reducing the amount first to Rs 40.12 billion, then to Rs 39.13 billion and finally to Rs 37.85 billion.

When the CVC probe took place, talks were on to reduce the contract price to Rs 36 billion or lower. At that price, it would have been nearly 43 per cent cheaper than the initial price quoted by Ericsson. If the same were to be applied for all the 43 million GSM lines to be supplied by Ericsson, the savings would be over $1 billion. According to BSNL officials, such negotiations are part of all major telecom deals.

But the CVC is unconvinced. According to its guidelines, holding price negotiations after the vendor has been shortlisted can be a potential source of corruption. Such post-tender negotiations can be conducted only in exceptional cases where the supplier has a proprietary item or when cartelisation is suspected. Also, the CVC contends that BSNL's post-tender negotiations with Ericsson have lasted months, while the CVC guidelines provide for only a 15-day time window to close all negotiations.

Realising that BSNL could come under the CVC scanner, the Department of Telecommunications (DoT) had written to the company asking it not to renegotiate further with Ericsson. DoT also suggested that BSNL could issue a short tender of a lower amount and could approach the earlier vendors in case of a contingency. But reducing the order or calling for fresh bids does not help BSNL.

Corruption charges, allegations of irregularities and controversies have seriously impacted BSNL's ability to close equipment procurement tenders for the past three years or more. BSNL, which had been eyeing a top slot in the mobile market, is today struggling to retain even the fifth position. The damaging capacity crunch that it has been facing has led to the company steadily losing market share to private players.

BSNL's financial performance too has been sliding. This is a cause of concern for the government. Recently, communications minister A. Raja sought the intervention of the Prime Minister's Office to salvage BSNL's tender, stating that the CVC's observations mainly pertained to NSN's disqualification, which had been examined in detail and upheld by two high courts earlier. In fact, Raja, in support of BSNL, said that the post-tender negotiations have resulted in a 40 per cent reduction in price, which would help the company improve its finances.

It is hoped that BSNL emerges from the controversy unscathed. Its expansion plans are on hold while its rivals race ahead. Meanwhile, the government is seriously looking at divesting 10 per cent of its stake, which would help raise funds for the company.

However, BSNL's woes are far from over. In a rather unusual stance, BSNL's employee associations have sought the prime minister's intervention in changing the top management of the company. Concerned by the company's deteriorating market share and falling revenues in the past several quarters, which has pulled down BSNL to fourth position, they have demanded the induction of professionals on the PSU's board.

Whatever the outcome of this demand, analysts feel that the decision to employ professionally well-qualified CXOs in place of the old brass would be path-defining in the history of public sector enterprises in the country.