Given there are around 340 central PSUs alone, and possibly 2-3 times as many owned by various state governments, it is clear that even an aggressive privatisation programme can’t fix the problem of PSUs rapidly losing value; in which case, reforming the way they are run has to be top priority. While heavily unionised workers, and vast overstaffing is a major reason for the poor performance of PSUs, equally important is the issue of what is called L-1-itis, or the fact that, since PSUs are seen as an arm of the state under Article 12 of the Constitution, they have to issue tenders for most purchases/contracts; indeed, they do not have the freedom to enter into JVs, or other such partnerships.
In the case of ONGC, for instance, when it tried to tie up with Brazil’s Petrobras and Norway’s Statoil, which had deep-sea drilling experience, it was told it needed to float a tender even though the firms were both PSUs; had ONGC been able to do the tie-up, chances are it would have done a better job in the deep waters of the KG Basin. Similarly, one of the reasons for BSNL falling behind in providing mobile phone connections is that, on at least two occasions, its tenders were challenged in court and it had to go in for re-tenders. Given how most of BSNL’s competitors, like Bharti Airtel, for instance, have outsourced a large part of their network operations to firms like Siemens and Ericsson, not having such flexibility can cripple the organisation.
This is why it is good news that, as Hindustan Times reported, the Central Vigilance Commission (CVC) is relooking the issue of L-1, to make it more responsive. One solution being talked about is to replace the concept of L-1 (the lowest bidder wins) with, for instance, Quality-cum-Cost-based-solution (QCBS) or Quality-Based-Selection (QBS) where, instead of just the lowest bid, the govt/PSU would first choose the firm on the basis of technical parameters and then go in for a price-bid, or only on the basis of a technical evaluation. A Swiss-Challenge could also be adopted where, once a firm has given its techno-commercial bid, this can be thrown open for others to match. These are undoubtedly good suggestions, but as a general rule, as long as PSUs are operating in a competitive environment, ideally, the concept of needing to bid should be done away with.
This can be done if Article 12 of the Constitution is modified to say that PSUs which function in a competitive marketplace will not be covered by it since, for them, the ability to respond quickly to market situations is of paramount importance; as for a QBS-type of selection process, if the transaction is large enough, such as an ONGC tie-up with a Petrobras or a Statoil, such a justification will, in any case, have to be made to the company’s board.
While many will argue that the change in procedures will result in large corruption, no system is foolproof. In the case of the Delhi airport privatisation bid many years ago, for instance, despite the elaborate procedures, the evaluation of the bid was faulty, and would have favoured one firm; this was stopped after an alert bureaucrat spotted this, and an expert group was set up to relook the post-bid evaluation process. It is important to keep in mind that, while no system is foolproof getting work on time—or even before time—is itself a very big saving given how lengthy delays of even decades in many cases push up costs inordinately; had BSNL been able to increase its mobile-phone capacity on time, for instance, this would probably matter less than if the price-bid was not the most competitive.