Minister Praful Patel questions barring PSUs from big defence contracts; excerpts of letter to Antony

Praful Patel

EXPRESSING strong protest for not allowing public sector units like Hindustan Aeronautics Ltd (HAL), the sole manufacturer of military aircraft in India, to compete for the tender of 56 Avro aircraft worth over Rs 12,000 crore by Indian Air Force, Union heavy industry and public enterprises minister Praful Patel has sent a letter to Prime Minister Manmohan Singh and defence minister AK Antony. The letter has been sent at a time when doubts have been raised on...

the current tendering procedures used by the defence ministry. The letter was sent to defence ministry on October 7, 2013.

Earlier, in the tender, issued on May 9 this year, the defence ministry had bypassed PSUs like HAL and said new aircraft would be produced by the private sector firms.
The tender was issued to eight foreign firms. These foreign companies are: Casa (EADS) of Spain, Alenia Aeronautica of Italy, Boeing and Lockheed Martin of the USA, Antonov Design Bureau of Ukraine, Ilyushin Design Bureau of Russia and Embraer of Brazil. These companies, as per the terms of the tender, will have to partner with an Indian firm to produce 40 aircraft within India.

According to the tender, 16 aircraft would be procured from the selected vendor while the remaining 40 would be built under a license by a domestic company. The domestic defence companies trying to team up for the project include Reliance Group of Industries, Larsen and Toubro, Bharat Forge and Tata Advanced Systems Limited. None of these companies has built a military aircraft. The letter says that the ministry’s approach is not correct as considerable amount of money has been spent on these public sector units to raise expertise in particular fields. "As you are aware, there are many PSUs who meet all the prescribed criteria for participating in this tender, but are being denied the opportunity to participate in this tender, only because they are PSUs," Patel wrote.

The letter further said that extensive facilities, infrastructure and capabilities of these PSUs have been created over a period of time through government investments.

"By restricting these PSUs from even participating in these sectors, the facilities, expertise and manpower created from the public funding may remain idle, while at the same time government will be making huge funding for the private sector, ab initio creation of the same facilities," the letter stated.

The Union minister also said that a level playing field must be provided to all capable entities, be it a PSU or a private player so that a healthy competition is encouraged. "This being a government/public procurement, an equal opportunity and level playing field is required to be provided to all capable entities irrespective of being 'Public' or 'Private' in nature. This will also encourage healthy competition," he added. He has requested that PSUs must be allowed to participate in the tender process.  

Meanwhile, defence minister AK Antony has asked his ministry officials to examine the issues raised by Patel over IAF's move to bar PSUs from participating in its tender. "The Defence Ministry is in receipt of a letter dated 7 October 2013 from the Minister of Heavy Industries and Public Enterprises addressed to the Defence Minister on the matter of procuring 56 aircraft as replacement of the existing AVRO fleet,” said a ministry statement. Antony as a head of the defence acquisition council (DAC) had approved the IAF proposal for procuring these aircraft sidelining the PSUs.

Patel, who also holds the public enterprises portfolio, further said, "There are many PSUs who meet all the prescribed criteria for participating in this tender, but are being denied the opportunity to participate in this tender only because they are PSUs."          

Excerpts from the letter:

"As you are aware, there are many PSUs who meet all the prescribed criteria for participating in this tender, but are being denied the opportunity to participate in this tender, only because they are PSUs….”

"By restricting these PSUs from even participating in these sectors, the facilities, expertise and manpower created from the public funding may remain idle, while at the same time government will be making huge funding for the private sector, ab initio creation of the same facilities…"

"While the government's policy of encouraging private sector participation in defence sector is appreciated, any preference or discrimination among potential Indian entities public or private is likely to be construed as an act against spirit of public procurement particularly when capable PSUs are available to participate in this tender whereas there is no private company presently capable to undertake this work…"

"…This being a government/public procurement, an equal opportunity and level playing field is required to be provided to all capable entities irrespective of being 'Public' or 'Private' in nature. This will also encourage healthy competition…" he said.