A Muddied Tarmac

It's rare that the Reliance group doesn't succeed in bulldozing its way through the capital's labyrinthine corridors of power. But the manner in which the bidding process for the contracts to modernise and partially privatise the country's two largest airports in Delhi and Mumbai was sought to be manipulated, unsuccessfully, indicates there could be some hope yet for a country where crony capitalism hardly raises too many eyebrows. Influential corporates can fail to convince a pliant political leadership and bureaucracy that is ever willing to bend over backwards to bend rules. Opacity in governance can raise the hackles of not just losers but the public at large.

To be fair, this is not the same Reliance group we once knew. Last week, the bid for the consortium, led by Reliance Airport Developers (which had tied up with the airport operator of Mexico City), a part of the new Anil Dhirubhai Ambani Enterprises group, was downgraded by a panel headed by E. Sreedharan, the Delhi Metro Rail Corporation chief, which had been asked to inquire into the evaluation of the bidders. If accepted by the government, it may oust the Ambanis from bidding for the Delhi airport. However, the Reliance group is still hoping to manage the crisis. Of the five possible options being talked about, four will enable Reliance Airport to remain in the race.

But there was much more to the murky episode. The first flaw was an attempt to hand over large tracts of prime land to the bidders for the airport modernisation programme. This anomaly had to be rectified. Then came the brazen attempt to rig a bidding process that was intrinsically flawed. It took many months for the Empowered Group of Ministers (eGOM), headed by Pranab Mukherjee, to realise that the bid parameters laid down by the ministry of civil aviation had "poor design" which in turn resulted in subjective criteria for evaluation of the technical bids and lack of accountability on the part of the consultants appointed by the ministry.

India's two largest airports, accounting for half the total air traffic in the country, badly need modernisation. Nobody questions that. The important issue is how the airports can be modernised in a cost-effective manner.

Let us for the time being assume that since the government is strapped for funds, the public-private partnership route is the best way to revamp the airports—each involving an expenditure of around Rs 7,000 crore. Let's also be charitable to Reliance and assume there was no truth in the allegation regarding a conflict of interest between the private consultants—Amarchand Mangaldas & Suresh A. Shroff and abn Amro—and the two shortlisted bidders (Reliance and the Hyderabad-based GMR group). It's true that Amarchand Mangaldas is advising the Ambani brothers on how to divide the Reliance empire. The law firm's managing partner served on the board of directors of Reliance Energy, and both Reliance and GMR are among abn Amro's biggest clients. But Reliance says these consultants were appointed before the bidders were shortlisted.

The bigger question is why the civil aviation ministry designed the bid parameters in such a shoddy manner that left room for an evaluation scheme that was highly subjective, at best, when not downright arbitrary. The eGOM wrote in a note to the Committee of Secretaries (COS) headed by cabinet secretary B.K. Chaturvedi that while India has been attracting world class investors in various sectors, "...we have managed to land ourselves in a situation where the consultants have chosen the bidders who should get one airport each...this is compounded by the fact that of all the airport operators in the world, we have chosen Mexico through technical evaluation, and not by competition. "

The note added that an analysis of the financial structure of the proposed deal indicated that there was "an overwhelming incentive" to maximise non-aeronautical revenues of the airport instead of developing its aeronautical assets. Further, the "cost-plus" tariff structure "would inevitably lead to 'gold-plating' (or excessive expenditure on non-essential or cosmetic items) and high user charges". In conclusion, it caustically commented, "We have missed out on top-class players; the incentive structure does not promote aeronautical development that constitutes the core of airport infrastructure; and 'cost-plus' tariff setting would imply a high cost airport."

The fact is that the report prepared by the consultants was considered by no less than five panels comprising senior bureaucrats and politicians and still found wanting. Certain obviously-planted media reports made it out as if one disgruntled official, Gajendra Haldea, advisor, Planning Commission, had criticised the bid evaluation in his "personal capacity". It subsequently transpired that as many as five out of seven officials in an inter-ministerial group "were unable to endorse the consultants' recommendations".

The familiar line of criticism from affected parties of what transpired was that re-bidding or re-evaluation of existing bids would delay the airports modernisation programme. But as the mandate given by the eGOM to the COS pointed out, a delay of a few months "should not matter if it helps in awarding a 60-year concession for India's most important airports on a sound footing".

We all want India to have modern airports. But if the government goofs up in ensuring a transparent system to attract investments, it will inevitably lead to charges of nepotism and corruption. This time round, the situation seems to have been salvaged—just about.