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Sunil Jain: Tata to propriety

Does govt have a right to alter conditions of contracts after awarding them?

Sunil Jain  |  New Delhi 

It’s early days in the Tata Power case against the Government of India (and 20 others including the Anil Ambani-owned Reliance Power) in the Sasan Ultra Mega Power Project (UMPP) case. Whichever way it goes, the case will have major ramifications since it deals with two issues, one directly and the other indirectly. The basic case is whether the Government (of India or of any state) has the right to award a contract to any party (in this case, Reliance Power) through a competitive bid, and then alter the conditions of that contract afterwards. The reason for this is obvious — if the same concessions that are now given to Reliance Power were offered to others before the bid, they may have offered better terms than Reliance and may have won the bid. The case also deals with the government’s penchant to set up Groups of Ministers (sometimes ‘empowered’, sometimes ‘expert’ ones!) to change policy at will and their decisions are considered superior to existing contracts as well as the law of the land — see ‘More Gas’ (Nov 17, 2007, http://www.business-standard.com/india/news/sunil-jain-more-gas/09/00/340438/) and ‘Amar Singh’s right, mostly’ (July 21, 2008, http://www.business-standard.com/india/news/sunil-jain-amar-singh’s-right-mostly/09/01/329232/) for some of the sham decisions taken by similar Groups of Ministers in the case of Reliance Industries versus Reliance Power. Ironically, Reliance Power’s case, against Reliance Industries, in the Bombay High Court argues against the government’s penchant to use Groups of Ministers to supercede written contracts and existing policy.

In July 2007, after Globeleq-Lanco was disqualified from the Sasan UMPP, Reliance Power won the project — under the terms of the project, Reliance was to use the coal it mined from the captive coal blocks exclusively for the Sasan project. Reliance Power also entered into an agreement with the Madhya Pradesh government to set up a power plant (Chitrangi). Both Reliance Power and the Madhya Pradesh government then asked the central government if some of the Sasan coal could be used for Chitrangi — Reliance said that it could produce more coal from the mines than what was required for Sasan, so the project would not suffer in any way.

The government then set up the obligatory Group of Ministers which then allowed this in August last year. This is the nub of the case. Captive coal mines, and of high quality, are very difficult to come by. So if you know you can use the coal from the captive mines attached to the UMPP for other projects as well, most developers will bid more for the UMPP — after all, there will also be a value attached to the high-quality and low-cost coal from this source that can now be used for the other power projects.

It is precisely this kind of post-bid concession that is at the heart of the controversy over the Delhi International Airport Limited (DIAL). While the government has already given pretty big post-bid concessions by allowing DIAL to take deposits for land and not sharing these with the Airports Authority of India (see ‘Mr 20 per cent’, December 29, 2008, http://www.business-standard.com/india/news/sunil-jain-mr-20-per-cent/09/00/344585/), this is no longer proving to be enough. With real estate demand and prices taking a real beating and showing no signs of recovery for a while at least, DIAL is badly strapped for cash and has indicated that work at the Delhi airport may soon grind to a halt. The Ministry of Civil Aviation is now working on allowing DIAL to charge an Airport Development Fee (ADF) from passengers along the lines of the User Development Fee (UDF) that is charged at the Hyderabad airport — UDF charges for the Bangalore airport are under consideration at the moment.

Why an ADF and not a UDF, considering they’re both quite similar? Though it has been more than a week since this question (and many more) was put to Aviation Minister Praful Patel and others in his ministry, first through an SMS and then through an email, there has been no reply from the ministry. One explanation is that while a UDF has to be shared with the government/Airports Authority of India (with the government in the case of Hyderabad/Bangalore and the AAI in the case of Delhi/Mumbai), the ADF does not — under its bid conditions, DIAL has to share 46 per cent of topline with AAI. According to DIAL officials, who were more forthcoming than the ministry, the UDF is levied to make up the gap in annual revenues while ADF is meant to make up for the gap in capital costs.

While that explains why one is shared and the other isn’t, what it doesn’t explain is why this should be a post-bid concession. After all, if others knew they could get an ADF to help finance the development of the airport, they would have bid even higher than the 46 per cent bid by the winning consortium. More worrying, for DIAL and the ministry, is that the ADF proposal has already been rejected once, on the grounds that the various agreements governing DIAL do not allow for this. Also, if an ADF is okayed for DIAL, this will encourage others, from those developing roads to airports, to make similar demands. Maybe it’s time to set up another Group of Ministers which will say the concessions are only for DIAL!

First Published: Mon, January 12 2009. 00:00 IST
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