Mumbai: If the tender floated by the Airports Authority of India to select a private firm for commercial operation and maintenance of the airport terminal and the city-side development at Amritsar airport is anything to go by, infrastructure projects put up for bidding by Central government agencies could encourage unlikely partnerships.
A new government rule that says only five entities will be allowed to bid for a single project is forcing rival firms to team up to avoid elimination and stay in the race. Typically, only companies that have met some qualification criteria are allowed to submit price bids that determine the successful bidder.
Encouraging partnerships: Workers at a highway construction site in New Delhi. Competitor tie-ups may be seen in the National Highways Authority of India plan for 12 highway projects.
The guidelines, as reported earlier by Mint, were aimed at keeping out frivolous bidders for privately financed and operated projects, key to fixing India’s poor infrastructure, but they could also have prevented newer and younger upstarts from gaining ground in the sector.
The Amritsar airport project has seen rivals Maytas Infra Ltd and Nagarjuna Construction Co. Ltd join hands to secure the deal. Other firms who partnered with their rivals include GVK Power and Infrastructure Ltd with Australia’s largest project development and contracting group Leighton Holdings Ltd, MSK Projects (India) Ltd with Unity Infraprojects Ltd, and Oriental Structural Engineers Ltd with Sadhbav Engineering Ltd. Gammon Infrastructure Projects Ltd teamed up with Emaar-MGF Land Ltd and General Electric Infrastructure for the Amritsar project.
Such partnerships are likely to be seen in the Udaipur airport development project and the National Highways Authority of India plan for 12 highway projects totalling about 1,200km, with an investment of close to Rs6,000 crore. And similar tie-ups will be seen for several cargo handling projects at the 12 government-owned major ports in the country.
“Even after qualifying on financial, technical and experience criteria on their own for these projects, many firms face the threat of elimination because of the fivebidder-per-project rule. As a result, rival firms and like-minded entities are teaming up to strengthen their chances of pre-qualification and be in the reckoning,” said Kshitiz Bhasker, head, business development, Gammon Infrastructure Projects Ltd, which is bidding for a large number of infrastructure projects.
While the number of bidders should be adequate for ensuring real competition in bidding, the government’s policy managers say that the presence of a large number of short-listed bidders could dampen participation by serious bidders. “This is because credible investors are normally less inclined to spend the time and money necessary for making a competitive bid,” if there are too many bidders in the fray, according to the recent guidelines issued by the Union finance ministry for pre-qualification of bidders for public-private partnership (PPP) projects.
“Since PPP projects in infrastructure provide a critical service to users at large, the quality and reliability of service assumes greater importance. Moreover, restricting the list to the best available bidders improves the chances of a successful PPP operation. For these reasons, about five pre-qualified bidders are favoured as an international best practice for securing high quality bids,” add the guidelines.
The implication, in a sector which needs an investment of $475 billion (Rs18.66 trillion) over the next five years, is already becoming evident, with like-minded rivals holding hands to bid for projects. The private sector is estimated to contribute around $120 billion of the $475 billion. The Union government’s decision to restrict the competition to the top five bidders will help consortiums of large firms ward off threats from smaller players and ensure that the projects are executed, said an official at India’s largest engineering and construction firm Larsen and Toubro Ltd (L&T). The official did not want to be named.
“A new entrant or a smaller player may make a lower price bid to upset the established players, but find it difficult to execute the project. As a result, the project suffers. The presence of large reputed players will ensure a definite end to the project, a surety that the project is in safe hands and is executed,” the L&T executive said. L&T had teamed up with General Electrical Co. and Spanish rolling stock supplier CAF to bid for the Rs7,000 crore, 32km-long, fully elevated second corridor of the Mumbai metro rail project, connecting the western and eastern suburbs of the city.
Gammon Infrastructure has joined hands with Mukesh Ambani’s Reliance Industries Ltd and Europe’s largest engineering firm Siemens AG to bid for the same project. The Union government will provide viability gap funding for the second corridor of the Mumbai metro rail project. GVK Power and Infrastructure has submitted initial bids for the project along?with?rail?equipment?giant Bombardier Transportation and Malaysian infrastructure firm YTL Corp. Anil Ambani’s Reliance Energy Ltd had also submitted pre-qualification bids for the project in partnership with Canadian firm SNC Levalin. “This could just be the beginning of such partnerships,” said Bhasker of Gammon Infrastructure Projects.