CHAL­LENG­ING SYS­TEM

India Today - - NATION -

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.

Fol­low the writer on Twit­ter @Amar­nathKMenon

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