The Hindu Business Line : What price preference?

The preferential treatment the Shipping Ministry seeks to offer a public sector outfit while awarding dredging contracts is wrong on many counts. Foremost is the needless introduction of a notion of `public interest' in awarding a contract to Dredging Corporation of India on a nomination basis after going through the tendering process. It is bad enough to make procurement on a nomination basis as it invariably results in excessive public funds being expended. And to do so after inviting competitive bids on the ground of `public interest' that was absent at the time of calling for tenders makes mockery of the tendering process. The element of uncertainty can make dredging services that much more expensive for future contracts. The `public interest' consideration must be invoked only when there is clear and manifest evidence of collusive behaviour among the bidders and the alternative of re-tendering is unlikely to result in any improvement in the offer price.

The Shipping Ministry can be faulted also for its decision to extend the concept of purchase preference to private players. This is at variance with what has been laid out by the Department of Public Enterprises. The DPE speaks of a preference only for PSUs and their wholly-owned subsidiaries. Also, it is valid until March 2008 while the Shipping Ministry speaks of a preference operating for a further two years. Should the DPE decide that after March 2008, public enterprises should compete on level terms with private players, both local and foreign, the policy of purchase preference applied by the Shipping Ministry would become incongruous. The phenomenon of the different departments/ministries setting conflicting policies does not do the Government's image any good. It is also not clear if the domestic players offering dredging services are to match the lowest bid, or if the contract would be awarded to the local player at the price quoted as long as it is within 10 per cent of the lowest bid. Purchase preference cannot be extended to a situation where it results in a higher outgo. The Ministry must clarify this point.

A policy of purchase preference represents a trade-off between higher procurement cost and protection to domestic enterprises, in general, or PSUs, in particular. Such a policy may have had its relevance at a time when the PSUs were wholly owned by the government or in a situation of scarce foreign exchange resources leading to extension of the privilege to domestic private players as well. But that is no longer the case. Public enterprises are neither wholly public nor is there a shortage of foreign exchange. The question then is whether policies can remain static when underlying factors governing policy trade-offs have undergone a change.

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