The Wall Street Journal-20080122-World Bank May Punish Chemical Firms
Return to: The_Wall_Street_Journal-20080122
World Bank May Punish Chemical Firms
Several major European chemical firms face possible debarment by the World Bank following allegations they colluded to overcharge a bank- funded antimalaria program in India.
The firms, along with a number of other Indian and European companies, also face possible punishment from the government of India based on a review of World Bank programs in India by the bank's "institutional integrity" unit, India's top health official said in an interview. "If there's any sort of proof, we are going to take action," Joint Secretary for Health B.K. Prasad said.
Well-known multinationals such as Bayer AG and BASF Group, as well as prominent Indian firms, preyed on bank programs designed to raise health standards for India's poor, the report alleges, while the bank's own officials often looked the other way.
Bayer, based in Leverkusen, Germany, and BASF, based in Ludwigshafen, Germany, said they have launched internal inquiries into allegations that their Indian subsidiaries participated in a bid- rigging cartel involving some $33 million in procurements of a mosquito pesticide called pyrethroid.
The World Bank report also said Aventis CropScience and Zeneca Agrochemicals Ltd. are suspected of belonging to the cartel, which the report says existed from 1999 to 2004. A spokesman for Zeneca, of Basel, Switzerland, now called Syngenta International AG, had no comment. Aventis, now Sanofi Aventis SA of Paris, said it had no comment because its crop-science unit is now owned by Bayer.
The long-awaited India report found numerous signs of fraud, such as funding to aid groups that didn't exist, suspicious bidding practices and substandard equipment. Officials at both the bank and the government of India were aware of these matters but failed to act, the report states. World Bank President Robert Zoellick said the bank is "committed to getting to the bottom of how these problems occurred."
In the malaria program, the report says investigators discovered that the four European firms won 18 out of the first 21 bidding competitions using "identical or unusually similar bid prices" and other "unusual patterns." The contract awards appeared to be rotated among the companies and sometimes divided among them.
Pyrethroids are synthetic chemical compounds used in mosquito netting to kill mosquito larvae, which helps prevent transmission of malaria and the West Nile virus.
The report's findings are preliminary and will lead to further investigation by the World Bank before any sanctions. But the report notes that in other debarment cases, the bank's Sanctions Board found the use of identical prices in procurement cases to be "particularly compelling" evidence of collusion. It is unclear whether debarment by the World Bank -- which typically lasts three to five years -- would materially damage any of the companies in terms of revenue, but the hit to their reputations could be severe and prompt additional legal fallout both in their home jurisdictions and other countries.
The government of India says it is also taking corrective action on the pyrethroid affair and other aspects of the voluminous report, which delves into national AIDS, malaria and tuberculosis control projects as well as the health system in the Indian state Orissa.
Mr. Prasad says the government has been working with the World Bank for the past few years to iron out problems in procuring drugs and medical equipment for bank-funded projects aimed at helping the poor. He said the government was also moving to punish suppliers suspected of wrongdoing to win contracts.
"If there's any sort of proof, we are going to take action," he said.
The Indian government has suspended two Indian drug companies -- Nestor Pharmaceuticals Ltd. and Pure Pharma Ltd. -- following the government's own investigation of a World Bank decision in 2007 to bar the two firms for allegedly rigging contracts in a reproductive health program.
Mahesh Badlani, director of commerce for Indore-based Pure Pharma, confirmed his company had been suspended both by the World Bank and the Indian government. But he denied Pure Pharma was involved in price fixing, official bribes or other types of corruption. "No. No. No," he said.
He added that Pure Pharma was appealing the Indian government's decision. Mr. Badlani said financial constraints might preclude a challenge to the World Bank's suspension. "We are a small company," he said.
Like Pure Pharma, Nestor denies corruption and price-collusion charges, with the company's president, Rahul Sehgal, questioning how bids could be rigged among so many competing parties. "Can two companies get together and collude when 20 others are involved?" he said in an interview. "We are being penalized for something that is completely illogical." Mr. Sehgal added that, in the hypercompetitive Indian pharmaceutical industry, ending up with the same low bid as another company isn't unusual.
