Dial a scandal

It seems quite likely that the contract between Delhi International Airport Ltd (DIAL) and the ministry of civil aviation will end up in the courts, now that both parties have sought legal opinion on how various clauses in the contract are to be interpreted. DIAL had won the bid for modernising and running the capital's airport on the basis of a 45 per cent revenue share, but the ministry of civil aviation now alleges that the way it is structuring sub-contracts for developing the airport and associated facilities could see the promised 45 per cent share fall to a paltry 6 per cent. For instance, DIAL called in bidders for developing 45 acres of land within the airport boundaries but asked for a huge security deposit which would lower rentals; the result is that the amount to be shared with the government falls dramatically. Similarly, as a news report in this newspaper points out, DIAL plans to farm out other development work at the airport to subsidiaries that will be out of the purview of the original contract between DIAL and the ministry. While a court battle could delay the modernisation of the airport, scheduled to be completed in time for the Commonwealth Games, the larger danger is that this dispute could place the very concept of public-private partnership under a cloud "" especially since a number of other PPP projects too have been shown up as being poorly conceived from the government's point of view.

It is possible that the GMR group bid an impossibly high revenue share in its eagerness to win the contract, and is now taking advantage of various technicalities and loopholes to reduce what it has to give the government. But this is not the first time that revenue-share agreements are being interpreted creatively, and the government should have got wise to things and used proper legal advice to draft an agreement that took care of such eventualities. For instance, when the telecom industry moved to a revenue-share system for licence fees in 1999, companies started coming up with various offers in which a substantial part of the sums paid by subscribers on pre-paid cards was treated as processing charges or something else "" handsets were bundled together with airtime, and while handset costs were inflated, airtime tariffs (on which the revenue share was to be done) were lowered. It is surprising that none of this taught the government anything. Surely, contracts should have been designed to ensure that no related parties could take over any functions in Delhi airport, that all transactions would have to be at arm's length, that all revenues relating to or accruing from the airport project would be shared with the government, and so on.

While all this points to the imperfect manner in which the contracts were drawn up and vetted, there is also the matter of a conceptual flaw in such bidding "" seen also in the various port privatisations that have taken place. If a company has to part with 45 per cent of its revenues, and is still expected to make handsome profits, the only conclusion must be that tariffs in a local monopoly situation will be fixed much too high, since the firm will have to make good the revenues being shared. If the tariffs are then fixed at reasonable levels, or on the basis of competitive bench-marking, then the company which wins the bid will either go bust, cheat or renegotiate the project "" there is no fourth option. One way out, in a situation where bids are invited on the basis of revenue shares, is to fix tariff principles before asking companies to bid, so that the end result is not what is known as the winner's curse. The important point is to frame model contracts and concession agreements, which can then be used in different situations "" and quite a lot of work has been done on this in the Planning Commission. If, on the other hand, the wheel were to be re-invented every time, the only certainty is that the very idea of PPP will get discredited.