'Swiss challenge' ruled out in airport PPP projects

Private airport developers under the public-private partnership (PPP) model will not be able to get additional contracts in and around the airport that are part of the original project (like real estate development) by merely matching the lowest bidder without participating in the bidding process.

The government recently shot down an informal proposal from the GMR-led consortium Delhi International Airport Ltd (DIAL) that would have enabled GMR to win the contract for the real estate and hospitality district at the airport in this manner. DIAL plans to lease out 45 acres of the airport land area to real estate and hospitality companies through a competitive bidding process.

Called the Swiss challenge system, which is prevalent in several countries, the process would entail the inclusion of a clause in the request for proposals (RFP) sent to real estate companies to the effect that GMR had a right to match the lowest bid and take the contract without participating in the bidding process.

“Such an idea had come up in one of the DIAL board meetings recently. But it was discouraged by the government representatives there only since it undermined the purpose of a bidding process,” a senior civil aviation ministry official said. “So the proposal never came to the civil aviation ministry,” he added.

DIAL spokespersons, however, denied that GMR had any intention of developing the hospitality project.

A spokesperson said, “In accordance with our corporate governance and standards, GMR had no intention in the past or now to bid for the DIAL hospitality project.”

The statement added, “There was no such provision in the RFP previously or in the present version. As such, there is no question or provision of matching any bid by GMR Group with or without participation in the bidding process.”

Last year, the civil aviation ministry had turned down DIAL’s proposal to part-finance real estate development by raising refundable deposits of around Rs 2,800 crore for 28 years from realty and hospitality firms and lower rentals that would be selected through a bidding process. The companies would also have to pay a lease rental on the land.

The plan was to route the process through Delhi Aerotropolis Pvt Ltd and was opposed by the ministry on grounds that raising refundable deposits and lowering rentals would compromise revenues of 46 per cent to be shared with the government-owned Airports Authority of India (AAI).

These among other contentious issues made the ministry freeze DIAL’s proposal, which also ran into legal issues.

However, sources said the ministry might now allow DIAL to take a deposit of Rs 900 crore, around 68 per cent less than what was proposed earlier.