Sunil Jain: Dialling again on PPP

RATIONAL EXPECTATIONS

With the Railway Board beginning the process of completely revamping the New Delhi Railway Station through public private partnership (PPP) at a cost of Rs 5,000-6,000 crore over a 4-6 year period, it's natural to wonder if the problems being witnessed in the Delhi airport privatisation will be replayed all over again. Fortunately the evidence, so far at least, suggests the government has learnt lessons from the past fiasco (perhaps fiasco's too strong a term since the government is still trying to stop the winning franchisee DIAL's more blatant attempts to reduce the revenue that has to be shared with it, but you get the drift).

The best way to see what lessons have been learnt is to go back to the airport privatisation and see what problems arose, and see if these have been tackled. The very first problem was in the technical screening where, as events later showed, the consultants did subjective marking to ensure the Anil Dhirubhai Ambani Group qualified on technical grounds. Other problems included aviation ministry bureaucrats quitting to join the private bidders (joint secretary Sanjay Narayan joined the GVK Group's airport project in Mumbai while Sanjeev Jindal joined the GMR Group's DIAL); the same consultants/lawyers advising both the government and the private bidders (ABN Amro, the Airport Authority of India's financial consultant, is working with GMR on its Turkey airport; Amarchand Mangaldass, its lawyer, is also advising DIAL); and the problem of what constitutes the revenue stream that has to be shared.

What's now being done, the XIth Plan tells us, is that concession agreements and proposal formats are being standardised, leaving less wiggle room to play favourites. So, while the technical bids for the airport privatisation involved lengthy, complex documentation, which cost crores and took months to prepare and then to evaluate, the new format (http://www.infrastructure.gov.in/pdf/model.pdf) asks bidders to only give details of the payments received by them for various infrastructure projects and their turnover. The earlier technical bids were so disparate, they were impossible to compare and, in any case, were really plans for the future "" asking firms to only submit details of their track record is a better idea since, presumably, a firm which has, say, earned $400 mn from infrastructure projects is also technically sound.

The issue of consultants/employees changing sides is easily dealt with in a 'conflict of interest' clause that debars firms who employ them/their services for a certain period after the contract has been awarded.

What of the size of the divisible revenue pool? Can the winning bidder, in the case of the 86-hectare (1 hectare is about 104,555 square feet) New Delhi Railway Station in the heart of the city, simply take deposits on the 550,00-650,000 square metres (1 square metre is about 11.1 square feet) it will be allowed to develop commercially, and then refuse to share this with the government, as DIAL was planning? If revenue shares are to be the parameter the bid will be awarded on as compared to, say, a flat fee (the financial consultant's report will evaluate all models shortly), what will constitute revenue? Can formation of subsidiaries be allowed, as DIAL is planning, since this reduces the revenue share of the government?

Well, as Sudhir Kumar, the OSD to the railway minister puts it, you have to do your homework first. The ministry's already spent crores on Hong Kong architectural firm Terry Farrell, which has given it a concept plan of how the station has to look after taking into account the railways' needs for operations and passenger amenities "" within the contours of this, the winning bidder is free to develop the station as he chooses. Indeed, before the financial bid is called for, the exact commercial space will be specified (an inter-ministerial committee is currently finalising the FSI and other details); the concession agreement will then spell out in detail the rights and obligations of each party, the details of the revenue pool and so on.

Indeed, while similar model agreements have already been made for ports, highways, O&M and container trains, the government is now working on similar documentation for non-metro airports and metro railways, among others. Will this help ensure there's no repeat of the airport case? Yes and no. For one, as in the case of ports, the line ministries may simply refuse to accept such guidelines. Second, no documentation is foolproof, especially since lawyers get paid to knock holes in them, but the idea is to learn from old mistakes and to try and anticipate new ones. As Sudhir Kumar puts it, tongue firmly in cheek, "We won't repeat the old mistakes, but we can make new ones!" Till then, the few watchdogs still left in the government and the rest in civil society (including the media), need to be vigilant. Hopefully, though, it won't be for the Jeffersonian eternity.