Sunil Jain: Continuing to dial disasters

Sunil Jain: Continuing to dial disasters

Last Updated: Sun, Dec 27, 2009 19:50 hrs

The decade began with the government doing the right thing and auctioning mobile phone licences, but ended with the scandal over its decision to start playing favourites and handing over licences to a chosen few firms at a price that was Rs 50,000 crore less than the market one. The decade began with the government privatising the Delhi Vidyut Board (DVB) in the midst of a huge scandal, since it offered several thousand crore of concessions to two firms, and ended with another scandal over how the winning bidders for the Bangalore airport awarded the major part of the contracts to themselves — and passed on the increased costs to the flying public.

While embarking upon an ambitious public private partnership (PPP) strategy to help bridge the huge shortage in infrastructure in the country, it appears we learnt nothing since scandal after scandal seems to surround most projects. And, as for PPP helping bridge the financing gap, it doesn’t help that, as the Karnataka assembly panel’s report on the Bangalore airport shows, though the government held just 26 per cent of the project, it put in Rs 435 crore (including Rs 350 crore of interest-free subordinate debt), while the private promoters put in just Rs 242 crore for their 74 per cent stake. And we’re not even talking of the cost of the 4,000-odd acres of land which the government gave free. In most road projects, as well as in various other airport projects such as the Delhi one, if you add the value of the land and other concessions such as the upfront viability-gap funding, the government’s share of financing is far in excess of the private sector companies that control the projects — and it’s still considered to be a private sector effort!

In the DVB privatisation, there were more than a dozen firms in the fray but most walked out since they said the government needed to offer huge upfront concessions. The government didn’t agree, but when just BSES and Tata Power were left, it offered around Rs 4,000 crore worth of concessions, but never called those who had left to ask them if they’d still like to bid. This was in 2001. The same thing got repeated when the Bangalore airport was being planned, according to the assembly panel report, the state government selected the developer and then entered into negotiations with the Central government on the contract terms of the airport (through 2003 and 2004) — this included the critical monopoly rights which were granted by the decision to close down the HAL airport. What kind of a bidding process was this where the terms and critical concessions were negotiated after the winning bidder had been indentified? Which is why, to wash his hands of the affair, Aviation Minister Praful Patel said the state government had chosen the Siemens consortium, not he.

In the Sasan ultra-mega power project, similarly, the decision to allow the captive coal to be used for other projects — this made the project a lot more attractive — was taken by the Empowered Group of Ministers long after Reliance Power had won the contract.

In the case of the Delhi airport, while the GMR-led consortium won the bid by promising to share 46 per cent of its top line with the government-owned Airports Authority of India (AAI), the government allowed it to dilute this clause considerably by permitting it to take large advance rentals without sharing them in the 46 per cent formula. And then, it created a new type of fee, an Airport Development Fee (ADF), for the consortium to charge users — unlike the User Development Fee charged by the Bangalore and Hyderabad airports, the ADF did not have to be shared with the AAI in the 46 per cent formula!

In other words, few lessons have been learnt in either coming up with carefully-designed contracts or in monitoring PPP projects. It’s not just the airports where the sharp escalation in costs is causing concern. In the Reliance Industries Limited (RIL) Krishna-Godavari Basin gasfield, one of the allegations made by the Anil Ambani side is that the government acquiesced in RIL arbitrarily hiking costs several times over. If part of the furore in the Bangalore airport case was caused by one of the partners selling part of its stake to earn a return in excess of ten times the investment, this has just been sanctified by the Chaturvedi panel in the roads sector — once you take into account the large upfront "viability-gap" funding the government gives for road projects and the usual cost-padding, allowing promoters to fully exit a road project once it is up and running implies developers will have virtually a zero stake in building good roads.

So let’s walk into the second decade of this century keeping our fingers crossed. That may help.

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