K VENKATESH
Executive Vice President Developmental Projects Business, L&T
In the long run, if the hiked criteria result in a smaller number of bidders who qualify, it will make achieving the new infrastructure targets difficult.
Any pre-qualification norms for bidding in Build-Operate-Transfer (BOT) projects have to be decided by on the basis of (i) the track record of bidders in having commissioned projects of a similar size and nature, (ii) the ability to either execute or get the contracts executed to create the asset in question, (iii) the ability to invest and achieve financial closure, (iv) demonstrated integrity in creating assets in a complete, safe and reliable manner, and (v) the ability to operate and maintain the asset.
So the issue is not merely one of the threshold criteria being so high that it denies some players the right to participate, rather it is one that enables the government/administering authorities to lay down criteria for creating infrastructure assets quickly without having to encounter difficulties in the execution process.
The process of enterprises expanding on the basis of their past record of execution is an accepted practice the world over. Enterprises which have grown in the infrastructure sector have started with credible alliances, developed skills and capabilities, built their organisations and then taken on bids of a higher value.
So the key challenge is to set the criteria in such a manner that there is a reasonable assurance that those with a credible track record bid and create the assets within a stipulated time. Therefore, the correlation to size becomes relevant, particularly when much is sought to be achieved in a limited time frame of four years. The other issue is that of how many projects an enterprise can undertake simultaneously — again, the reference to track record becomes relevant and since the projects vary in size and complexity, value indicators of net worth, cash flow and ‘value of projects commissioned’ criteria can be crucial. We are fortunate that there are enough projects in India for everyone to participate and grow — the only objective should be to grow profitably. There are, however, other improvements that need to be made: (i) there has to be a consistency in maintaining the norms for at least two-three years, (ii) a minimum credit must be given for actual performance and for the value of jobs completed, (iii) there have to be minimum criteria for net worth and cash flow to cover the equity needed for financial closure at an estimated debt-equity ratio. Once the norms are set, there will be enough transparency for the bidders to either bid on their own or in partnership with someone.
The question of size is always controversial given the urge and ambition to grow quickly. However, any reasonable player who’s familiar with the business has the opportunity to start with a 26 per cent equity in the initial projects, and progressively qualify for bigger projects. So it will take, say, four-five projects to start qualifying for large projects with majority ownerships — all in the time frame of 4-5 years.
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The pre-qualification norms need to consider the track record and capability of experienced bidders. The emphasis has to be on consistency and, besides, sound capabilities are required for creating and maintaining an infrastructure asset — the administering authorities have to look for these capabilities rather than being involved in controversies associated with size.
(The views expressed are personal and do not represent the views of the organisation the author represents)
Director General National Highways Builders Federation
The recently introduced criteria are going to reduce competition substantially and bidders who are currently eligible for bidding may find they are no longer eligible. Ironically, since National Highway Authority of India (NHAI) had been finding it difficult to get enough bidders to participate in the bidding process, the government did away with the short-listing criterion for the top five or six bidders — with this new modified criterion, however, NHAI is going to face the same problem of lack of bidders as it did when it had put up 60-odd projects for bidding last year. The government needs more bidders in order to to achieve its ambitious plan for road building in the requisite time schedule. If the government wants to encourage competition, it needs to look at remedial measures. The government should aim at enhancing capacity-building among bidders if it wants to build 20 km of roads every day.
As per the earlier stipulation for qualifying on technical grounds, the bidder had to have completed on-going projects of a value equivalent to the value of the project the bidder was going to bid for. That is, if a project being tendered was for Rs 100 crore, the bidder was required to have executed or needed to have on-going projects worth Rs 100 crore in order to be pre-qualified. This has now been doubled. This implies that a company that could earlier qualify will not qualify now under the revised criteria for the same project. Therefore, instead of attracting a greater number of bidders, the NHAI is now actually reducing the number of bidders. By making the pre-qualification criteria more stringent, the government is restricting the competition by denying competent, experienced and serious bidders the right to participate in the bidding process for the forthcoming highway projects under Public Private Partnership (PPP) model.
The rationale behind amending the ‘conflict of interest’ clause is also not clear as it comprehensively dealt with the conflict of interest situations arising out of common controlling shareholders or other ownership interest, encompassing cases of both direct and indirect shareholding. The clause goes on to elaborate applicability of the indirect-shareholding criterion in the event of the intermediary being under the control of the management or otherwise, and also in the event the intermediary is not under the management control of the applicant.
Thus, Clause 2.2.1 (c) (i) comprehensively dealt with all the possible situations for determining the conflict of interest. The introduction of clause 2.2.1 (c) (iii), which again touches upon the issue of conflict of interest based on the criterion of direct relationship or otherwise, is thus not only redundant, but it also introduces an element of subjectivity in the interpretation of the relationships between entities and its bearing upon the issue of determining the conflict of interest. This is a source of potential confusion and its applicability could lead to uncertain outcomes.
At a time when there is a liquidity crisis and several problems related to land-acquisition persist, private builders are playing a major role in building roads — it is necessary to develop mutual trust between the the government and concessionaires and explore the possibilities to attract bidders for forthcoming projects instead of creating unfriendly policies. Policy makers should aim at creating a level playing field which will lead to better roads in the years to come.
(The views expressed are not necessarily those of the organisation the author represents)