New Delhi: State-owned trading firm MMTC Ltd has revived a tender for the import of 12.5 million tonnes (mt) of coal valued at Rs6,000 crore for NTPC Ltd, but is once again courting controversy with a prospective bidder alleging that the terms are faulty and that any Indian firm executing the order would violate the country’s foreign exchange laws.
Knowledge Infrastructure Systems Pvt. Ltd (KISPL) says the terms of the bid document favour overseas bidders.
Sourcing coal: An undated photo of mining operations in Venezuela. Knowledge Infrastructure Systems has alleged that MMTC’s tender seeking import of 12.5 million tonnes of coal for NTPC favours overseas bidders. Bloomberg
Bids are scheduled to open on Wednesday, following an earlier exercise that had to be scrapped after KISPL alleged foul play in the way it had been structured.
MMTC has dismissed the claims made by KISPL.
In its communication to MMTC dated 14 September, a copy of which was reviewed by Mint, KISPL has raised questions about the tender condition which states that payments would be made in foreign currency to the successful bidder and its overseas supplier.
At the same time, KISPL points out, the bid document states that MMTC will pay the overseas supplier directly. However, a successful Indian bidder will not be able to source supplies of coal from abroad without opening a letter of credit with a bank, with payment being released to the overseas supplier as soon as the transaction is concluded. This, according to KISPL, would mean that the overseas supplier would end up being paid twice.
On both counts therefore, KISPL argues, the terms are in violation of the Foreign Exchange Management Act, or Fema.
H.S. Mann, director of marketing at MMTC, declined to comment on Tuesday. “The only thing I can say is that we are opening the tender tomorrow.” Another senior MMTC executive who did not want to be identified said, “How is this (double payment) possible? Who will permit you to remit twice? It defies all stretch of imagination and speaks of someone who is not conversant in international trade. There are enough checks and balances in this country.”
“The tender is very clear and it states that MMTC will pay to the foreign principal and not the Indian bidder. What is really the motive behind this issue, I cannot comment. The tender also states that all queries should be sent in before five days of the opening of tender,” he added.
An analyst, however, questioned the way the bid document has been framed. The person who did not want to be identified maintained that it was “unusual” for a company to pay the overseas supplier directly instead of the local canalizing agency. Any transaction between two Indian entities could not be conducted in dollars as it would be a Fema violation.
MMTC is under the purview of the commerce ministry. Commerce minister Anand Sharma did not respond to phone calls or to a message left on his cellphone.
Mint had reported on 18 August about MMTC scrapping its controversial tender for the import of 12.5mt of coal for NTPC after KISPL had alleged wrongdoing in the way the order was executed, and demanded an investigation into the procurement process and an intervention by the Prime Minister’s Office.
KISPL has also alleged that as MMTC would have to give a declaration that no other payment has been made against goods in respect of which payment is being made, it would constitute a false declaration and thereby a violation of law. Further, it has argued that in the event MMTC pays the successful Indian bidder in foreign currency it would constitute a violation of Fema as foreign currency cannot be used to settle a contract between two resident Indian companies. The only way out of this fix is to award the tender to an overseas bidder, KISPL’s letter said.
The tender scheduled is expected to have set right the loopholes that led to the earlier tender being cancelled.
“KISPL continues to be apprehensive about the (new) tender. Excepting for the changes in EMD (earnest money deposit) and division of the order, nothing has materially changed but on the contrary has become more complex. The clarifications provided never cleared the ambiguities pointed out and have in fact materially changed the situation to worse. In view of the same, KISPL has requested additional clarifications, regarding payment in foreign currency, banking charges and few other points and has also requested for extension of time,” said a KISPL spokesperson.
Mint spoke to public sector power generation company NTPC as the tender aims to get feedstock for its power plants. A senior NTPC executive who did not want to be identified said, “There is an emergency requirement at our stations, which are running on low stock. An interested party will always try to raise issues. These are attempts to see that things get scuttled.”
Other than KISPL, bidders for the 12.5mt contract were Adani Enterprises Ltd and two consortia—Agarwal Coal Corp. Pvt. Ltd and Kowa Co. Ltd of Japan; and Dubai-based Coal and Oil Group (C&O), Coastal Energy Pvt. Ltd and Seapol Pvt. Ltd. While the other consortia could not be immediately contacted, detailed questionnaires emailed to the spokespersons of MMTC and the Adani Group remained unanswered at the time of filing the story.
Mint had reported on 5 August that NTPC, India’s largest power generator, planned to directly import the coal it needs, instead of asking state-owned trading firms such as MMTC and State Trading Corp. of India Ltd to import the fuel for it. The change, which would have involved an amendment in internal rules, was prompted by the controversy.
NTPC used 125 million tonnes per annum (mtpa) of domestic coal and 6.41 mtpa of imported coal in 2008-09. Indian coal has a high ash content, one reason why some domestic coal-based power plants mix it with higher quality imported coal.