Procurement by Railway PSUs – Ulterior Motives

Repeated cancellation of tenders within the Ministry would raise all round alarm about the motives

Rather than buying products for such an amount wouldn’t it be prudent to buy the both largest European companies that are in this business

A recent trend in the Indian Railways is to outsource big ticket procurement to PSUs. The recent case of procurement of ETCS Level-2 by Railtel (REL) explains the motive behind it. The PMO has, fortunately, seen through the nefarious game and has decided to intervene.

Many such procurements need to be reviewed and dropped, or their mode of procurement changed back to the Ministry.

The Procurement of European Train Control System (ETCS) Level-2 by Railtel began with an estimate of Rs. 1500 crores for some trial locations. The initial estimate was Rs. 1500 crores against which the lowest bid was obtained for Rs. 3500 crores, 233% higher of the estimates.

Now, since the PSU has been given a procurement role, it goes into the project mode for which it was set up in the first place, and tries to find ways and means to finalise the tender.

Fortunately, the additional funds still have to be provided by the Ministry and that is where the stalemate happens. Sadly, the stalemate is of limited impact – that of additional funds.

The Ministry doesn’t have to go through the pains of justifying abnormally higher rates. The procurement would have gone through but for the intervention of the PMO.

There are many irregularities here that evade public scrutiny. Even the audit of a PSU has different yardsticks as compared to a Ministry’s.

In any case the higher the value of the order, the higher is the PSUs commission. So, there is lette fear or motivation to reach a reasonable price level.

That a huge Ministry like the Railways should outsource procurement when it has a large procurement machinery of its own should raise eyebrows.

When the Procurement department, there is a full Group ‘A’ cadre of Indian Railways Stores Service (IRSS) to do that, makes the procurement, the process is supervised and vetted at various stages by independent departments – Finance, Technical and Purchase.

It is also subject to scrutiny by a full fledged Vigilance set up unlike that in a PSU.

Hence there is a preference that a PSU does the purchase. That a PSU can be browbeaten by a mere under secretary is well known, Ministry’s own officials can’t be.

The Railtel was also given the purchase of lakhs of CCTV cameras for seven thousand railway stations about three years ago. The PSU was forced to discharge the tender thrice since the favoured player didn’t come in the zone of consideration. Such repeated cancellation of tenders within a Ministry would raise all round alarm about the motives.

Yet another major purchase of 60 trainsets, akin to the Vande Bharat Express, at a cost of Rs. 30,000 crores was sought to be handed over to RITES, another PSU, whose main role is consultancy only.

This was in gross violation of the Indian Railways’ own Purchase Code, which restricts rolling stock as an item to be procured only by the Ministry.

The proposal was dropped when a senior officer, who was involved in the in-house manufacture of Vande Bharat Express demanded an enquiry into the process. The officer is now being hounded with frivolous vigilance cases lodged against him.

A pertinent question to ask here is whether Indian Railways should buy advance signalling equipment, which costs Rs. 3500 Crore just for a limited trial. A large scale implementation may cost upwards of two lakh crores.

Rather than buying products for such an amount wouldn’t it be prudent to buy the two largest European companies that are in this business.

This suggestion may sound preposterous, but this is how technologies and companies are acquired – by downright purchase rather than enriching a floundering company by giving them large orders.

Whether such humongous purchases should be done, when the government and the Railways are facing a severe resource crunch is an entirely altogether question to ask.

Also, it would be worthwhile to visit the articles of association of these PSUs and check whether they were created to handle projects or purchases.

What should then be done to people, who man the departmental purchase organisations and how and when is it decided to outsource such purchases? Is there a policy governing that?

It may also be advisable to examine why and how initial estimates are pegged low so as to clear the financial hurdle and then inflated at the purchase stage without the same rigour as was employed at the initial approval stage.

Represented by Suresh Tripathi

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