India's airports upgrade takes a new turn

Even as the Union Cabinet secretary B K Chaturvedi set up a technical committee headed by the managing director of the Delhi Metro Rail Corporation, E Sreedharan, to lend credibility to the reevaluation of the technical bids for the two airports, it is learnt that three senior officials of the Airports Authority of India, who were known for their integrity and honesty, have recently quit the public sector organisation, apparently on account of the manner in which the ministry of civil aviation has sought to manipulate the bidding process.

The three senior AAI officials who have left are P S Nair, former member (personnel and administration), S H Khan, former executive director (communications, navigation and surveillance), and P K Ray, former executive director (law).

According to a confidential note prepared for the Cabinet, a copy of which is with these correspondents, the bidding process has been marred by a number of anomalies, including subjective evaluation criteria and lack of accountability on the part of private consultants appointed by the civil aviation ministry.

Earlier, the ministry had been accused of not following transparent bidding procedures that resulted in the balance being tilted in favour of two consortia that included two corporate entities belonging to the Reliance group and the Hyderabad-based GMR group.

Since the contracts for modernisation of the two airports could not be awarded to a single consortium, in the absence of competition, the two bidders were in effect assured of a contract each if the current process was allowed to continue.

The Sreedharan sub-committee, which includes the Director General of Civil Aviation and the financial commissioner in the Indian Railways, is due to submit its report by January 10 to the high-powered Committee of Secretaries to the Government of India led by the Cabinet secretary.

This panel will, in turn, report to the Empowered Group of Ministers (eGOM) chaired by Defence Minister Pranab Mukherjee. Before the eGOM, the bidding process had earlier been looked into by two committees of officials, an Inter Ministerial Group (IMG) and a Government Review Committee (GRC).

According to sources close to the bidding process, there are now four options available before the government.

The first option is to endlessly delay the bidding process by constituting one committee after another.

The second option would be to scrap the entire bidding process, call for fresh bids and have these technically and financially evaluated by a government team.

The third option would be to continue with the present bidding process and lower the cut-off marks in the technical evaluation to allow one or two new bidders -- besides the consortia with the Reliance and GMR groups -- to enter the race, before the financial bids are called for.

A variant of this option would be allow the two shortlisted bidders to compete with each other to place financial bids for one of the two airports -- and not both.

The fourth and final option before the United Progressive Alliance government would be to go along with what the Left parties led by the Communist Party of India-Marxist suggested on Wednesday, namely, to let the AAI hire 'international players and world-class contractors' for the modernisation programme for the two airports.

Under this option, the AAI would 'oversee' the programme while handing over the actual modernisation work to a private contractor of international repute. The AAI would continue to retain ownership of the airport with the private party agreeing to a profit-sharing scheme after making an initial payment.

A confidential Cabinet note dated December 3, 2005, prepared for the Empowered Group of Ministers, noted that the Government Review Committee, after conducting an independent review, was of the view that while no apparent bias or prejudice was evident for or against any individual bidders, 'a majority of the evaluation criteria, as stipulated in the RFP (request for proposals) documents, are necessarily subjective in nature and therefore it would have been difficult to allocate a purely objective marking across all bidders.'

The note, while summarising the broad conclusions of the Inter Ministerial Group, observed that the group had also expressed their concern about the way the marks were allotted and weightage given to different parameters. The system of awarding marks by 'consensus opinion' rather than by working out averages of marks given by individual evaluator was also questioned.

'There was also concern about the fact that one of the bidders (D S Construction) who had selected Munich airport as a partner was rejected, while another (Reliance) who selected Mexico had actually qualified,' the Cabinet note stated, adding: 'This was in spite of the fact that Munich airport is ranked much higher than Mexico.'

According to the note, the consultants had adopted an approach that was different from the one indicated in the RFP documents. While the consultants agreed that there was indeed such a discrepancy, they claimed that such an action had been done after due consideration and applied equitably to all bidders.

The note also observed that the IMG members were of the view that the consultants should own responsibility for the evaluation. 'After discussion, the consultants agreed that the disclaimer would be changed to indicate they owned responsibility for the evaluation. They however wanted to be indemnified against any financial/legal suits.'

The evaluation report submitted by the consultants had, through a disclaimer, completely absolved themselves of any responsibility of their evaluation in any manner.

The relevant paragraph (5) of the disclaimer reads as follows: 'While due care has been taken in the preparation of this report, neither (the consultants) ABN Amro/Airplan nor their employees or advisors make any representations or warranty, express or implied, or accept any responsibility or liability, whatsoever, in respect of any statements or omissions herein, or the accuracy, completeness or reliability of this report, and shall incur no liability under any law, statute, rules or regulations as to the accuracy, reliability or completeness of this report, even if any loss or damages is caused by any act or omission on the part of ABN Amro/Airplan or their employees or advisors, whether negligent or otherwise.'

It was also agreed that the bidders should be legally bound to carry out the plans and strategies and invest funds as enunciated in their bid documents. 'It was felt that appropriate undertakings for this should be obtained before the final selection,' according to the Cabinet note.

It went on to add that the Inter Ministerial Group had reached a consensus on asking the GMR-Frapport consortium to confirm the names of the people who will undertake key management and development roles in view of the multiple nominations in each position for both airports.

A representative of the Planning Commission (Gajendra Haldea, adviser to the deputy chairman of the Planning Commission Montek Singh Ahluwalia) was of the view that some government agency or the Inter Ministerial Group should also take responsibility for the evaluation of the bids, the note observed.

Haldea also insisted that a fresh technical evaluation be undertaken by the Inter Ministerial Group and only those bidders who are 'non-responsive in terms of the mandatory conditions should be disqualified' and that this should be done before the financial bids are opened.

Although this idea did not receive much support from either the Government Review Committee or the Inter Ministerial Group, the Empowered Group of Ministers' decision to refer the technical evaluation to a committee of secretaries headed by the Cabinet secretary, which in turn appointed a sub-committee under Sreedharan, can be construed to have been based along lines that are more or less similar to what had been suggested by Haldea.

Based on the views of the Sreedharan sub-committee, the Committee of Secretaries would provide its inputs to the eGOM.

Meanwhile, Reliance Airport Developers Private Limited (RADPL) in a letter to the head of the Empowered Group of Ministers, Defence Minister Pranab Mukherjee, has argued that claims to the effect that the bidding process was manipulated were 'unfounded.'

The letter sent on December 20, 2005 and signed by J P Chalasani, states that a survey by Skytrax used to rank airports all over the world does not take into account the operational capabilities of the surveyed airports. Other surveys conducted by organisations like AETRA and J D Power, which seek to measure different sets of parameters, 'all of them qualitative in nature and based on passenger opinions which are largely subjective.'

Reacting to the charge that there was 'conflict of interest' between the consultants appointed by the ministry of civil aviation -- Amarchand Mangaldas and Suresh A Shroff & Co (legal consultant) and ABN Amro (financial consultant) -- the Reliance group company claimed that both ABN Amro and Amarchand Mangaldas have worked with almost all top companies in India and that 'if the logic put forward is taken to its logical conclusion, it would be difficult to find any consultant for the bid.'

It was further contended by Chalasani that Amarchand Mangaldas acted as 'the legal advisors to Reliance Industries Limited for the de-merger scheme and not to the bidder, which belongs to the ADAE group (or the Anil Dhirubhai Ambani Enterprise group headed by Anil Ambani).'

Regarding the flaws that have been pointed out in the various stages of the bidding process, the letter from Reliance Airport Developers said that 'a three-stage bid is an accepted and common process followed by the GOI (Government of India) as well as governments worldwide for infrastructure projects.'

The letter added the government 'in its competitive bidding guidelines for procurement of power recommends a multi-stage bid involving a separate RFQ, technical and financial bid stages with elimination at each stage.'

Chalasani also sought to dispute the view that the bidding process was not competitive by stating: 'At the time of submission of bids, there was enough competitive pressure and that is what matters.'

Reliance Airport Developers was also of the view that because the evaluation criteria for technical bids were known after April 2005 when the RFP (request for proposals)was issued, 'it is inexplicable why were such objections (that the technical evaluation was subjective and that bidders could change their plans) were not raised earlier.'

Chalasani further said the 'allegation of bias in eligibility criteria is clearly an afterthought and should have been raised before the bid submission.'

The last is yet to be heard about the Delhi and Mumbai airports modernisation programme that are expected to involve financial outlays between Rs 7,000 crore (Rs 70 billion) and Rs 8,000 crore (Rs 80 billion) in each of the two airports.

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