Conflict of interest clause removed for port auctions

Conflict of interest clause removed for port auctions

Bangalore: The union government has removed two controversial qualification rules for firms looking to participate in auctions for setting up cargo handling projects at a dozen ports it owns as it looks to kick start a capacity expansion program halted/derailed by court cases.

“We will remove the conflict of interest clause from the qualification rules for cargo handling contract auctions," Rakesh Srivastava, joint secretary looking after ports in the union shipping ministry said. “An order in this regard will be issued shortly," Srivastava said by phone from Delhi.

According to rules set by the government in 2007, an applicant is considered to have a conflict of interest and disqualified if it has direct or indirect shareholding of 5% in another applicant firm or its associate, and in case of a consortium, in any of its members.

On 17 February, the shipping ministry also removed the cap on the number of firms who could participate in the financial bidding process for developingcargo-handling projects at union government-owned ports.

A policy to short-list only six firms in a tender and the conflict of interest clause were challenged in courts by affected parties, delaying the finalization of contracts and the government’s plan to boost cargo handling capacity at its 12 ports.

From now on, all firms who meet the financial and technical experience criteria prescribed in the tender will be allowed to submit price bids.

“The qualification rules have been eased to make the auction process smoother, faster and to promote greater competition between bidding groups," Srivastava said. It will eliminate the possibility of litigation from those excluded from the auction, expedite award of projects and result in better discovery of the revenue share that the government gets from the privatization contracts.

The new rules will be applied only in the case of port projects where the auction process was yet to begin, Srivastava added.

Capacity expansion projects at the union government owned ports have attracted only $ 3.21 billion in investments since the beginning of the 11th Plan (2007-12), less than a quarter of what was anticipated during this Plan period, according to the Associated Chambers of Commerce and Industry (Assocham), an industry lobby.

Assocham said the projected investment for the 11th Plan was around $ 22 billion, of which 62% ($ 13.64 billion) was expected to be contributed by the private sector.

“But, so far, only $ 3.21 billion of private investments have come to the ports sector despite the reasonably impressive economic growth of India," Assocham said in a study released in January.

The union government plans to double the cargo handling capacity of the 12 ports to 1016 mt by 2012 from 574.77 mt now as economic growth strains existing facilities.

The additional 442 mt capacity will require an investment of close to Rs55,804 crore out of which Rs36, 868 crore will come from the private sector and the balance from the internal resources of the ports and government budgetary support, according to the shipping ministry.

The shipping ministry recently admitted that the capacity addition projected for the 11 th Plan will fall short of the target by about 40%.

The slippage in target has been attributed mainly to delay in awarding public-private partnership (PPP) projects in the first two years of the Plan period (from 2007 to 2009).

“The short-lived experiment with the six-bidder-per-project rule and the conflict of interest clause has proved to be costly for the government, setting back the process of boosting port capacity by at least three years," said an executive with a Mumbai-based port logistics firm who asked not to be identified.