The very slow printing of the new Rs 500 note at the Bank Note Press (BNP) in Dewas, Madhya Pradesh, could be attributed to an old, but expensive machine supplied by a Swiss-British joint venture company that was allowed to violate significant tender norms, according to confidential documents in possession of The Quint.
The documents, which reveal in great detail the improprieties involved in selecting the company, the Lausanne-based KBA-Giori, which collaborated with the UK-based Thomas De La Rue to form De La Rue Giori, show that a four-set “finishing machine” procured for Rs 400 crore “did not meet tender specifications” and yet was purchased after suspected kickbacks were paid to top Indian government functionaries in 2009.
The machine, which was installed in 2010-11, continues to be operated at the Dewas BNP and is said to have slowed the printing/production of the new Rs 500 notes which are in extreme short supply.
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SPMCIL-KBA-Giori Deal
Security Printing and Minting Corporation of India Ltd (SPMCIL), which is under the Finance Ministry, struck a deal with KBA-Giori in 2009, when Pranab Mukherjee was the finance minister, for the supply of the finishing machine whose production speed for churning out currency notes was far below tender specifications.
The alleged beneficiary of the scam was the then SPMCIL Chairman and Managing Director M S Rana who was close to the personal secretary of a top UPA cabinet minister. A chargesheeted official, Rana was removed as SPMCIL chief in July this year, following a series of enquiries into several cases of alleged corruption and misuse of office.
There are two other cases of irregularities against Rana, investigated by the CBI, which are related to the procurement of the KBA-Giori-supplied machine and the use of an Arabian security thread in the production of Rs 10 notes. While the CBI held Rana guilty, he was let off with warnings by present Finance Minister Arun Jaitley.
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SPMCIL’s Requirements Not Met
While SPMCIL’s requirement was for a machine unit that would “function automatically with a minimum production speed of 470 bundles per hour or 2.68 million pieces per shift from 36 UP notes/sheets”, KBA-Giori supplied a machine that churned out only 378 bundles an hour, according to a 22 June, 2015 document of the Currency and Coinage division of the Finance Ministry.
The document reveals that KBA-Giori made “contradictory statements” in its offer, saying the company “is pleased to be able to offer SPMCIL our ‘state-of-the-art’ Super Series of printing presses and auxiliaries using today’s latest technology which fully complies with the tender document and is compatible with the existing equipment” at Dewas BNP.
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Low Output Speed
But the results were startling. Once the machines were installed and production of Rs 100, Rs 50 and Rs 20 notes began, it was found that “the output/speed calculated based on the formula are below required minimum output of 470 bundles per hour or 2.68 million pieces per shift…The firm was not meeting the technical requirement…Thus the firm, by giving misleading and inconsistent statement in response to production speed and output of the finishing machine, created false impression of meeting the specification.”
Despite these shortcomings, an SPMCIL technical evaluation team’s report said “nothing adverse regarding fulfilment of production speed by the finishing machine by M/s KBA has been mentioned.” Even more surprisingly, the “unit level material management committee or the tender evaluation committee “recommended the offer of M/s KBA for finishing machine as technically suitable.”
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KBA-Giori’s Contradictions Overlooked
A Finance Ministry vigilance department document says that “It is clear that the contradictions given by M/s KBA were overlooked by the unit level committee…The unit level committee has erred in evaluation of technical offer of M/s KBA by not taking cognisance of the formula.” The document adds: “It was the responsibility of the UNIT LEVEL COMMITTEE to evaluate the offer for any inconsistency and contradiction. But, the committee has not given due diligence to the responsibility entrusted to them.”
While “communications” were sent to KBA-Giori regarding deficiency of not meeting the stipulated production rate, the Swiss firm “counter-replied” although “the matter pertaining to contract management part is still under process.”
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Non-Functional Machines
Even more damning was the Currency and Coinage department’s finding that while KBA-Giori supplied the automatic feeder machine, it was “not functional” at the Dewas BNP. The machine functions automatically right from the point where sequentially number-printed sheet piles are kept where from 100 sheets with sequential numbering are fed automatically into the machine up to wrap shrink pack system and delivery.
Eliminating A Japanese Competitor
Documents supplied to the Central Vigilance Commission further reveal that KBA-Giori was “shown undue favours” at the cost of a Japanese company, Komori Corporation. While it was specifically stated in the tender documents the offers of only those bidders would be opened whose techno-commercial bids were evaluated and accepted in all respects,” changes were subsequently made to the tender conditions and “change in specification was communicated as technical clarification to M/s KBA-Giori by BNP, Dewas.
This resulted in elimination of one of the prospective bidders, Komori Corporation, from competing in all five items constituting one line and thereby favouring M/s KBA-Giori in the procurement process.”
Besides, Finance Ministry investigations found that:
i) The tender conditions were not formulated properly as there were ambiguities;
ii) The price bid of M/s Komori Corporation was opened intentionally against the provisions of the tender conditions to justify the rates offered by M/s KBA-Giori; and
iii) No justification was available on record for opening the price bid of M/s Komori Corporation knowing fully well that this company could never be L1.
SPMCIL Officials’ Involvement
Five SPMCIL officials, including Rana, are alleged to have bent rules to favour KBA-Giori, so much so that they allegedly “refused to carry out further negotiations with M/s KBA-Giori despite recommendations by the then Finance Ministry Joint Secretary/Financial Adviser M Deenadayalam.
In complaints against the SPMCIL officials it is alleged that an SPMCIL vigilance officer’s report “confirms criminal conspiracy” to eliminate Komori Corporation and favour KBA-Giori instead.
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