Privatization of Mumbai and Delhi Airport- Thriller of a case study

There was a lot of media coverage as these two airports were privatised.

Prateek Kuhad (an intern in the Secretariat for Infrastructure, Planning Commission during July-August 2010) writes this superb case study. It was quite a thriller with bidders  going in and out of the final list and legal interventions from variety of players. The final outcome was that the bidding process was fairer and did not receive any criticism from stakeholders:

The bidding process for the selection of concessionaires for the Delhi and Mumbai airports was a controversial one. It involved much discussions and arguments in different government fora including the Empowered Group of Ministers at the helm. Amid rumours of criticism, the bid process was steadily moving towards the award of the Delhi airport in favour of a particular bidder, thanks to the flawed evaluation by the international consultants of the Airport Authority of India.

Close to the conclusion of this process, one of the constituents of the inter-ministerial fora laid bare the infirmities of the evaluation scores. This led to much debate within the government and extensive coverage by the media. Once in the public domain, the entire process became open and transparent. It led to a fair outcome that not only withstood the scrutiny of the Supreme Court but was also free of any criticism in the media or Parliament. This reflected a complete swing of the pendulum, from a process that was regarded as manipulated to one that was entirely fair and transparent. This case study demonstrates the fragility as well as the strengths of the system in dealing with these two mega projects.

It  looks at many interesting dimensions of how such projects are awarded within the government system. There are many checks and balance with people with different backgrounds as part of the process.

Government allowed private sector bidding in Sep-03 and it was only by Sep-05 that we could ask the private sector to bid. Following groups bid:

For both airports:

  • Essel-TAV (Bidder A),
  • GMR-Fraport (Bidder B),
  • DS Construction-Munich (Bidder C),
  • Sterlite-Macquarie-ADP (Bidder D)
  •  Reliance-ASA (Bidder E)

For the Mumbai Airport only

  • GVK-ACSA (Bidder F)

By Nov-05, the finalisation was almost done with Bidder B and Bidder E as the only qualifying group. However a member from Planning Commission who was part of the bidding process criticized this bidding process.  The member showed that the award was not done fairly and rankings and ratings of bidders suffered from  conflict of interest and were imperfectly done.

What followed then was a topsy turvy ride for both government and the bidders. The bidding process was done again and we had a new expert team which reevaluated the bids which found only Team B qualifying for both the airports.  Hence GMR-Fraport was given the option of choosing one. It chose Delhi. Mumbai airport was awarded to Team F as it offered the highest financial bid for the Mumbai airport.

What does the author draw from the case:

Govt will can make things happen: The most obvious was the demonstration of the government‟s determination to see these projects through. The frequency at which numerous meetings were held between December 2005 and January 2006 at the level of EGoM comprising of senior ministers, the CoS headed by the Cabinet Secretary and the IMG comprising of several secretaries clearly suggests that when political will is unambiguous, what is otherwise considered unachievable can often fall in place overcoming political controversies, bureaucratic hurdles and opposition of employee unions.

Transparency is important and desired: This case also demonstrates the role of transparency and open debate. Initially, the deal was as alleged as an „open and shut‟ award in favour of one of the bidders, and it was about to be concluded on those lines. At the last moment, a single participant of the IMG expressed strong observations which the IMG was unwilling to endorse. But as events unfolded, this dissent snowballed into a reversal of the outcome of the entire selection process. In an open democracy like India, where virtually all big deals involving the private sector are routinely criticised and questioned, this would seem to be a singular achievement, made possible by a fair and transparent approach.

Despite increased transparency, institutional process was fragile: While the final outcome was generally applauded, a key learning from this case lies in the role of institutions and processes. While the system finally ensured a robust outcome of the selection process, it also exposed its fragility. It seems that but for the issues pressed by a dissenting individual participant, the entire selection process seemed amenable to capture, as a manipulated outcome was almost achieved. This exposed the inherent weaknesses of the prevailing institutions and processes. Unless addressed through systemic improvements, similar problems can not only recur but also jeopardise growth and development while enabling rent-seeking.

Appointing big consulting firms no panacea for successful bidding: This case suggests that hiring world-class international consultants is no guarantee for a fair and professional outcome. The manner in which the evaluation criteria and processes were designed by the consultants actually led to a very complex, opaque and subjective methodology that was open to abuse and virtually enabled a manipulated outcome that led to much criticism and eventual rejection.

He also points that lessons were taken forward in some cases:

The Planning Commission, acting as the Secretariat for the Committee on Infrastructure (CoI) chaired by the Prime Minister, initiated the task of drafting the guidelines for selection of bidders in PPP projects. After an year-long consultative process, these guidelines were approved by the CoI and notified by the Ministry of Finance. These guidelines mandate a two-stage process based on model RFQ and RFP documents. The first stage comprises of pre-qualification which is based on financial and technical parameters. The financial parameter is a pre-determined net-worth requirement. The technical parameter is based on the actual track record of the applicants.

Scores of projects have since been awarded by the Central and State Governments using these model bidding documents. These numerous projects seem to have sailed through successfully. The last such award was for a Rs.12,200 crore project for building and operating a metro rail system in Hyderabad (now India’s largest PPP project). The ease and transparency with which this project was awarded in August 2010 demonstrates that if lessons are carefully learnt and implemented, significant achievements can be expected.

Hmmm.. Really interesting stuff….

Though going by recent issues in infra space not sure whether lessons have been learnt. Rather forgotten too quickly. But one thing clearly makes the difference – the willingness of the government. If it decides, things can be done..

Though am sure there would be some cases/papers which disprove this bidding process. Infra is a very complex area and there are lots of angles. In case people aware of such reports/papers on this bidding case, kindly forward…

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