Indian Railways, with an annual procurement bill of R20,000 crore, follows a non-transparent and non-competitive system that virtually assures continuous payment of ?monopoly rent? to suppliers like US-based firm Electro Motive Diesel (EMD), a high-level government committee has said. The national transporter?s practice of single-source procurement based on annual bids from a single vendor should be dispensed with, the panel recommended.
The Railways adheres to the ?restrictive? practice of buying most goods from ?registered vendors? and only 5% of the goods, in terms of quantity, are procured from new entrants, the Committee on Public Procurement, headed by former corporate affairs secretary Vinod Dhall, noted in its report submitted to the group of ministers on corruption chaired by finance minister Pranab Mukherjee last month. The Railways should undertake all procurement from 2012-13 onwards based on the single-stage, two-envelope system followed in the government, the panel said. Under the two-envelope system, the bidder submits a set of documents outlining the eligibility criteria under technical and other grounds, and another for the financial bid.
The panel?s findings are significant because considering the huge sums of money the Railways spends for buying equipment and components, any element of corruption in the process could cause considerable loss to the public exchequer.
To illustrate that the Railways follows suboptimal procurement practices, the panel analysed the case of production of diesel engines at the railways? Diesel Locomotive Works (DLW) in Varanasi. DLW has a technology transfer agreement with EMD since 1997 but the committee noted that 13 years after the agreement was signed, DLW continues to import 35% of components. ?Most of these imported/single source procurement is from EMD or it?s agents/associates,? the committee observed.
?Hence a high level of monopoly rents have been assured to EMD in the past decade and it will continue in future too. As such, the more the production at DLW, the greater the assured profits for EMD,? it added. The Railways wants to increase the production of EMD locomotives at DLW from 110 in 2009-10 to 290 in 2013-14.
The committee also noted the inordinate delay in awarding a project to set up a new diesel locomotive factory in Marhaura in Bihar.
The Railways had announced plans in 2007-08 to set up the factory at a cost of R2,000 crore as a joint venture with a private company to manufacture engines of 4,500 and 6,000 hp.
However, in 2009, it rejected a bid from GE to supply 4,500 hp engines to railways at R11.62 crore each, despite it being lower than the cost of engines manufactured at DLW at R11.82 crore each.
In fresh bidding in 2010, the railways shortlisted GE and EMD, but financial bids are still to be called.
The current date for the bids is July 29, but is likely to postponed.
?We have to sort out issues. After that we will announce the dates,? new railway board chairman Vinay Mittal told FE.
The committee observed that the railways is holding up the bid in an ?opaque manner? and said ?being an inward-looking organisation, it is often opposed to external scrutiny and advice.
As a result, vested interests can manage to perpetuate suboptimal practices that provide a fertile ground for malpractices, cartelisation and corruption?.
In response to the observations, the Railways told the committee that ?there is a selective use of data with an intent to reach predetermined conclusions?. An email questionnaire sent to railways remained unanswered even after a week.