Inquiry into Australian TV fiasco: The government's credibility is in doubt after its licence tender collapses in shambles, reports Robert Milliken

SYDNEY - A political storm yesterday forced the Australian government to announce an inquiry into its decision to award the country's first commercial pay television licences to two obscure companies without testing their financial or professional credentials.

Since it awarded the licences 10 days ago, rejecting bids by big media players such as Rupert Murdoch and Kerry Packer, the government's pay television policy has collapsed in a shambles. The affair has cast a shadow over the credibility of the recently re- elected Labor government of Paul Keating in handling policy on the sensitive and rapidly changing field of broadcasting and communications.

After almost a year of prevarication, the government announced on 1 May that the winning bidders to start broadcasting satellite television in Australia by next April were two unknown Sydney companies, Ucom and Hi Vision.

Ucom and Hi Vision unexpectedly beat a powerful consortium consisting of Mr Murdoch, Mr Packer, Telecom Australia, the state-owned telecommunications company, and three commercial television networks.

The successful companies won the licences on the basis of rules set by the Department of Communications to award them virtually as an auction to the highest bidders. Between them, Ucom and Hi Vision bid almost Adollars 400m ( pounds 182m) for the licences, more than four times what they were considered to be worth.

It has since emerged that the department waived the normal tendering rules of requiring bidders to produce a 5 per cent deposit. Instead, they had to pay a registration fee of only Adollars 500 and, if successful, raise their funds within a month.

Since then, both winners have been rocked by turmoil. Graeme Harrison, a Sydney businessman named by Ucom as its chairman, disowned the company last Wednesday, announcing that he had never consented to be a director and had no financial interest in Ucom. The same day, a director of Hi Vision resigned when it was revealed that he had once distributed X-rated videos in Australia and had allegedly jumped bail in the Philippines on charges of possessing drugs. He has always denied the drug charges.

Neither company has produced evidence that it will be able to raise the money to pay for the licences, nor that it has the expertise and access to provide programmes. Both companies apparently made multiple bids.

Bob Collins, the minister responsible, conceded that the tender process was a 'foul-up' and blamed his department for not alerting him to the changed rules.

Mr Collins yesterday announced an inquiry focusing on what the minister was told and what he should have known.