Exclusive: HFCL Reacts to Rs 935-Cr BSNL-Army-HFCL Scam Allegation

After The Quint’s exposé in Dec 2016, all NFS project-related tenders were put in cold storage for nearly a year.

Image used for representational purposes.

(Photo: Rhythum Seth/The Quint)

Even as an alleged Rs 12,700 crore bank loan scam has singed the Narendra Modi government, another financial scandal of Rs 935 crore involving procurement of high-grade data transmission equipment for the critical ‘Dense Wave Division Multiplexing’ (DWDM) has surfaced.

The DWDM, when aligned with optical fibre cables, forms the critical backbone for the armed forces’ Network for Spectrum (NFS) project.

Documents in The Quint’s possession reveal that the tender issued in November 2013 was finally awarded in November 2017 to Himachal Futuristic Communications Ltd (HFCL) over two others who bid for the same — Sterlite and Larsen & Toubro.

Favouring Bidders, Diluting Clauses

According to the BSNL and telecom industry sources, following The Quint’s exposé on 28 December 2016 of a Rs 2,000 crore scam involving the loss-making public-sector undertaking – Cisco and the Indian Army – all tenders related to the ambitious NFS project were put in cold storage for close to a year.

This, the sources admitted, was done primarily for “pressure to ease,” since the BSNL’s vigilance wing took a cue from The Quint’s report and began preliminary investigation against at least two top officials of the telecom PSU. Even the army began a preliminary probe against the Directorate of Signals in December 2016 to ascertain the role played by some senior officers – including a lieutenant general, a brigadier and a colonel – in the deal with Cisco.

In November 2017, however, the first purchase order (PO) for the DWDM tender was issued despite several “inconsistencies” in the tender, including tweaking at least two vital clauses in the tender evaluation and contract awarding process.

In the scam involving the BSNL, army and Cisco — which was connected to the acquisition of equipment for the IP-MPLS (Internet Protocol-Multiprotocol Label Switching) — Cisco was unduly “favoured” to be the only bidder and sold equipment at twice the market price. In the DWDM case, several crucial tender clauses were “diluted or violated” (despite strong and valid reasons for them to remain in place without any changes) in ways that helped the HFCL become the lowest (L-1) bidder.

HFCL & BSNL’s Responce

The BSNL did not respond to The Quint’s questions, while the army sought “a week’s time” to reply. However, responding to a questionnaire by The Quint, HFCL (in a long-winded reply) sought to pin the blame on its “competitors”, claiming that it is “their intention to derail a strategically important tender.”

Defending UTL, HFCL said:

UTL is fully home-grown indigenous technology in line with the Government’s vision of ‘Make in India’. Such kind of malicious allegations are contrary to the government’s efforts and undermines the capabilities of indigenous companies and are detrimental in our efforts to be self-reliant in key technological areas…

Read the HFCL’s full response below.

It added, “In view of our response above it is clearly evident that no technical or quality requirement has either been diluted/violated. We also take this opportunity to reiterate that the finest technology has been provided and we stand by our commitment and take great pride in implementing this network, which is of great national and strategic importance.”

A second similar response came from the MD of the HFCL, Mahendra Nahata himself, after The Quint’s article was published. Reiterating the HFCL’s official response. Nahata said, “...Allegation of connivance of some officials is not only highly objectionable but also derogatory and is devoid of any facts and substance.”

We would again like to mention that the CIENA and UTL technology are latest and contemporary and their systems are being widely used. The CIENA and UTL system meets all clauses of the tender. The same had also been extensively validated during Proof of Concept (POC) process wherein all the equipment were tested against all technical parameters by a joint team of BSNL Headquarter, NFS wing of BSNL, Quality Assurance wing of BSNL and Army. 

Mahendra Nahata, MD of HFCL

He further said, “It is most surprising that your Article has alleged that PMA policy was not applicable on this Tender citing that PMA policy is not applicable on defence forces.  In this connection we would like to draw you attention to the above referred  Gazette notification no. 227  issued by the Government of India on 5th October, 2012 wherein it is categorically stated that all NFS projects will be part of PMA policy.”

Read Mahendra Nahata’s full response below.

Old, Obsolete Technology Could Spell Disaster

The DWDM is a terminal equipment used for sending data over long distances via optical fibre cables, and is akin to the foundation of a high-rise building that is built to take all the load and must therefore be the “strongest and the most robust” component of the NFS. The DWDM works by combining and transmitting multiple signals simultaneously at different wavelengths on the same fibre. The technology helps carry data, multiplying the physical medium’s capacity.

Its dilution by having on offer old and obsolete technology, defence ministry sources said, could not just prove “disastrous” for the entire NFS project, but bring into question the future operational capability of the tri-services, especially the army. In this context, sources said they suspect that Chinese products were offered in the garb of ‘Made in India’, leaving the NFS vulnerable to interception, leaks and poor performance during critical times.

Because of the complexities involved in the tender and the technology, The Quint verified its findings with four independent technical experts with in-depth knowledge of various components of the NFS project. All four, who requested anonymity, said they strongly suspect “connivance” among some of the officials concerned from the time the tender was issued.

Substandard Equipment & Loss of Rs 935 Cr to Army

According to the experts, the fact that some clauses were “custom made”, while a few others were diluted and violated in the tender shows that BSNL, army and DoT officials were fully aware of the outdated technology that would be offered. One software expert who previously served in a government agency said: “There is no way that after issuing the tender, some of the officials could tweak the PMA policy to include the NFS project, knowing fully well that the policy exempts the defence forces”.

Another software specialist said that “long distance routes between different stations being interconnected through LAN/client ports is unheard of and one will have to struggle to find another example of this kind in any generation of network, leave alone a next-generation network”.

According to documents and revelations by BSNL sources, while the cost for the DWDM equipment was kept within the budget, “substandard” equipment was offered once the tender clauses were diluted, causing the army a loss of Rs 935 crore. This amount is a part of the massive Rs 24,664 crore budgeted for the NFS project.

Describing the HFCL-offered equipment (almost 90 percent of DWDM offered by the original equipment manufacturer (OEM), United Telecom Ltd (UTL)) as “outdated” and “obsolete”, knowledgeable industry sources said that the higher echelons of the army’s Directorate of Signals (DoS) and BSNL are “fully aware” of the irregularities since the contract process, followed by the offered equipment, could not have “gone ahead without an explicit written order from the DoS”.

The “substandard” system, telecom sources explained, would weaken the network being developed, whereas the NFS is touted to be in the “next generation” category by the defence forces. Sources said that some senior BSNL officers, the Department of Telecom, army and executives at HFCL allegedly “connived” to dilute Clause 5.4.1 of the tender (No. CA/NCP/NFS-DWDM/T-455/2013 of 20 November 2013) to read:

Bidder will select only one OEM for one type of equipment supplied as part of this tender. Bids offering multiple OEMs/Technology Partners for one type of equipment are liable to be rejected.

Flouting of Clauses in Tender

Notwithstanding HFCL’s response, various clauses of the tender (No 32 – design criteria and No 33 – technical requirements) for DWDM were flouted at the checks-and-balances level both at the stage of Technical Evaluation Committee comprising officers from the army and BSNL, as also during the ‘Proof of Concept’ stage, though serious objections were raised (on file) to the technology offered by HFCL as it was not in line with the specifications.

For instance, Clause No 32.2 stipulated that all DWDM links should be designed such that they are upgradable to 40 Gigabytes and 100 Gigabytes. However, 90 percent of the DWDM equipment offered to the army cannot be upgraded, sources revealed.

Sources explained that Clause No 33.3 mandated compliance with ITU Standard G.694.1 for all types of systems in every link of the network. However, since two different (UTL and US-based Cienna) OEM equipment were offered, the interconnecting links were found to be incompatible for the DWDM wavelength and hence, violative of the tender.

What was worse was the waiving and flouting of the eligibility criteria for DWDM OEM (Clause 6.4.4 of the tender). In this case, UTL, supplying 90 percent of the DWDM, did not even have minimal experience.

This, sources said, was done through “fraudulent implementation” of the Preferential Market Access policy which at (Para 7(v)) forbids splitting the procurement of telecom equipment between domestic and foreign OEMs when it is not technically prudent. For proper functioning, all DWDM equipment was required to be supplied by only one OEM.

Counter-Intuitive to NFS Objective

The sources said that neither the army nor BSNL demanded that HFCL change the obsolete technology even as extensions were given, for over a year, to help HFCL offer the inferior DWDM technology – that too at 10 Gigabyte – which no country has been procuring globally for the last five years.

Most countries, including Nepal, are buying 100 Gigabyte technology for their next-generation networks, which have the capability to push 10 times the data over almost twice the distance at nearly the same cost. “At least testing of UTL’s DWDM for upgradability to 40G and 100G should have been done,” the sources said.

Pushing such low-capacity, obsolete technology goes against the NFS objective as the “scalability factor of the entire NFS system is critical since it is designed to take on the requirements of the defence forces of the next 15 years,” a senior BSNL official said.

Over and above the deviations, work on commissioning the DWDM section of the NFS project, which was to begin in June 2015, was delayed and restarted only in the first week of November 2017.

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