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How airports revamp scheme was manipulated

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January 04, 2006 17:50 IST

The controversy surrounding the manner in which the Union ministry of civil aviation has gone about evaluating bidders for the modernisation and part-privatisation of India's two largest airports at Delhi and Mumbai, has taken a new turn.

It has been disclosed that as many as five out of the seven officials who comprised an Inter-Ministerial Group had reservations about the manner in which private consultants appointed by the ministry had shortlisted two bidders: the Reliance-ASA and GMR-Fraport consortia.

The terms of reference and the comprehensive mandate given by an Empowered Group of Ministers (eGOM) headed by Defence Minister Pranab Mukherjee to a Committee of Secretaries (CoS) led by Cabinet Secretary B K Chaturvedi makes it evident that the government is keen on changing the perception that the bidding process was unfair.

The mandate adds that a delay of a few months 'should not matter if it helps in awarding a 60-year concession for India's most important airports on a sound footing.'

An added benefit would be that the country would gain to the extent of up to Rs 1,200 crore (Rs 12 billion) if the current bidding process is given up altogether and a fresh round of bidding takes place, the confidential note sent by the Empowered Group of Ministers to the Committee of Secretaries has pointed out, a copy of which is with these correspondents.

Meanwhile, Gajendra Haldea, adviser, Planning Commission, who has staunchly opposed the evaluation conducted by the consultants, has written a new 10-page note in which he has documented in considerable detail how the evaluation favoured Reliance-ASA and how the bid evaluation process was 'flawed owing to the absence of a mandate for evaluation by the consultants.'

He has also reiterated an issue raised by Left MPs that there is 'conflict of interest' because Reliance and GMR are among the 'largest customers' of one of the main consultants, ABN Amro.

Even as the technical sub-committee headed by E Sreedharan, managing director, Delhi Metro Rail Corporation, that has been appointed by Chaturvedi to examine the bid evaluation process, is scheduled to submit its report on January 10, the way in which one bidder was marked to enable it to make the grade, has become public knowledge.

Haldea's second note is replete with words like 'puzzling' and 'inconsistency' while commenting on how the evaluators ensured that the Reliance-ASA consortium was not disqualified.

In the comprehensive mandate given to the Committee of Secretaries, it is stated: 'The first issue to be resolved is whether the evaluation of the consultants can be relied upon. Of the seven members of the IMG (Inter-Ministerial Group) who opined on this issue, five were unable to endorse the consultants' recommendations.' The Committee of Secretaries was, thus, asked to suggest whether a 'fresh evaluation would be necessary.'

The mandate to the Committee of Secretaries added: 'In case a fresh evaluation is to be undertaken, new evaluators would have to be appointed. These could either be government officials or eminent persons who command public confidence.'

The Empowered Group of Ministers's note to the Committee of Secretaries then states that the findings of a new jury, even if it is 'regarded as far more credible than the consultants,' would still be considered subjective 'because of the poor design of the bid parameters' and hence is 'unlikely to be the optimal solution.'

Nevertheless, under the heading 'Should alternatives be considered?' the note to the Committee of Secretaries points out that as far as 'public perception' is concerned, the 'bidding process has already been reopened and this opportunity could well be used for rectifying other infirmities.' It added: 'A quick appraisal of the bidding process would, therefore, be in order.'

On the issue of the two shortlisted Indian bidders choosing partners from Mexico and Frankfurt, Germany, the note comments that while India has been attracting world-class investors in various sectors of the economy, in this instance, 'we have managed to land ourselves in a situation where the consultants have chosen the bidders who should get one airport each. This is compounded by the fact that of all the airport operators in the world, we have chosen Mexico through technical evaluation, and not by competition.'

An analysis of the financial structure of the proposed deal indicated that was 'an overwhelming incentive' to maximise non-aeronautical revenues of the airport instead of developing its aeronautical assets.

Further, the 'cost-plus' tariff structure 'would inevitably lead to gold plating (or excessive expenditure on non-essential or cosmetic items) and high user charges.'

'In sum, we have missed out on top-class players; the incentive structure does not promote aeronautical development that constitutes the core of airport infrastructure; and 'cost plus' tariff setting would imply a high-cost airport,' the note to the Committee of Secretaries states, adding: 'Should this be sealed or should we consider retrieving the situation, at least partially, is the critical issue to be addressed.'

The note then goes on to describe the benefits of the re-bidding option. It points out that in the case of the Jaipur-Kishangarh highway, the National Highways Authority of India 'had undertaken re-bidding among shortlisted bidders and the process was legally sustainable and financially beneficial.'

On the legal issues involved, Haldea's second note makes an interesting point: ' (since) the evaluation process is unlikely to be perceived as a fair and transparent exercise... the serious gaps noted... could invite legitimate criticism, and judicial intervention could also expose the entire process to risk.'

On the advantages of re-bidding, the note to the Committee of Secretaries lists four of them. First, the eight shortlisted bidders could regroup and engage better airport operators. Then, 'the public controversy associated with the bidding process would be cleaned up.'

A third advantage would be that the technical parameters could be simplified to make the re-bidding process 'inexpensive and easy to evaluate in a transparent manner.' Fourthly, the 'incentive structure can be modified' and 'the cost plus tariff-setting can be substituted by pre-determined user charges that would ensure affordable airports.'

The Empowered Group of Ministers actually calculated the benefits that would accrue to the civil aviation ministry if a new bidding process is initiated -- up to Rs 600 crore (Rs 6 billion) each for the Delhi and Mumbai airports or an amount of Rs 1,200 crore (Rs 12 billion), which is not exactly small change.

Paranjoy Guha Thakurta is Director, School of Convergence, New Delhi and Ranabir Majumdar is a student at the School.
Paranjoy Guha Thakurta and Ranabir Majumdar in New Delhi