Controversy stalks Snamprogetti, which has just won the $1.10-billion Oman-India fertiliser project contract. BT probes the A B Vajpayee administration's first dubious deal.

By Alam Srinivas

"(In 1985) Vincent George (private secretary to Prime Minister Rajiv Gandhi) told me that the prime minister had cleared my application for the fertiliser plant, and I could now proceed Soon, plant specifications were ready, and competitive quotes were solicited for the equipment. Several manufacturers responded. One of them was Snamprogetti, an Italian firm. Snamprogetti's tender was about $35 million more than the other offers. I also believed that their equipment was not the best in technological terms. However, strenuous efforts were made to ensure that I purchased it (from Snamprogetti). Ottavio Quattrocchi, their representative in India, told me that the prime minister wanted this technology used. The Minister of State for Fertilisers (R. Prabhu) also strongly urged that we buy Snamprogetti's machinery, and said the government was keen that we do so. I explained the cost and the technical problems to both Quattrocchi and the minister, but they persisted.

So, I went to see the prime minister, and told him what was going on. He said I should buy the best and the cheapest, and ignore everything else. Different signals reached me from elsewhere. I was getting nowhere with the ministry. Personal meetings with Rajiv were fruitless. He merely repeated what he had said before but, obviously, the same message was not going out to the fertiliser officials--whose approval was necessary before (the) equipment could be bought. In 1988, the licence for this project was up for renewal. Such extensions are usually automatically granted. The three other fertiliser-manufacturers, who had all purchased Snamprogetti equipment, had their permits renewed. Without prior notification, mine was cancelled, and promptly given elsewhere"

Swraj Paul, Beyond Boundaries: A Memoir, 1998

Another time. Another project. Another government. Another controversy. The constant factor: the Milan (Italy)-based $1.37-billion Snamprogetti. Nearly four years after it was initiated in July, 1994, the $1.10-billion Oman-India Fertiliser Project (OIFP), a 14.50 lakh tonnes-per-annum gas-based urea plant at Sur (Oman)--whose objective is to ensure that India has an assured supply of urea for 20 years--continues to be plagued by accusations of corners cut, norms flouted, regulations bent--and pay-offs made. The crux of the charges: Snamprogetti was accorded undue advantages because of which it was awarded the Engineering, Procurement, and Construction (EPC) contract for the $800-million project, which is to be implemented on a turnkey basis.

The other constant, of course, is the enigmatic Ottavio Quattrocchi, 60, the head of Snamprogetti's India operations between 1959 and 1993, who has also been charged of being involved in the politically-volatile Rs 1,438-crore Bofors gun deal. Of course, Quattrocchi--a friend of the late prime minister, Rajiv Gandhi, and his widow and the Congress-I president, Sonia Gandhi--has not been in the country for four-and-a-half years now. However, the Friends Of Snam network that he has built in the country continues to operate. Says a consultant who was involved in the Oman-India deal: "It isn't easy to destroy a lobbying set-up built carefully over more than a decade." Little wonder, then, that the A.B. Vajpayee Administration finds that it has inherited a fertile controversy three months after it came to power.

True, the Cabinet Committee on Economic Affairs (CCEA) approved the project, which is projected to be commissioned by the last quarter of 2001, as far back as November 7, 1997. However, not only have the earlier allegations of a scam survived, new ones have surfaced too. Hardly had the Bharatiya Janata Party (BJP)-led coalition assumed power than a fresh controversy cast a cloud on the OIFP. Certain clauses, ran the new reprise, in the joint venture agreement are against India's interests.

More specifically, against the interests of the Rs 1,306-crore Rashtriya Chemicals & Fertilisers (RCF) and the Rs 956.60-crore Kribhco, which will hold a 25 per cent stake each in the venture, and will buy back the urea produced by the unit for a period of 20 years. (And the Omani partner in the project is the $800-million Oman Oil Co., which will hold the remaining 50 per cent stake, and supply the gas to the unit.)

That the controversy has resurfaced is not surprising. A year ago, on May 29, 1997, Prime Minister A.B. Vajpayee--then the Leader of the Opposition in the Lok Sabha--asked for a revaluation of the EPC bids for the project in a letter to the-then Minister of State for Chemicals and Fertilisers, Sis Ram Ola. However, Ola, 69, has a different version to tell. "I did not receive any such letter during my tenure," he says. "I personally went to Oman, visited the project-site, and held detailed discussions. Only then did we decide to go ahead."

Still, when the present Union Minister for Chemicals & Fertilisers, S.S. Barnala, 63, announced in April, 1998, that the contract would be reviewed, a jittery Snamprogetti plunged into a damage-control exercise. Which seems to have worked since, in a faxed reply to BT, a Snamprogetti spokesman admitted that "the EPC contract is at present under final negotiations, and is expected to be signed shortly."

What is surprising is that, even after being raked up by the new government, the issue has been quickly laid to rest again. On May 1, 1998--after a series of meetings held in the last week of April, 1998, with Oman's Minister for Commerce & Industry, Maqbool bin Ali bin Sultan, 47, a vociferous supporter of the project--Barnala declared in Patiala (Punjab) that "India will fulfil its commitments to the setting up of the urea fertiliser factory in Oman." Adds Anil Kumar, 56, secretary (fertilisers), another champion of the project: "There is no attempt to review either the bids or the project."

Striking is the similarity with the volte face in the stand of the BJP vis-a-vis the $13.29-billion Enron's Dabhol Power Project. Although the BJP had protested against the project when it was in the Opposition in Maharashtra in 1994, it quickly reversed its stand later, and cleared the project after it came to power with the Shiv Sena on March 14, 1995. Are similar factors at play behind this sudden change of stance?

Interestingly, so confident is Snamprogetti of its future here that it has signed an agreement with the Rs 5,454-crore Larsen & Toubro (L&T) to jointly participate "on an exclusive basis in bidding for, and implementing, fertiliser projects in India." However, the manner in which Snamprogetti bagged the project despite the opposition from both former finance minister P. Chidambaram and former fertilisers minister M. Arunachalam keeps suspicions alive.

Equally puzzling is the ambigous role of Global consultants to the project, who are supposed to have vetted the EPC contract. As is the Oman government's reluctance to review the project. BT investigates the fate of the first dubious deal inherited by the Vajpayee Administration.

How did Snamprogetti beat Krupp-Uhde?

The Oman India Fertiliser Co., set up to implement the project, received sealed bids for the EPC contract from, besides Snamprogetti, the Houston (US)-based M.W. Kellogg and the Dortmund (Germany)-based $14-billion Krupp-Uhde (Krupp). Both the technical and the financial bids were opened on September 27, 1995, and February 7, 1996, respectively. And the M.W. Kellogg bid was eliminated as it was 20 per cent higher than those submitted by Snamprogetti and Krupp, both of which were of about $800 million each. On March 12, 1996, Jacobs Engineering--a Houston-based consultancy firm, and one of the technical advisors to the project--opined that "the two lowest bidders are so close to each other that the preferred bidder is most likely to be decided on the basis of the financial package."

As both the bids did not comply with several aspects of the original tender parameters, a set of technical loading criteria had to be developed to account for the differences. In other words, each bid had to be adjusted for various discrepancies, and new values were calculated by the consultants. So, a Two-Tier Committee was asked to examine the bids and to suggest the loading criteria by the project's Joint Management Committee, then headed by Sultan and consisting of officials from both countries as well as representatives of the three partners. Both the Expert-Tier Sub-Committee and the Management-Tier Sub-Committee were constituted on January 6, 1997, and held their meetings between January 19 and 27, and February 1 and 2, 1997, respectively.

Then, the new set of technical parameters was communicated to the London-based Lazard Brothers, the financial consultants to the project, through a letter dated February 5, 1997. While developing loading criteria after bids have been opened is an accepted norm in the global tendering process, this evaluation threw open a Bofors Box. For, the adjusted Snamprogetti bid, at $762.02 million, was 2.41 per cent lower than Krupp's $780.36 million, revealed the financial evaluation report submitted by Lazard Brothers on February 14, 1997. Based on this report, the Two-Tier Committee held another meeting on February 24, 1997, and selected Snamprogetti as the "preferred bidder" for the EPC contract.

Immediately, Krupp alleged that the loading criteria had favoured Snamprogetti. And, the German company opposed the evaluation, claiming that the bids had been unfairly adjusted for differences in payment-schedules. It also felt that Snamprogetti would not be able to complete the project in 36 months and nine days as it had claimed before the committee, and would actually take a month longer than the 37 months that Krupp had set as its own time-frame. With the 51-day delay translating into a cost over-run of about $50 million (Rs 200 crore), the schedule was, obviously, critical. Krupp also alleged that Snamprogetti had no experience with lumpsum turnkey contracts, and had never set up capacities as large as 1,400 tonnes per day (tpd) on a single-shift basis, as the project envisaged.

Counters a Snamprogetti spokesman: "The two proposals have been thoroughly evaluated and scrutinised by the technical and financial consultants, and by the technical and financial committees of the client for the responsiveness to the requirements of the tender documents" In fact, Snamprogetti also states that it has been recently awarded two "important turnkey lumpsum contracts for the implementation of some of the largest fertiliser-complexes in the world." These include two urea units of 2,250 tpd each in Venezuela, and a 3,250-tpd urea unit in Argentina. Adds a senior manager at RCF: "Snamprogetti was not favoured at all. Eight of the 10 urea plants in India use its technology (sic!)."

In any case, Krupp's representation was rejected after being considered by the joint venture partners and the Department of Fertilisers, and communicated to the company on April 21, 1997. Yet, Krupp's representatives, along with officials of the German Embassy, met Barnala a year later on April 21, 1998, to seek a review of the EPC contract. Claims a senior official in the Union Ministry of Chemicals & Fertilisers: "It was a clear case of a loser trying to stir up a controversy once it had lost a bid."

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