COVID-19 PROCUREMENT PLAN, NEWS, CONTROVERSIES IN

NEPAL

Submitted by:

Pratikchya Basnet (19303)

MBA Spring 2019

Submitted to:

Mr. Krishna Ram Khadka

Professor, Project Procurement

May 22, 2020

COVID-19 PROCUREMENT PLAN, NEWS, CONTROVERSIES IN NEPAL

The Public Procurement Regulation, 2007:

145. Provision Concerning Procurement in Special Circumstances:

1. A Public Entity shall, in making a procurement pursuant to Section 66 of the Act, have to
prepare written details of the procurement requirements, quality, quantity, 125 conditions
and period of completion of work and shall procure only the quantity and for the period
required to face the contingent circumstances by having a competition made so far as
practicable or by concluding negotiations for fair and proper price after receiving written
quotation or proposal from a single construction entrepreneur, supplier, consultant or
service provider, as the case may be.
2. Where a procurement has been made pursuant to Sub-rule (1), documents containing the
following matters shall have to keep in the records under Rule 149:-
a) Description relating to special circumstances,
b) The crisis to be occurred in public security, interest and community health, if
procurement is not made immediately,
c) Reasons and grounds for not adopting the other methods of procurement.
3. Where a Public Entity has made a procurement exceeding one million Rupees pursuant to
Sub-rule (1) it shall have to publish a public notice of the details of the procurement so
made and send information thereof to the Public Procurement Monitoring Office.

How was the procurement deal given to Omni Business Corporate International (OBCI)?

The government initially said that it would select a competitive company from those 19 which
had applied to procure the goods for the Covid-19 pandemic. The government remained silent
for two months after seeking quotation from 19 companies asked the companies to express their
commitment in three hours to supply the required goods in 24 hours. And in three hours, the
supplier companies applied for the task. The procurement process that was initiated two months
prior to the lockdown got terminated and the government succeeded to give the contract to one
particular company under the above mentioned regulation. We can see from the Public
Procurement Regulation that the initial signing of consignment deal to the Omni Business
Corporate International (OBCI) was done under the consideration for special circumstances.
Finally, Omni Group was selected from among two companies that promised to bring the
equipment within the required time frame and when the government endorsed the group’s tender,
it did so only after reducing the price by 0.5 per cent. Omni Business Corporate which had
already purchased and packed the goods in China became ready and was granted the contract in a
dramatic way. The reason government gave for choosing Omni was fast response and quick
delivery of goods since the department had discussed issues of procurement with 19 suppliers,
but they demanded at least 30 days to bring the required equipment.

Deal with Omni

The Department of Health Services on March 26 had awarded the tender to OBCI for medical
equipment necessary to fight the Covid-19 pandemic. The Omni Group was awarded to import
masks, virus test kits, PPEs and other medical logistics from China.

Omni was awarded the contract to supply medical equipment worth Rs 1.24 billion. The
company was required to deposit Rs. 50 million as security deposit upon confirmation of
contract. The company was required to deliver the goods procured in three instalments as per the
agreement with the government.

The government also agreed to providing aircrafts for the transportation of goods from China to
the Omni Group. The first lot of the medical equipment, worth a total of $10,390,400 (10.3
million), arrived in Nepal on March 29, Sunday morning on a Nepal Airlines plane sent to
Guangzhou to ferry the consignment home. Omni was required to bring in specific quantities of
equipment in batches. The second and final shipments were due on April 2 and April 5
respectively.

Controversies related to Omni Business Corporate International (OBCI)

There are many controversies relating to the procurement process, amount and method that
government choose to award to Omni Group. Since this is a huge emergency situation, the
expectation from citizens of the country was that the medical supplies would be procured in fast,
effective and reliable way. But the reality looked otherwise if one compares the prices paid by
the Omni and the market price as well as the prices of the goods provided by the Chinese
Embassy and Sichuan province to Nepal government. Omni was charging very high mark-up and
there was huge price anomaly. Not only these but the goods were also not delivered in time and
the quality was also compromised.

Talking about the misconducts, Omni had to bring in 100,000 units of PPEs on first instalment,
but only 10,000 units arrived, similarly, 75,000 Rapid Diagnostic Testing (RDT) Kits worth
$600,000 was to be bought but only 50,000 arrived. Other equipment, such as N95 masks,
surgical masks and surgical gloves, too arrived in fewer quantities than what was stated in the
agreement.

There were also price anomalies; Procurement documents obtained show that the government
paid over Rs 15,000 for a set of PPE (or personnel protection equipment) which the Chaudhary
Foundation was able to buy for around Rs 3,000. Similarly, N-95 masks, for which the Ministry
of Health and Population had earlier cancelled procurement after Embassy offered it at Rs.290,
were purchased this time for nearly Rs 900. Likewise, the infrared thermometers, which the
ministry earlier procured at the rate of Rs 2000, were purchased at Rs 10,000 each. Likewise, the
Chinese government bought protective goggles at Rs. 505 and gave it to Nepal government but
the OBC paid Rs. 2152 for the same goggles. Similarly, OBC paid Rs. 7,771 for thermometer
which the Chinese Embassy bought at Rs. 718. Most of the medical equipment that the ministry
agreed to procure from Omni is found to have been priced exorbitantly higher than market rate.

So, in summary, company had supplied only 10 per cent of the promised gear, which was around
18 per cent of the price the department had agreed to pay to it.

The government also drew criticism for ordering rapid testing kits that are known for being non-
reliable and showing false negative results.

Punishment to Omni

Director General of Department of Health, Mahendra Prasad Shrestha, told media persons at one
of the daily press briefings organised at the ministry that the government decided to scrap the
contract with the business group as it had failed to supply the promised equipment before the
deadline. The ministry has also decided to seize a surety deposit of Rs 50 million by way of a
fine for the failure of the business firm to deliver the medical equipment within the given time
frame.
The Public Procurement Monitoring Office (PPMO) has also blacklisted Omni Group, for
accused of being involved in financial irregularities while procuring essential medical supplies
required to contain the spread of COVID-19 in the country.

Widespread criticism over the faulty procurement procedure prompted Prime Minister KP Oli to
grill the officials including Health Minister Bhanu Bhakta Dhakal involved in the deal. A
complaint has also been lodged at the Commission for the Investigation of Abuse of Authority
(CIAA) against Health Minister Dhakal for his alleged involvement in paying up to three times
higher price than the price offered by other suppliers for bringing in the medical supplies from
China and also for approving sub-standard medical kits.

Handover of procurement to Nepal Army

Article 267 (1) of the Constitution states that the Nepal Army (NA) will work to ensure Nepal’s
independence, sovereignty, territorial integrity and national unity. However, Article 267 (4)
allows the Nepal government to mobilise the NA for “development works, disaster management,
and others. NA’s deployment and role during any type of disaster and crisis management in the
country had been stipulated in Article 276 of the constitution. Thus, after all the controversies
regarding the procurement process, a meeting of the Council of Minister decided to entrust the
Nepal Army to initiate the supply of medical kits through the government to government (G2G)
procurement process from China.

Government’s decision to rope in the Nepal Army to procure medical equipment necessary to
combat the Covid-19 pandemic has drawn criticism from across the political spectrum that the
national defence force is getting increasingly politicised and is losing its identity as a neutral
national institution. Also, there were allegations of corruption as well, since Nepal Army does
not fall under the purview of the CIAA, the deal can benefit both the army and whoever took the
decision, but it will weaken the institution. However, the process has been granted to the Nepal
Army, as of now.

The government initiated the process of a commercial demand with the Chinese government to
procure necessary medical equipment and other logistics through the Embassy of Nepal in
Beijing after the end of controversies with the Omni Group. The relevant procedure is that, if any
countries raised purchasing demands via diplomatic channels, the Embassy would report back to
the headquarters and provide the list of qualified providers. On April 2, the Nepali side raised
commercial demand to the Chinese Government through the Nepali Embassy in Beijing. The NA
would purchase the required goods remaining under the guidelines and system of the Public
Procurement Act 2007 and its Regulation.

The NA signed an agreement worth Rs 2.25 billion to import medical supplies from China.

Several measures have been taken to combat the prior controversies by the Nepal Army, such as,
for quality assurance, Quality Control Assurance Committee has been formed under the CCMC.
The committee will comprise 12th grade official from the Ministry of Health and Population,
Medical Cluster Team under the CCMC, official from the Quality Determination and Regulation
Division under the Health Ministry, and Purchase Sub-section of the NA.

NA has also formed a Medicine and Health Equipment Management Committee under Master
General of Ordnance (MGO) Major General Prabhuram Sharma. The committee has
representatives from Directorate General of Military Intelligence (DGMI), Directorate General
of Military Operation, Director General of the Health Department under the Health Ministry,
Legal Department of the NA led by Ratna Prakash Thapa, and Finance and Administration
Offices of the NA as members.

The state-owned Chinese companies that were contacted by the NA were going to supply 67
types of testing reagents and protective gear while India-based manufactures will supply 53 types
of medicines. The Army had also written to five countries—China, India, Israel, Singapore and
South Korea—asking if they could supply the medical equipment. The Chinese and Indian
governments had responded that they were ready to supply the required items under a
government-to-government deal while the South Korean government said that Nepal could get
the required equipment through private companies. Israel and Singapore did not respond.

Since the Army was handed the task of importing medical equipment under a government-to-
government deal, Foreign Minister Pradeep Gyawali held two rounds of telephonic conversation
with Chinese Foreign Minister Wang Yi, asking China to provide the necessary equipment.
Nepal Army Procurement controversies

But, the NA has also not been free of controversies. Even after two weeks of finalising the
mandated to procure medical equipment needed to fight Covid-19 through a government-to-
government deal, the national defence force did not make any progress. The Nepal Army did not
yet bring in the first consignment as planned. Thus, private companies meanwhile were claiming
to bring in medical equipment within a week’s time, according to the Department of Health
Services.

Handover to Private firms

The department then issued a short notice asking for suppliers to import medical equipment
within 15 days. Five firms had applied and three were selected. The government plans to import
medical equipment worth Rs300 million through these three firms from China. So, the
government then signed agreements with three private firms to import emergency medical
supplies, including personal protective equipment, N95 masks and gloves, raising questions as to
why the government assigned the Army in the first place. The government justified this move by
stating that various hospitals around the country were running out of materials and thus, they
were under pressure to take this decision.
Reference

https://ppmo.gov.np/image/data/files/acts_and_regulations/public_procurement_rules_2064.pdf

https://kathmandupost.com/national/2020/04/01/health-ministry-cancels-tender-to-purchase-
medical-equipment-from-china-over-controversy

https://thehimalayantimes.com/nepal/govt-scraps-contract-with-omni-group/

https://kathmandupost.com/national/2020/04/03/government-decision-to-bring-in-the-nepal-
army-to-procure-medical-equipment-draws-flak-from-all-quarters

https://risingnepaldaily.com/main-news/na-formalises-g2g-process-to-purchase-covid-19-
medical-goods

https://kathmandupost.com/national/2020/04/18/government-deal-to-procure-medical-
equipment-via-three-private-companies-raises-questions-over-army-s-role