Repeated failures in privatising infrastructure facilities are a pointer to deficiencies in the design of contractual arrangements.

he decision by Haldia Bulk Terminals Pvt. Ltd (HBT) to walk out of a 10-year contract with the Kolkata Port Trust (KPT) for operating two berths at the Haldia dock highlights a deficiency inherent in tendering for projects that involve the right to create new public facilities or manage existing ones. There is always the possibility of contracts being clinched by bidders quoting extremely low rates or promising unrealistically high share of revenues, with obvious implications on the viable running of the facilities. The winning concessionaire, in such cases, throws in his bid mainly on the expectation of getting the rules changed after the project is awarded. The case for wresting relaxations becomes even stronger once actual investments are made and are now threatened with turning into stranded assets. But the calculations may not necessarily go the concessionaire’s way, especially in the event of a government change and the new regime not being as committed to the project. That is when the concessionaire tries to wriggle out of the deal, citing non-fulfilment of contractual obligations – explicit or otherwise – by the authority.

The HBT saga has followed more or less the above pattern. The company outbid everyone by offering to handle cargo at Rs 227 a tonne, of which it would pay as much as Rs 152 to the KPT. The only way it could have earned something, if at all, from the slender margin remaining was through generating substantial traffic volumes. These did not, however, materialise for reasons that include the general economic downturn, which has impacted throughput across all major ports of the country. HBT has blamed KPT for not diverting sufficient cargo to its berths, though the latter was not bound by any contractual commitment in this regard. Making matters worse was the Trinamool Congress Government, which did not do much to prevent the company’s executives from being allegedly assaulted and even abducted. But concerns over poor law and order enforcement seem to have been only an alibi for HBT to pull out; the fact that the latest unrest was preceded by the retrenchment of 275 workers by the company cannot also be ignored.

While the “ever-worsening” law and order situation may not be the real reason for HBT’s unilateral exit, the incident will, however, not do any good to West Bengal’s image as an investment destination – coming as it does after Tata Motors being forced out of Singur. But there are equal lessons to be drawn with regard to infrastructure concessions under public-private-partnerships (PPP). These need to incorporate stringent provisions against ‘gaming’ the system after projects are awarded and deterring promoters from exiting contracts they have already entered into on specious grounds. HBT is only the latest in a series of projects – which also include the Delhi airport modernisation and the express rail metro line connecting the same airport – that have not particularly helped the cause of PPPs. This has to change for PPPs to have a future.

(This article was published on November 2, 2012)
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