Originally touted as the big breakthrough in India’s power sector, ultra mega power projects are now mired in controversy. Many reasons are being advanced for cancelling the winning bid for the 4,000MW Sasan pit-head project in Madhya Pradesh. But, unfortunately, the lack of transparency about the final bids has prevented an informed public debate from taking place.
The first argument is that the winning consortium has changed. The winning bidder was Lanco and Globeleq Singapore Pte Ltd (GSPL). That is still the case, but since the bid, the ownership of GSPL has changed. In itself, this is not important.
A firm is an entity independent of its shareholders, with certain relevant characteristics, e.g., net worth. For it to matter, a change in ownership has to make a material difference to the capabilities of GSPL. One can make that case by disclosing the technical bids and showing how the ownership change affects the capabilities of the Lanco-GSPL consortium. Sadly, while the initial phase of the procurement process was quite open, there was limited release of information after the issue of requests for qualification.
The second argument is that the capabilities of the Lanco-GSPL combine were improperly evaluated and that, instead of GSPL’s capability, the experience of its parent, Globeleq, was considered. This should have been done only if there was a clear agreement between Globeleq and GSPL. Such an agreement would usually remain even if GSPL’s ownership changed and should not critically alter the bid. If there was no agreement, was this an honest mistake of the evaluators or deliberate misrepresentation by the bidder? The contract could be nullified depending on the circumstances.
The third argument is that the winning consortium uses unfair means. Parliamentarians of the ruling coalition may well have a financial interest in the winning consortium, more so after the change in ownership of GSPL, but that is not a disqualification, unless this position was abused to subvert the competitive bid process. If so, it is imperative that any cancellation be followed by detailed investigation into the violation of such laws as may have taken place.
A fourth argument is that the bid is commercially unviable. If so, and if one has some faith in the due diligence abilities of our financial system, the winning consortium should not be able to achieve financial closure. Prima facie, though, the bid does not seem overly aggressive. The tariff is not much below the other bids and the reported capital cost is not unreasonably low either.
There may be reasonable expectation that regulations will change at some future date and, in addition to profits from selling electricity, the consortium can also profit from selling coal from the mine allotted to it. But, like this regulatory uncertainty on coal, there were other unaddressed questions during the bid. To prevent aggressive bids from those who believe they can exploit such ambiguity, the best approach is to minimize the initial uncertainty.
We do not argue that a cancellation decision is unjustified, since the decision makers may have access to additional relevant information. However, such a decision would be far more justifiable and the faith in bidding processes can be better preserved if that extra information is placed in the public domain. Even after such a disclosure, there can be honest differences of opinion. In such an event, the prerogative of the government to abide by its own opinion should be respected.
(Is there adequate transparency in our bidding processes? Write to us at firstname.lastname@example.org)