Did the consultants really evaluate the bid?

However, the nature, and the process, of the evaluation leave ample room for doubt. For instance, consider the role of Jacobs Engineering which, along with the Houston-based James Chemical Engineering, is supposed to have conducted the technical evaluation. Yet, its president and CEO, Noel Watson, wrote to Peter Borgestedf, president, Krupp, on March 17, and April 2, 1997, stating: "Jacobs has had minimal involvement with the project until we were requested by the Oman Oil Co. to provide the services of a senior projects manager, having a high level of experience in the ammonia-urea sector. Accordingly, Jacobs provided the services of A.E. (Tony) Smith in January, 1997 His role has been independent, and not under the directions of Jacobs Jacobs is not directly involved in the evaluation" And Jacobs Engineering refused to respond to BT's questions.

It is clear, however, that the company was not a full-time technical consultant to the project, and only loaned an engineer to the Oman Oil Co. to conduct an evaluation. The latter, in a fax to BT, also thanks Lazard Brothers, which "provided objective economic input and analysis." However, in a telephonic interview with BT from London, Lazard Brothers' director, John Scott, 46, said: "It is incorrect to say that we were involved with the technical evaluation. Which means that the loading factors and the parameters--such as energy-usage norms, time taken to complete the work, and others--were decided by the project sponsors. We did conduct a financial evaluation, but that's confidential. And I will not comment on it."

Earlier too, Scott had said as much in a letter, dated February 14, 1997, to the three partners: "preparing the commercial review section of this report, the financial advisor has taken its instructions on all technical matters from the sponsors, and certain of their advisors, including Jacobs Engineering" It was on this basis that Lazard Brothers said that "it was possible to demonstrate that one bidder has emerged as the clear winner"

For all the Joint Management Committee's posturing, the contentious loading factors do not appear to have been reviewed by outside experts. That raises two questions: why are the external consultants to the project trying to distance themselves from the technical evaluation? And why aren't the people behind the evaluation willing to stand up and be counted?

Why were objections by two Cabinet ministers ignored?

Apart from Vajpayee, the Congress-I's A.R. Antulay, a Member of Parliament and the chairman of the Parliamentary Standing Committee on Chemicals & Fertilisers, demanded a review of the contract in two letters (dated August 6, and August 26, 1997) to the-then minister for chemicals and fertilisers, M. Arunachalam. In a telephonic interview, Antulay, 69, told BT: "We had heard about the allegations that Snamprogetti had been favoured. But before we could gather the evidence from the bureaucrats, the Deve Gowda Government fell on March 30, 1997."

From his letters, it seems that Antulay, probably, went slow on demanding an investigation because his party was supporting the United Front Government. His August 26, 1997, letter to Arunachalam read: "The subject matter was first brought to our notice during your predecessor's tenure. We then thought that rather than rushing an official communication and/or taking evidence, it would be more prudent to interact informally with the senior-most officers of your ministry/department."

Arunachalam, obviously, took these allegations seriously. A supplementary note, dated October 31, 1997, prepared for a CCEA meeting the next day, states: "On September 3, 1997, the minister for chemicals and fertilisers wrote to Maqbool bin Ali bin Sultan, asking the Joint Management Committee to give careful consideration to the (Krupp)-Uhde representation," and to seek "an independent expert opinion." The note also questions the "competence of both the bidders to execute plants of comparable capacity," and "the justification of the various adjustments and load(ing) factorsfor arriving at the final evaluation of the bids." However, the committee replied the same day, asserting that there was no need for a review.

Says Arunachalam, 54: "I only asked for a re-evaluation. Nothing else." Later, on October 4, 1997, Sultan wrote to Arunachalam again, claiming that the "EPC bid evaluation had been conducted fairly." Even when the Indian minister visited Oman, and met Sultan on September 17, 1997, he was categorically told that a re-evaluation of the bids would question the "integrity of the project itself." This line of thinking was reiterated in a faxed response to BT by Oman Oil Co.: "Oman Oil Co., and its Indian partners, executed the tendering process very carefully, and thoroughly Neither the Indian Department of Fertilisers nor any of the sponsors believe that an additional review could provide further insight."

A bitter Arunachalam wrote a strong note to the CCEA on November 5, 1997. "I would prefer that the Indian companies withdrew from the project not only considering the attitude of Maqbool bin Ali bin Sultanbut also because of the intense controversy generated on (the) selection of the lumpsum turnkey contractor." In fact, the minister felt that the Oman government was attempting to "stonewall my suggestions." Even so, on November 7, 1997, the CCEA cleared the project.

In the process, it also overrode the objections of the finance ministry to a clause that links the price that India will pay for the urea from the OIFP to the international price at the time of the purchase. However, the clause adds, the two Indian partner-companies will make good the difference in case the price falls below a pre-decided benchmark. This is based on a 10 per cent Internal Rate of Return to the OIFP-- amounting to $115 per tonne at an 85 per cent capacity-utilisation level--and will go up if the utilisation is lower. Thus, if the price falls below this floor, RCF and Kribhco will compensate the joint venture by extending interest-bearing loans to make up for the difference.

Not surprisingly, a finance ministry letter to the CCEA, dated October 15, 1997, stated that the clause "poses no liability on the Omani partner" even though the "cost of production is directly linked to capacity-utilisation which, in turn, is dependent on the quantityof gas supplied (by the Omani partner)." When bt contacted former Union Finance Minister P. Chidambaram, 57, his telling response was: "My ministry's views are included in the CCEA notes. And I cannot change them now, can I?"

But the Department of Fertilisers felt that this anomaly had been corrected with its amended clause, which was communicated via an official memo (O.M. No. 13029/ 21/96-F.P.I.) dated March 27, 1997. According to the clause, the Oman Oil Co. too would contribute to the compensation for lower utilisation levels due to the non-availability of gas although its liability was capped at $7.50 million per year. After this amendment, the CCEA cleared the loan- commitments imposed on RCF and Kribhco on March 29, 1997. And another note, dated November 3, 1997, from the Department of Fertilisers stated that the liability "is not likely to materialise in view of the projections of the evolution of the (future) international prices of urea made in a market studywhich was commissioned by the project sponsors."

This was conducted by Fertecon, a London-based market research and consultancy firm which specialises in the fertilisers business. Explains Terry Philips, 47, director, Fertecon: "We were asked to advise on the price outlook during the life of the Oman-India Fertiliser Project. And our projections indicated that international urea prices would fluctuate between $135 per tonne (freight on board) and $290 per tonne in the next 20 years." On the basis of the lowest projected price, the Department of Fertilisers felt that the loan liability of the Indian partners would be between $10.20 million--assuming a 70 per cent capacity-utilisation level--and $149 million--60 per cent utilisation--over the full life (20 years) of the project. That is almost equal to the Oman Oil Co.'s maximum liability of $150 million. Moreover, in view of the prevailing prices of around $100 per tonne, Fertecon then revised the price-band to between $120 and $250 per tonne.

Not surprisingly, the finance ministry, was not satisfied. "The concessions extracted from MPM (Ministry of Petroleum & Minerals of Oman) provide some relief, but do not fully compensate the Indian partners as they have a cap of $7.50 million per year, and the compensation would be coming to the JVC (joint venture company)In case the cost of production goes up because of under-utilisation of capacity for want of adequate supply of gas, thereby increasing the cost of production beyond the prevailing international market prices, the burden will not be on the JVC, but on the Indian partners," reads a note from the ministry dated October 15, 1997.

Indeed, the evidence on record suggests that the project was pushed through in a hurry originally. But now, with even the Vajpayee Administration having reversed its stand, the prospects of a review are receding. Says a senior official in Oman's Ministry of Commerce & Industry: "The project is progressing, and a new CEO will be appointed within the next few weeks." Moreover, Lazard Brothers has already roped in a consortium of three banks--the Arab Banking Corporation, JP Morgan, and Banque Nationale de Paris--who have decided to underwrite the borrowings for the project.

And so, the OIFP's contract with Snamprogetti may be signed after the financial closure in October, 1998. But fresh doubts are bound to be raised when the plant is commissioned in the next century. For, the questions over the losses likely to be incurred by the Indian partners in the case of a drop in urea-prices remain unanswered. And, with all scams linked to Snamprogetti--and Quattrocchi--once it has flared, this controversy too may be difficult to extinguish.

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