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Road PPPs: Finance ministry scraps bid limits

September 25, 2008 09:58 IST

In a major breakthrough for Indian construction companies like Larsen &Toubro, Punj Lloyd, GMR and Nagarjuna Construction, the finance ministry has scrapped a controversial clause in the request for qualification document for highway projects that restricted the number of eligible companies for financial bidding to five or six through a scoring system.

Under the RFQ, companies had to initially participate in technical bids based on certain minimum criteria such as net worth, experience and so on. 

Only five or six companies that scored the highest on this basis were then permitted to put in financial bids. 

The scrapping of this provision means that all companies that meet the minimum criteria will now be allowed to put in financial bids.  

These RFQ norms, which were introduced and notified in December 2007, had become a major point of contention between the private highway developers and the government.

Private developers alleged that the shortlising based on the scoring system only benefited foreign players that were larger and had greater experience, putting Indian companies at an immediate disadvantage. 

Large Indian construction companies complained that they were being forced to tie up with foreign partners while bidding for projects to get high scores.

In many cases, they said, their foreign partners were ready to take domestic companies only as minority equity holders. 

"Obviously we don't have the global coverage and net worth of international companies. But we have enough experience in the country, so why should we be discriminated against," said the chairman of a leading construction company.

Planning Commission officials who had approved the short-listing procedure have argued that the new system was meant to remove the lack of transparency in the technical qualification stage and would also ensure that top-quality companies with experience would bag the contracts.

The finance ministry's decision to scrap the controversial clause from highway project RFQs has also prompted the Railways to consider approaching the ministry asking for a similar relaxation for PPP projects in their sector, which includes the ambitious New Delhi railways station modernisation project, which has come under fire. 

"Many bidders for the railway station project have questioned the scoring system, alleging that it was not transparent," said a senior railway ministry official.

It is not known whether the aviation ministry will ask for a similar relaxation for airport infrastructure projects in PPP mode.  

The growing opposition to the short-listing procedure has already delayed the fate of about 60 highway projects worth over Rs 60,000 crore (Rs 600 billion) under the National Highway Development Programme.

The National highway Authority of India, even after short listing top six bidders for these 60 highway projects from January, has not been able to award a single contract because the new norms have been challenged in the Delhi high court by the infrastructure players.

However, the new notification issued by the ministry of finance said the RFQ document with the deleted clause will be applicable to only future projects.

For the 60 RFQ bids already received, evaluated and shortlisted by NHAI, the process is to go ahead on the existing RFQ document.

For other projects for which the RFQ has been issued but no shortlisting done, the finance ministry has said fresh RFQs can be issued.

Infrastructure players have largely welcomed the move.

"The finance ministry's decision to delete the clause 3.5.2 is a welcome move. However, we still feel the government should consider extending the facility to the 60 road  projects," said M Murali, director general, National Highway Builders Federation, the body representing highway builders in India.

Many construction companies are planning to take legal recourse to ensure that the new RFQ is extended to these projects.

"We believe to move will provide a level playing field for all companies -- Indian and global. It will increase competition that will result in more competitive bids being placed for highway projects in India," said a senior executive of L&T.

Parvesh Minocha, managing director of Feedback Ventures engineering Division, however, said: "It will increase competition amongst unequals, but will result in a reduction of foreign direct investment in this sector."

Bijith R in New Delhi