On the face of it, the reasons for this are obvious: Disillusionment with the private sector's poor performance and attempts to rip off the state (see "Dial a Mystery," December 3, 2007), aided by just plain bad contracts that put no penalties on the private sector for poor performance (the various airports and the Delhi-Gurgaon expressway are obvious examples of this) and allow extraordinary profits, which put off even supporters of privatisation (to be fair, the Delhi airport is not the only example of this).
Since enough has been written on the other infrastructure projects, this column will focus on the Rs 7,000 crore Mumbai Trans Harbour Link, a 22-km sea bridge connecting Sewri on Mumbai island with Nhava on the mainland across the Arabian Sea. In this case too, the state government's decision to build it on its own looks a rational one, given the huge disparity in the bids it got. While the Mukesh Ambani consortium asked for a 75-year concession, younger brother Anil's group bid an extraordinary 9 years and 11 months, prompting many to think it was just a frivolous bid aimed at creating hurdles for Mukesh's SEZ, which would benefit from the Trans Harbour Link. The fact that the bid period had a 9/11 in it didn't help since the popular joke in Mumbai was that Anil had 9/11'd Mukesh's project.
But all of this is humbug. For one, if the state wanted to call for a financial re-bid, it would have meant just a month of delay "" a complete re-bid would take just another 3-4 months. In any case, what was ridiculous about the Anil Ambani bid since, in most such projects, there is a large difference between the top and the lowest bid? In the Sasan Ultra Mega Power Project, Anil Ambani's Reliance Energy bid to supply power at Rs 1.19 per unit while the state-owned NTPC bid Rs 2.23; in Mundhra, Tata Power bid Rs 2.26 versus Sterlite's Rs 3.74; and in Krishnapatnam, Reliance Energy bid Rs 2.33 versus Sterlite's Rs 4.20.
In most such projects, if well-designed, there are a series of milestones which allow the government to keep tabs on the progress made. So, if Anil Ambani wasn't able to meet any milestone, getting rid of him and the project back on track wouldn't have been that tough. In any case, the financial pressures to complete the project were too high. To begin with, there was the Rs 300-crore bank guarantee; then there was a Rs 300-crore upfront payment, apart from various other annual payments; above all, there would be the huge financial and reputational costs associated with financial closure which Anil Ambani would have to achieve within a fixed period under the contract. Writing letters to frighten off potential suitors is one thing, as Mukesh Ambani has done in the MTN case, putting such huge amounts of money on the line to spite your brother is quite another.
But why just 9 years and 11 months, sceptics will still ask. Well, why not? The biggest reason obviously is that this time frame is very compressed, too small for Anil Ambani to recoup his investments. But when's the last time you heard the government had got its estimates right? All the airports that have been privatised have seen traffic rising to levels projected to happen at least five years down the line. In the case of the Delhi-Gurgaon expressway, the projections were achieved even earlier; this is why all these projects are either seeing a huge capacity constraint or are rapidly hiking the original capacity estimates. In the Mumbai Trans Harbour case, the additional traffic generated by the Mukesh Ambani SEZ and the new airport would probably ensure the government projections would get surpassed even faster. So maybe the Anil Ambani bid wasn't so frivolous?
Let's get real. The real reason why all of this is happening is that the government has realised there's too much money to be made in infrastructure to hand it over to someone else. While the Left opposition to privatisation has provided a fig leaf to the government's attempt to re-nationalise infrastructure building so far, it will be interesting to see how the government justifies this behaviour when the Left is no longer part of the power structure in New Delhi.