July 14, 2009 / 3:38 PM / 10 years ago

UPDATE 1-MMTC says may re-tender for 12.5 mln T coal

* KIS has demanded investigation into procurement

* MMTC says import delays could add to power shortages

By Jacqueline Cowhig

LONDON, July 14 (Reuters) - India’s state-run MMTC (MMTC.BO) may re-issue a tender for 12.5 million tonnes of thermal coal after a complaint from a trader, MMTC Chairman Sanjiv Bhatra said on Tuesday.

“We are waiting for a response from the Commerce Ministry before we decide what to do. It’s following complaints by a trader who made an offer into the tender but was disqualified,” Bhatra told Reuters.

Indian trading company Knowledge Infrastructure Systems (KIS) has demanded an investigation into MMTC’s coal procurement processes by India’s Central Bureau of Investigation (CBI), KIS Chairman Rahul Bhandare said.

KIS has written to the CBI, to the Commerce Ministry and to the Prime Minister’s office, he said.

In common with other traders, KIS argues that current terms for tenders by MMTC are restrictive and disadvantage smaller companies or those that do not have foreign partners. “I wrote to the prime minister and others. There was no level playing field and they had to take cognisance of it. We decided to take a moral stand on this issue,” he said.

“They (MMTC) will have to do the tender again with more transparency and fairness,” he added.

MMTC is India’s state-run trading house responsible for buying commodities on behalf of other state entities. MMTC’s Bhatra said the company simply imposed the rules of the buyers that it represents.

MMTC buys coal on behalf of state utilities including the largest, state-run National Thermal Power Corp (NTPC.BO). The tender, which closed on June 4, was issued on behalf of NTPC.

Any delays to coal procurement will exacerbate India’s shortage of fuel for power generation, Bhatra said. “Stocks at the power plants are critically low. Coal is needed urgently.”

During the past four years almost all of MMTC’s coal tenders have been awarded to traders Adani, a subsidiary of the Adani Group, rival Indian trading companies said.

Four trading companies offered into the disputed tender and three met the terms, including Adani, Bhatra said. KIS did not qualify, he said.

Bhandare denied KIS had been disqualified.

Adani was not immediately available for comment.

MORE NEEDED, TRADERS SAY

Some of MMTC’s rules have been relaxed to encourage broader participation but more needs to be done, Indian traders said.

“When they re-tender with the new rules which are expected, this will open the doors,” said one Indian trader who declined to be identified.

Saurabh Kirpal, a barrister representing KIS, said some clauses are particularly restrictive. “Given the nature and structure of the coal supply business in India, these clauses restrict competition only to Adani,” he said.

For example, bidders must pay an Earnest Money Deposit of 2 percent of contract value if they have supplied over 10 million tonnes of coal in a year and 8 pct of value if they have supplied over 2 million tonnes.

“This makes bidding non-viable for smaller bidders. There is no discernible rationale for such a clause,” Kirpal said.

Bidders must also have supplied over 2 million tonnes of coal to India.

Another clause of the tender states that MMTC will only pay a foreign principal for imported coal, requiring Indian bidders to have a joint venture in place.

Clarifications on these points were issued on May 30 just days ahead of the offer deadline of June 4, Kirpal said.

Other Indian traders who wanted to offer expressed frustration at the lack of time to make necessary arrangements for payment and what they saw as a sudden and unexpected change to the tender terms which prevented them from offering.

“These clauses were already in the terms of the tender. Nothing new was added, we merely issued clarification on request,” MMTC’s Bhatra said. (Reporting by Jackie Cowhig, editing by Anthony Barker)

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