chairperson of the public accounts committee. There will also be four directors from the consortium on the board and only two from the government. “AP has already lost control as it has below 50 per cent stake,” says Reddy. “Now, with just two directors and entrusting all types of rights over the project, what will the state government do? Besides this, it contemplates giving irrevocable power of attorney to the consortium which implies that after awarding [of the contract] nothing can be retracted.”
If the consortium bags the contract, AP will have to hand it 1,691 acres in three phases as seed capital. Of this, 50 acres will be given free or at a nominal price for the construction of an iconic building. Then, the government will allot 200 acres at Rs 4 crore an acre to the consortium. The price of the land will be fixed for the second and third phases in accordance with the prevailing market price. There is also provision for the Singapore consortium to seek more land in addition to what has been allotted to it. The agreement also provides for a management company to monitor the project, charging 5.5 per cent as consulting fee and entitled to a month-and-a-half lease if commercial space is let out.
Further, the agreement stipulates that the state government will develop the areas around Amaravati, spending Rs 5,500 crore, besides providing facilities such as piped gas. “Why should the state bear all these costs?” asks Reddy. He is also concerned about the consortium’s rights to fix a benchmark price for commercial space. “If the AP government sells below the benchmark price, it has to pay up the difference,” he says. Also, in the event of any disruption other than political reasons, the state will have to return the consortium’s capital with 20 per cent interest. If the disruption is political, AP will have to return one-and-a-half times the capital with 16 per cent interest.
“Are there any business deals with such bizarre conditions in the world?” asks Reddy. “The Indian Contract Act, 1872, is clear that only loss as on the date of determination can be paid in case of any cancellation. But in this deal, capital, debts, responsibility, land and everything else is from AP, while the profits go to the Singapore consortium.” What is being planned, he says, “is promotion of a flourishing real estate business in the name of building a capital”.
It is a method of procurement in public infrastructure projects. There is nothing Swiss about it except in name. Under this system, the government places an unsolicited bid by an Original Project Proponent (OPP), usually a private player, in the public domain and invites others to make competitive counter-offers within a given time. If the government finds a competing proposal more attractive, it gives the OPP a chance to match the counter proposal. Otherwise, the mandate goes to the successful challenger, subject to the right of first refusal. Most often the project is awarded to the OPP. If the OPP loses out, depending on their initial understanding, the government has to reimburse reasonable costs incurred by the OPP in preparing suo motu proposals and concession agreements. Besides Andhra Pradesh, Rajasthan, Karnataka, Madhya Pradesh, Chhattisgarh, Gujarat, Maharashtra, Punjab and Bihar have incorporated the method in their respective infrastructure development acts. Making its stand clear on the Swiss Challenge System, the Supreme Court had in the 2009 Ravi Development vs Shree Krishna Pratishthan and Others case held that “the said method is beneficial to the government in as much as the government does not lose any revenue as it is still getting the highest possible value”. It upheld the validity of the Swiss Challenge as a method of public procurement subject to a series of process safeguards to reduce arbitrariness. These include the relevant authority publishing in advance the nature of the Swiss Challenge method and its particulars, the nature of the project being bid for, the field in which it was being categorised, authorities for clearances, clear timelines for getting approvals and competitive bids.
“Much of this was glossed over,” says Reddy. “Naidu was involved in communicating with overseas companies directly which runs both against the Supreme Court guidelines and the Swiss Challenge norms.” Instead of it being a government to government agreement between AP and the Singapore government, on the basis of which Naidu got the project approved by the Centre, the consortium rather than state entity Singapore International Enterprises has emerged as the main partner in the project. The Singapore government holds 74.5 per cent equity in the consortium.
“The fundamentals of the Swiss Challenge, of it being an unsolicited, innovative and suo motu proposal from the OPP, are being compromised,” says a spokesperson of one of the interested applicants. “Moreover, land which can fetch Rs 20 crore an acre is being offered at a throwaway Rs 4 crore.” Others have questioned the validity of the Swiss Challenge method itself. For instance, the Vijay Kelkar committee had in its November 15 report on revisiting and revitalising the PPP model warned of the hidden dangers of the system, saying it could “bring information asymmetries in the procurement process and result in lack of transparency and in the fair and equal treatment of potential bidder”. Yet, Naidu swears by the Swiss Challenge method, calling it the best option to develop a greenfield project. Except, it seems,in Amaravati.
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