The petroleum ministry has directed state-run GAIL India and Oil & Natural Gas Corp (ONGC) to seek a CBI inquiry into their purchase of gas turbines from Rolls-Royce after the multinational defence and aerospace giant disclosed that it paid commissions to Indian agents.
Sources said instructions were issued on March 24 to ask CBI to investigate the ultimate beneficiaries of the hefty commissions that were beyond those stated at the time of bidding.
The petroleum ministry’s direction comes after the defence ministry put on hold all deals with Rolls-Royce until the CBI investigation into allegations of bribes being paid for the supply of aircraft engines to Hindustan Aeronautics Ltd (HAL), was completed.
Unlike defence deals, PSU tendering allows for commission to be paid to agents. However, this is required to be declared up front during the bidding process.
On December 23, 2013, Rolls-Royce admitted to GAIL that it had paid commission to its agents after its internal compliance review showed that Ashok Patni-owned Aashmore Private Ltd of Singapore was paid 10 per cent to 11.3 per cent commission in 24 after-market transactions.
However, it said, commission agents were declared to GAIL in orders for new engines for Vijaipur-Dadri-Bawana Pipeline project in 2008-09.
Documents with The Indian Express show that Rolls-Royce informed the then GAIL executive director (Gas-Operation & Maintenance) D K Purwar on October 20, 2009 that Aashmore would act as Rolls-Royce’s sole distributor, and that Aashmore would appoint Turbotech Energy Service Ltd “to provide local support in India to handle all our services and project management related activities”.
“In that case, Rolls-Royce declared to you that it had used Turbotech on the bid and asked GAIL to make payment of 2 per cent of the project value to Turbotech on behalf of Rolls-Royce, as per your contractual requirements,” it reiterated on December 23, 2013.
Patni was a former commercial adviser of Rolls-Royce in India, and the owner of Aashmore and Turbotech.
Rolls-Royce also informed GAIL that “another company owned by Patni, Infinity Projects Private Ltd, was contracted by Rolls-Royce to provide project management services in connection with the project for a fee of 2 per cent of the project value”.
“As is known to you, Patni provided these services. However, the review found some indications that this arrangement was, at least in part, intended to provide Patni with a higher level of commission without disclosing the full level of commission to GAIL,” it wrote in December 2013.
But on March 3, 2014, GAIL issued a show cause notice, and said it was “not correct” that Rolls-Royce had declared commission to Infinity in the VDBPL project. The undisclosed commission was $ 2.5 million for an October 2008 order, and $ 1.84 million for an August 2009 order.
“With regards to the observation ‘As is known to you’ regarding service from Infinity Projects against the VDBPL contract, we do not agree to your submission since it was never known to GAIL nor it was ever been informed by Rolls-Royce to GAIL earlier,” it wrote.
It said that such “wrong declaration” of commission was not in line with clause 19 of Instructions to Bidders of the Order and threatened to put Rolls-Royce Energy System Inc of the US and Rolls-Royce Singapore Pte Ltd on the banned list, thereby debarring them from doing any future business with GAIL.
In the case of ONGC, Rolls-Royce wrote on December 19, 2013, that commission was paid to Patni in connection with several ONGC tenders/contracts in the past, a violation of the Integrity Pact. ONGC issued a show cause on March 13, 2014, asking Rolls-Royce to refund the commission paid.
ONGC also suggested to the ministry that “beneficiaries and intended purposes of commissions could be revealed through an in-depth investigation by an agency such as CBI”.
A similar recommendation was made for contracts awarded through HAL, which awarded 38 contracts for overhauling of generators and service contracts from 2007 on behalf of ONGC.
Rolls-Royce has over the years supplied 63 out of the 72 gas turbines installed on GAIL’s nationwide pipeline network. The British company also provides spares and services to the turbines.