A policy to shortlist only six entities that will be eligible to submit price bids for each cargo handling project at the 12 big ports owned by the Union government has triggered a controversy.
Port operators excluded from a project when the policy was first put to use at Ennore Port on India’s eastern coast, have, as expected, approached the court for redressal. They include the world’s second biggest container port operator, PSA International Pte Ltd. Some of the firms that were excluded from the bidding process for the Ennore container terminal had notched up higher experience scores than those that made it to the six-member list, raising questions about the process adopted for shortlisting.
For instance, experience in shipping, a key part of all cargo handling projects, is not a criterion for computing scores. But experience in activities such as power, telecom, highways, airports, railways, industrial parks, petroleum and natural gas, pipelines, irrigation, water supply, sewerage and real estate development is a criterion, apart from experience in port projects itself. The policy drafted by the Planning Commission says, “The number of pre-qualified bidders should be adequate for ensuring real competition in bidding…but a large number of shortlisted bidders are viewed as a factor that dampens participation by serious bidders…”
Projects for setting up container handling projects at Indian ports have so far attracted huge interest from the private sector. The reasons are clear. India currently has the capacity to handle hardly about 7.5 million standard cargo containers a year, while container cargo is growing at an average of 13-15% a year.
Containerized cargo represents only about 55% by volume of India’s external trade, much lower than the global average of 80-85%. India has a fairly long way to go to achieve higher levels of containerization. At a growth rate of 15%, India’s container handling capacity at ports needs to be raised to about 21 million standard containers by 2015. It is this potential that private firms are looking to tap.
The policy to shortlist only six entities thus, came as a big jolt to both established firms and also for those trying to grab a piece of the cake. Big operators such as PSA and DP World see the policy scuttling their plans to grab more container handling assets in India and rise to a position of dominance. Others find themselves thrown overboard even before they could start.
Instead of allowing all those who meet the technical qualification to submit the price bids, the government’s policy managers in the Planning Commission hit upon an idea to attract only serious bidders. In the process, all serious bidders got eliminated. So, the shortlisting policy does not meet its objectives.
But what it does will have a serious impact on discovering the revenue share that the government gets from these privatization contracts.
Greater competition results in higher revenue share. This would be difficult with big names out of the way due to the quantitative restrictions imposed by the Planning Commission.
Issues relating to dominance of a few firms are best left for the Competition Commission to decide. The antitrust regulator, in any case, is of the view that limiting the number of firms for a project was not conducive to competition.
Back in 2003, P. Chidambaram, then in political wilderness, donned the lawyer’s coat to argue for P&O Ports after the British port operator (now acquired by DP World) was excluded from the bidding process for setting up a new container terminal at Jawaharlal Nehru (JN) Port near Mumbai. P&O was already operating a container handling facility at JN Port and the port management decided to exclude it while planning a new facility to promote competition by selecting a new, different operator.
P&O Ports hired Chidambaram to argue its case in the Mumbai high court against the exclusion, but lost.
After the verdict, Chidambaram wrote an article in one of the economic dailies arguing that the price bid would have been higher if P&O was in the fray. Because, to ward off competition and win the deal, P&O would have bid a huge amount and other bidders would have had to match such a bid.
Private port operators, therefore, see a ray of hope when the finance ministry, headed by Chidambaram, wants the shortlisting policy changed for the roads sector, where a similar problem has resulted in arbitration and delay in finalizing contracts.
Such a delay now faces the ports sector where no big container capacity addition has taken place in the past three years, primarily because the government took more than two years to finalize a so-called model concession agreement that sets terms and conditions for port contracts. The new eligibility criteria threaten to delay capacity augmentation plans further and hurt India’s trade, if corrections are not made quickly.
P. Manoj is Mint’s resident shipping expert and writes on issues related to shipping and logistics every other Friday. Respond to this column at email@example.com
To read all of P. Manoj’s earlier columns, go to www.livemint.com/allaboveboard