The fairy-tale reforms

In the last eight months there was no transaction in infrastructure

That India8217;s infrastructure needs a dramatic makeover is stating the obvious. There are three prerequisites to make it happen: large-scale investment, certainty of business for investors, and value for users8217; money. Since the three feed on each other, you can8217;t have any one without the other two in the long term. The focus now seems to be singularly on attracting money, the other two prerequisites 8212; certainty of business and value for users8217; money 8212; have received inadequate attention.

In the last eight months, there has not been a single transaction in the infrastructure space. And despite users paying more money for better roads, ports and airports, the quality of service doesn8217;t seem to be getting better. What caused this major imbroglio is not any mega policy disaster: the eye of the storm is the model request for qualification document that came to define the bidding process for infrastructure last November. Conceived by Gajendra Haldea, advisor Infrastructure in the planning commission, it is a bold attempt to standardise documentation process while awarding public-private partnership, or PPP, projects. The problem provision is the one that suggests short-listing not more than five, at most six, bidders for any project. People on the ground are not exactly enamoured of this: not a single road project has been bid out successfully; modernisation of two non-metro airports 8212; Udaipur and Amritsar 8212; has been hanging fire; building of a container terminal at Ennore is mired in controversy; and the ambitious New Delhi railway station modernisation project is in suspended animation. In short, the movement in the bidding process of most projects in the PPP mode has come to a grinding halt.

The 8220;model8221; RFQ request for quotation is perceived as flawed in concept as well as practice. First, the concept. The RFQ guidelines have arbitrarily restricted the number of bidders in the final short list for any project 8212; be it a Rs 1,000-crore eight-laning of a national highway or a Rs 2,000-crore container terminal at a port or a small Rs 200-crore road connecting two districts. Hitherto, there was no ceiling on the number if companies met the standards of experience, net worth and technical credentials.

Now, the practice. Under the RFQ guidelines, points are awarded to prospective bidders based on past experience, net worth, technical competence, etc, and the top six players are short-listed. But to beat the system, small players are tying up with big global corporations just to get a good score. Side arrangements are dime a dozen, and in the process better and genuine operators are not short-listed. In the Amritsar airport modernisation project, Macquarie, one of the biggest global operators, was not short-listed. For the Ennore port container terminal project, two of the best port operators did not figure in the final short list. Expectedly, the restriction on the number of bidders has been challenged by the National Highways Builders Federation in the Delhi High Court.

The argument in favour of limiting the number of bidders is that the seriousness of the project is lost if there are too many of them; and that the global practice is to have just four-five serious bidders in the final stage. But, to keep out the non-serious, why not introduce stricter criteria? The documentation charges can be steep, say Rs 1 crore, and performance guarantees stiffer. Yes, it might increase the cost of projects marginally, but this will be nothing compared with the cost the economy is incurring because of inordinate delays in awarding infrastructure projects worth tens of thousands of crores.

Haldea may like to cite the example of Delhi and Mumbai airport modernisation projects to illustrate how the earlier bidding regime led to a very poor short list. True. But this can be addressed by setting criteria that attract more players. Further, the government may have the right to dilute the selection criteria if there are just two-three bidders. At the end of the day, trust can be earned only by more transparency.

To make the bidding process broad-based and address the concern that a restriction on the number of bidders will encourage cartelisation of big projects by a select few, the ministry of shipping, road transport and highways has now revised the RFQ norms for road projects. This is the umpteenth revision in the last eight months and serves only to compound the problem. It bars a company from participating in a new tender if it has already bagged four or more projects or is short-listed for eight or more projects in the preceding two months. This kind of force-fit broad-basing will only create problems of a different kind and further distort the outcome. Big companies can enter into side-deals with smaller players and still grab the projects.

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Everyone in infrastructure has problems with the new RFQ document, but nobody has the courage to openly speak out against it. After all, the model RFQ guidelines were issued only after they were approved by the committee on infrastructure chaired by none other than the PM himself. This reminds you of the emperor8217;s new clothes.

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