Bidding rule change may put authorities in a tight spot

Bidding rule change may put authorities in a tight spot

New Delhi: India’s highways authority could find itself in a bind if a rule that bars companies from bidding for road-building projects on grounds of conflict of interest is changed.

The rule says bidders for a highway project would be disqualified if they have a cross shareholding in excess of 5%.

In a bid to provide fresh impetus to building and improving highways, a committee appointed by Prime Minister Manmohan Singh has suggested this threshold be raised to 25%.

An official at the National Highways Authority of India (NHAI) said this would put the authority in a tight spot. If the rule is changed with retrospective effect, firms that in the past have been disqualified would have a claim to be awarded some of the projects.

Mint could not immediately ascertain if the rule change would indeed be retrospective.

Even if the norm is applied only to future projects, it would pose problems as some bidders who have been disqualified from projects awarded in the past one year on this ground would protest, said the official, who declined to be named because he is not authorized to speak with the media.

A case in point is a Rs1,300 crore highway project in Rajasthan that was awarded earlier this year to Soma Enterprise Ltd.

Navinya Buildcon Pvt. Ltd, a venture of Tata Realty and Infrastructure Ltd and Italian highway developer Atlantia SpA, which emerged as the lowest bidder, was disqualified because Abertis Infraestructuras SA holds at least 6% in Atlantia. Abertis was part of another grouping that put in an initial bid for the project.

Navinya Buildcon is contesting the award to Soma Enterprise in the Supreme Court.

Till the matter is decided, “I guess we would be in the reckoning to win the project," said Sanjay Ubale, chief executive officer for Tata Realty and Infrastructure.

“We are very close to achieving financial closure. We’ve already mobilized the site," said Ankineedu Maganti, chief executive officer of Soma Enterprise. “Basically, the NHAI has to decide how it wants to implement this (the proposed change in rules)."

“It is a very ticklish issue because the award (of the highway project) has taken place," the highway official said. “We don’t know what to do."

Tranport minister Kamal Nath has said that the authority’s interpretation of the rules was ridiculous.

“I said now you are all members of the National Highway Builders Federation, are you all associates? That’s a ridiculous thing. I am shouting that we should have a hundred contractors. Yeh to ghata rahe hain (These people are reducing the number)," the minister said.

Nath also said the highway authority not only encashed Navinya Buildcon’s bank guarantee but also disqualified them for two years.

“This is very wrong," Nath said, adding that his ministry was looking at ways to resolve the issue.

An analyst said that any move to enforce a changed conflict of interest rule retrospectively could end up opening a can of worms.

“How can you change a law retrospectively? After all, it was the law of the land then," said Siddhartha Das, an infrastructure expert with consultancy firm Ernst and Young Pvt. Ltd. “Look at the impact. It is maddening."