State-owned Bharat Sanchar Nigam Ltd has cancelled the Chinese company's Rs 140-crore (Rs 1.4 billion) contract for supplying equipment for 1.05 million CDMA lines in partnership with Himachal Futuristic Communications Ltd and Semiconductor Complex Ltd.
BSNL had issued a show cause notice to Huawei in October for failing to supply equipment.
BSNL, the country's largest telecom operator, has also encashed HFCL's bank guarantee of Rs 2 crore (Rs 20 million) for the consortium's failure to honour the contract.
BSNL executives on Friday said a fresh tender for 3.5 million CDMA lines would be issued next week and HFCL and Huawei would not be permitted to participate in the tendering process.
The BSNL board will meet next week to decide the future course of action against Huawei. Wenhe Gong, director, Huawei Telecommunications (India) Co Pvt Ltd, could not be reached for comments despite repeated attempts.
When contacted, HFCL chairman Mahendra Nahata said the encashment of the bank guarantee was in step with tender conditions. "We, however, have a back-to-back agreement with Huawei to reimburse us for the bank guarantee," he said.
Nahata also said HFCL had written to BSNL urging the company be allowed to participate in future contracts.
BSNL had received bids from HFCL and state-owned SCL, based on Huawei's memorandum of understanding with the two and letters authorising them to bid on behalf of the Chinese firm. BSNL then issued advance purchase orders to HFCL and SCL in August 2005.
The Indian companies had said they were unable to accept the order because they were not getting support from their technology provider Huawei.
BSNL said the consortium's failure to supply equipment for CDMA lines would be a major setback to its plans to clear waiting lists in rural areas by 2006. The number of people on the waiting list for BSNL phones in rural India is estimated at about 1.35 million.
'These one million lines were to be used in rural areas. Our target to clear the existing waiting list will have to be pushed back by a year to 2007,' a BSNL executive added.
According to BSNL sources, two possible options on the course of action against the Chinese firm are being examined - imposing a ban on Huawei from participating in any tendering process for a period of one year, or a permanent ban on it for CDMA projects in the future.
A blanket ban for a year will imply that Huawei will not be eligible to bid for BSNL's upcoming project for setting up 60 million GSM lines. The government has recently cleared the decks for all companies, including the ones from China, to bid for the GSM project.
Huawei's Indian travails
- Government clearance for $60 million manufacturing unit pending for over six months
- FIPB, DoT yet to clear $100 million expansion
- Licence to bid for MTNL, BSNL tenders not issued
- Security concerns raised
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