Sunday, June 7, 2009

BSNL to go for single vendor contract system

In a radical move that could transform public sector tendering, state-owned Bharat Sanchar Nigam Ltd (BSNL) plans to scrap multiple tendering, and follow the private sector practice of long-term tendering with a selected bidder.

The new thinking at BSNL is an attempt to avert a repeat of the tendering delays that held up its many projects.

Under the new scheme, each time the company wants to expand its GSM mobile capacity it wouldn't have to float a fresh tender as it does now. Instead, the selected lowest bidder would be awarded all subsequent projects for several years. Incremental payments would be made on the basis of per line capacity expansion, which would be negotiated according to the prevalent market price.

The long-term tendering scheme, the modalities of which are being worked out, would be similar to what Bharti Airtel (BHARTIARTL.BO : 824.8 +12.65) has done with Ericsson and Nokia Siemens. Bharti has outsourced its mobile network erection and operations to the two equipment vendors and each year negotiates the price with them. Most other private operators also follow the same system for awarding equipment contracts.

BSNL's new tendering system, however, needs to be first approved by its board, and later by the government.

BSNL officials said that a change in the tendering scheme has become inevitable, as the present system of frequent tendering causes delays in awarding the contract, as vendors often dispute the selection process and move courts, which costs the company in terms of marketshare. For instance, the 45.5-million GSM line expansion tender floated in mid-2006 was awarded only a year later, by when the company lost its second position in the GSM segment to Vodafone-Essar, which it has not been able to wrest since. The delay also led to the order being finally halved to around 25 million lines.

"We cannot compete with private operators in a tough competitive market if we stick to floating a tender each time we want to add capacity to our network. We have to move to a long-term pact with equipment vendors so that capacity expansion can be planned and implemented in a timely manner," a BSNL official told FE.

The process of floating separate tenders for subsequent expansion had created trouble for the company last year, when it floated a 93-million lines GSM tender. In that, Ericsson emerged L1 for the north and east zones while Chinese vendor Huawei was short-listed for the southern and western zone. Nokia Siemens was disqualified due to technical shortcomings.

Unhappy over it, Nokia Siemens moved the Competition Commission of India, Central Vigilance Commission and the Delhi High Court. Though CCI and the Delhi High Court have dismissed the plea, the matter is yet to be sorted out as some other state high courts are hearing the matter.

In an earlier tender too, a disqualified vendor, Motorola, had moved the Delhi High Court where several months later it withdrew the case, but by then the damage had been done.

BSNL has a subscriber base of over 47.7 million and a marketshare of 16%. It is growing at 3.5% on a monthly basis while Bharti Airtel and Vodafone-Essar are growing at more than 4%.

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