The Hindu Business Line : Competition-limiting clause discarded for highway projects

In what could be seen as a move to quash anti-competitive measures, the Finance Ministry has decided to delete the controversial clause that limits the number of financial bidders to five or six for all future public-private partnership (PPP) highway projects.

The move is expected to bring some respite to the domestic highway developers who have been fighting this clause tooth and nail, and had even escalated the matter to the Prime Minister’s level.

Pointing out that the clause is anti-competitive and encourages cartelisation, the National Highways Builder Federation (NHBF) had moved Delhi High Court. The NHBF is a body of highway developers and includes Larsen & Toubro, Reliance Infrastructure, GMR and GVK as its members.

THE 3.5.2 PROBLEM

The contentious 3.5.2 clause — stating that only the top five or six technically qualified applicants can be invited for participation in the financial bid stage for PPP projects — was a part of the model request for qualification (RFQ) document, issued by Finance Ministry and prepared by Planning Commission.

The Planning Commission was keen to include this clause, as it felt that that this process would weed out non-serious players. However, the clause — which impacts all PPP projects — has been legally contested by companies in the port sector as well as road developers.

For instance, because of the 3.5.2 clause, four key bidders may end up competing for most of the 12 highway projects of the National Highways Authority of India (NHAI) which were processed during the last few weeks.

The bidders are Larsen and Toubro; consortium including China Railway 18th Bureau Group and Maytas; consortium that includes Hindustan Construction Company and British firm John Laing; and another consortium that includes Spanish firm Isolux and Soma Enterprise. This is despite 26 bidders queuing for some of the projects.

FINANCE MINISTRY ORDER

Following complaints from highway and port companies, the Finance Ministry had set up a committee to review the clause. It issued an order on Monday seeking deletion of this clause prospectively.

The Finance Ministry, in its order, said that the 60 projects which the NHAI is already processing should be dispensed with as per the RFQ with 3.5.2 clause. As for the rest, the NHAI should undertake the process after deleting the clause.

“The decision was taken at the highest level. Many quarters in the Government felt there was a need to encourage competition rather than stifling it,” said official sources in the know.

Whether the order will be applicable to other infrastructure sectors such as ports and railways needs to be clarified.

As for the fate of 60 NHAI projects, it is now up to the NHBF to decide whether it would continue to contest the provision for the current lot of 60 projects. Incidentally, the 3.5.2 clause was a deviation from the earlier norm where all players that met with the required technical parameters (threshold) were able to participate in the financial bidding process.

HIGHWAY BUILDERS’ CONTENTION

The highway builders contended that with the 3.5.2 clause, the same short listed five-six applicants for any project would continue to be short listed for all forthcoming projects, because of their experience score. They also stated that the clause favoured international players.

“The new guidelines only encourage name lending from non-serious foreign companies as they have vast experience and help improve the score in consortium,” the NHBF had said.

During the last 10-12 years, about 60–80 companies have participated in national highway development programmes and created capacities. These norms would deprive small companies from undertaking future projects which would result in either closure of their business or making them subcontractors of the big players, the builders feared.