Donآ’t bid in tenders where thereآ’s a state-owned rival

Vol 8, PW 12 (08 Sep 04) People & Policy

Drop any idea you might have had that the new Congress-led government would make it easier for foreign or private sector contractors to do business in India.

PETROWATCH learns the Department of Public Enterprises (DPE) is recommending the extension of the inequitable Purchase Preference system where an Indian state-owned company automatically wins a tender issued by another state-owned company if his price is up to 10% higher than the lowest bidder. ONGC and the oil ministry both vigorously oppose the Purchase Preference system and want its immediate abolition, rightly arguing that it deters competition.

The oil sector should be completely excluded from any Purchase Preference policy, feels the oil ministry. But this hasnt been enough to stop the DPE recommending its retrospective extension for two years from 1st April this year in a note to cabinet.

Backing its stance, the DPE argues that, central public sector enterprises need the support of the government to adjust to the new environment of liberalisation and globalisation. If that wasnt enough, it also wants to lower the contract value where Purchase Preference is applied: from Rs5cr ($1.08m) to Rs1cr ($217,000).

State-owned service companies (Engineers India, for example) will be delighted to hear that the minimum value addition by them need only be 10% to qualify for purchase preference. For state-owned manufacturing companies (Cochin Shipyard, for example) the value addition remains unchanged at 20%.

Bizarrely, DPE officials use the fact that several state-owned firms are, not only suffering from certain historical problems such as old plant and machinery, outdated technology, surplus manpower, but also lack resources for modernisation and technology upgrade as justification for extending the Purchase Preference system.