After Diwali, the government wants to get cracking on the auction of projects across sectors. It is evaluating the extent to which the 3G spectrum auction model can be replicated in areas like real estate, highways and FM.
Cabinet Secretary K M Chandrasekhar, who had earlier formed a committee of secretaries to examine the proposal, has called a meeting in the second week of November, where representatives from key economic ministries will initiate the process, said government officials privy to the developments.
Officials from the telecom ministry have been told to prepare a detailed presentation on the e-auction model adopted for 3G spectrum and broadband auctions that helped the government raise Rs 1,05,000 crore, against a targeted Rs 35,000 crore. This windfall will come in handy to meet the fiscal deficit target of 5.5 per cent of gross domestic product (GDP).
| TIMELY TEMPLATE |
| * Telecom ministry to prepare a detailed presentation on the auction model adopted for 3G |
| * NM Rothschild, which advised DoT for telecom auctions, also invited to give feedback |
| * Talks on for auction model in highway projects, FM radio and real estate development |
UK investment bank NM Rothschild, which had advised DoT for the telecom auctions, has also been invited for its feedback.
In the past, ministries had made several suggestions on standardising the auction model for government contracts and projects, instead of the often controversial tendering process. But differences of opinion between ministries over the methodology have slowed progress in many cases.
Experts said bidders have greater manoeuvrability in a multi-round auction process. Under tender-based auctions, bidders had to submit one-time bids that could not be revised. However, in the ascending
e-auction format, bidders know the highest bids in each round and how many players are in the race.
Bidders also have the flexibility to match the highest bids. With lock-ins in place, it is also difficult for bidders to leave or enter the process midway. A multiple-round auction is more time consuming. The 3G auctions, for example, took over one-and-a-half months to be completed with around 180 rounds of bidding.
“The 3G bids were an eye-opener. Also, there was no charge of foul play, which always slows any initiative. This is why the Cabinet secretary is seeking a consensus at an inter-ministerial platform. This will be the first meeting and will set a concrete road map with timelines,” said an official, who did not wish to be named.
In the recent past, the auction model for highway projects, FM radio frequencies and land parcels has been talked about. Auctioning of infrastructure projects is now a predominant model internationally and even Indian companies like GMR and L&T have bid and won projects in open auction.
The issue is most acute in the highways space, where it is estimated that over 35 projects worth close to Rs 40,000 crore are stuck. Here, an auctioning model based on internal rate of return has been suggested by the finance ministry Economic Advisor Kaushik Basu. A bidder quoting the lowest IRR – as low as 12 per cent – can be handed over a project. For the government, it is argued, this would minimise subsidy outflows and the project would be the least expensive as the winning candidate would quote the lowest margin.
Likewise, the ministry of information & broadcasting is looking to allocate 700 FM frequencies nationwide in its third phase, and has already sought the recommendations of telecom regulator Trai for a roadmap. The licences may be valid for 15 years instead of the earlier 10.
In 2006, in the second phase of FM auctions, the government earned Rs 1,600 crore (including migration fees) from tender-based auctions for 337 stations across 91 cities. But suggestions of ascending auctions are bound to face resistance from FM players wary of future profitability.
Enthused by the resounding success of the first two rounds of e-auctions for its Mumbai plots, state-run National Textile Corporation (NTC) is also planning to replicate the model for two more properties, in Bangalore and Indore. Six more auctions have been planned by NTC for the current fiscal. The earlier round helped NTC raise close to Rs 2,000 crore after Indiabulls Infratech won auctions for Poddar Mills and Bharat Textile Mills.
However, not everybody shares the government’s enthusiasm for multiple auction rounds for infrastructure projects. “Unlike telecom, the infrastructure market has still not fully developed in India. So, rather than focusing on minimising subsidy or maximising revenue, the government should ideally look at a bidder’s capabilities to complete a project, its track record and technical expertise. Auctioning need not be the best way forward,” said Amrit Pandurangi, executive director, PwC.
