In July 2007, a World Bank investigation found that Delhi-based Nestor Pharmaceutical and Mumbai-based Pure Pharma fixed their bids to allegedly collude to secure a majority of pharmaceutical contracts under both the Reproductive and Child Health (RCH I) project and the Child Survival and Safe Motherhood project. The Bank’s review said they not just colluded to win contracts, they failed to deliver quantities of drugs they should have and even diluted the drugs they supplied.

“After the government blacklisted them in 2006, both the companies have gone to court. Nestor has got a stay order on further action from the court while Pure Pharma has been blacklisted. The CBI inquiry into them is awaited,” said Naresh Dayal, Secretary, Ministry of Health and Family Welfare.

The new World Bank’s Detailed Implementation Review, as reported by The Indian Express, showed that the RCH I scandal was just the tip of the iceberg. The same companies have been accused of colluding, rigging bids and tampering with the quality of drugs in two other major healthcare projects, the Malaria Control Programme (MCP) and the TB Control Programme (TCP).

And this despite several levels of monitoring: the Centre hired regional consultants to monitor implementation, independent labs conducted pharma tests, an independent annual audit of drug procurement and distribution was conducted. All this was reported to the Bank every quarter. In addition, the Bank carried out 15 supervision missions in eight years. Every financial transaction had to pass through the Bank including the auditors’ report.

But these “collusive practices had gone undetected,” admits the Bank’s review, “and apparently were undertaken by the same players across multiple projects, they signify a risk factor that needs to be monitored closely to ensure programme integrity in other projects involving pharmaceutical procurements.”

When contacted, Ajay Asudani, lawyer for Pure Pharma said: “In the RCH case, the World Bank lifted all criminal charges against our directors and only decided to debar us for one year. We have appealed in the Indore High Court against the Government of India order blacklisting us. We are not aware of the findings of the latest World Bank review.” Nestor

Ironically, the pattern of fraud was similar: the companies colluded to win majority of contracts. In MCP, Pure Pharma won 62% of the DEC tablets contract and Nestor and Pure Pharma combined won 93 per cent and 73 per cent of the chloroquine and Combi-blister packs respectively.

While chloroquine phosphate is a common treatment for malaria, combi-blister packs contain a combination of drugs. DEC tablets treat vector-borne disease filariasis.

Their modus operandi was simple:

• They kept identical unit prices, or put values that were just one per cent of each other’s or bid in a way that helped them split the contract.

• Price differential between Nestor and Pure Pharma was “symmetrical and rotated,” finds the review in both the malaria and TB control projects.

• For example, in tendering for the second combi-blister contract package, Nestor bid a unit price of Rs 0.02 lower than Pure Pharma’s unit price in some schedules. In the remaining schedules, Pure Pharma bid the same unit price difference.

• In RCH earlier, they had bid identical unit prices for the supply of Ferrous Sulphate and Folic acid tablets. The difference in price offered by the two companies was never more than nine paise.

• Both are alleged to have tampered with drugs to undercut competitor’s prices in the malaria project: They are alleged to be providing low bid prices by overstating the amount of raw materials they would need to import in the manufacture the drugs and selling excess raw material on the Indian domestic market without paying taxes and custom duties.

• Nestor won a greater proportion of contracts than Pure Pharma — almost twice as many as Pure Pharma. This mirrored the contract award pattern present when the two firms colluded on RCH tenders and had led to debarring Nestor for three years while Pure Pharma for one year.

•In the TB control Project, the companies submitted identical unit prices and complementary quantities of the entire spectrum of drugs required for the DOTS programme.

What saved the TB project was an unrelated decision by the Government to “deregister” these companies because they had provided substandard drugs. Though they were the lowest bids for contracts worth millions of dollars, this debarring prevented the schemes from fully manifesting. If they had not, the two companies would have won 70-80 per cent of the bids between 2001 and 2004 worth $16 million.

Since the registry for “debarred” companies was not publicly available, the companies continued to get “No objection” certificates from the World Bank and kept bidding for drugs it had been deregistered for — Pyrazinamide for TB is one example.