Part I: India's airports upgrade takes a new turn

Even as a committee headed by the Delhi Metro Rail Corporation managing director E Sreedharan examines afresh the technical bids for the restructuring and modernisation of the airports at Delhi and Mumbai, a confidential note prepared for the Union Cabinet has pointed out the subjective manner in which the bids were evaluated.

Of the eight consortia that had been pre-qualified for bidding, six had submitted bids for Delhi airport and five for Mumbai on September 14, 2005, the last date for submission of technical and financial bids.

Two consortia, one comprising Bharti-Changi and the other, Larsen &Toubro-Hochtief, did not submit bids.

It has been reported that the Singapore-based Changi group, that had associated itself with the Bharti-DLF combine, withdrew from the race as the airport operator was not confident of meeting particular tender conditions.

Both Changi and Hochtief (a Germany-based international construction group) were apparently unhappy about the clause in the tender that specified that a penalty of $80 million would have to be borne by the foreign partner in the consortium alone, in case the winning consortium was unable to adhere to the standards laid down by the Indian government in modernising and restructuring the two airports.

The technical bids were opened on September 22, 2005 for evaluation by the consultants engaged by the Ministry of Civil Aviation, namely, Amarchand Mangaldas, ABN Amro and Airplan. The benchmark for qualifying in the technical bid was set at 80 per cent.

The bidders for the Delhi and Mumbai airports were Pan Parayatan-TAV (a Turkey-based airport operator), GMR-Fraport (Frankfurt), D S Construction-Munich (Flughagen Munchen GmbH), Macquarie-ADP (Aeroports de Paris) and Reliance-ASA (of Mexico).

GVK-ACSA (Airports Company South Africa) was the one consortium that bid only for Mumbai airport.

The Cabinet note, dated December 3, 2005, prepared for the Empowered Group of Ministers, summarizes the evaluation of each of these bids that is contained in the report prepared by the consultants.

The Subhash Chandra headed Essel group's Pan Parayatan-TAV bid for both the Delhi and Mumbai airports was described as one of 'poor quality' with the 'offer suffering from the combination of an airport operator with limited experience focused on operating terminals rather than airports and an Indian party without direct relevant commercial experience and expertise.'

The bidder also failed to provide 'quality documents' for the transition plan, stakeholder management strategy and the business plan, the note observed, adding that the bidder's reliance on consultants for management functions 'is quite unsatisfactory.'

Pan Paryatan's development capability and commitment were also assessed as 'low' and its initial development plan for the Mumbai airport was termed as a 'high risk strategy with high cost and with no supporting technical assessments.'

GMR-Fraport, one of the two short-listed bidders, were given an overall high rating across most areas, including management and development, the major exception being the consortium's initial development plan.

"What is particularly strong is the international experience of the airport operator (Frankfurt) in a wide range of environments," the Cabinet note stated.

The main areas of weakness in the bid were related to lack of experience in Indian retail, handling of human resource issues in ownership change situations and providing multiple nominations for management and support positions. This, according to the note, seemed to emanate from "uncertainty about the timing of the transactions" and hence, the question of committing staff.

The note also observed that the bidder had proposed an initial development plan for the Delhi airport that was completely different from the one recommended by the Australian technical consultant Airplan and was 'unsuitable for implementation in its current form.'

The third highest bidder, D S Construction-Munich presented an offer that was assessed as a 'medium level' one. Although Flughagen Munchen GmbH (FMG) was an 'experienced airport operator,' low marks had been awarded because of 'the lack of experience of FMG beyond Munich and the lack of major aeronautical development experience.'

This comment, as subsequent events showed, turned out to be rather controversial. The DS Construction-FMG offer also suffered from a weak transition plan and environment management plan, the Cabinet note added.

In case of the Mumbai airport, the initial development plan of the bidder was considered to be 'low to medium' in quality because the plan could lead to a 'potential disruption' in the first stage of development leading to high costs.

The Macquarie-ADP bid, according to the cabinet note, gave 'an impression of being put together in haste.' It had 'substantial gaps' in information that 'reduced significantly the score' given to the bidder. The Indian partner in the consortium was part of the Sterlite group headed by Anil Agarwal.

Macquarie had utilised a special purpose vehicle while participating in the offer. This apparently meant that 'the experience of the Sterlite group could not be taken into account in the evaluation.'

The bid placed by the Reliance-ASA, Mexico, consortium was considered by the consultants to be a 'high level offer.'

The Cabinet note stated that while the public sector airport operator had limited experience outside Mexico, it had till recently been responsible for operations at almost 60 airports in that country.

ASA's experience in operating the airport at Mexico City 'with a constrained site, massive development around the airport and encroachments are all very relevant to the Chhatrapati Shivaji International Airport (Mumbai),' the note stated.

The GVK-ACSA consortium, which bid only for the Mumbai airport, submitted a 'medium level' offer. The key weakness of the offer, the note said, was 'the small to medium scale of the South African airports operated by ACSA and the lack of any experience (of the operator) beyond South Africa.'

ACSA's limited airport development experience was reflected in 'substantial reliance on consultants for both master planning and airport development,' which resulted in the bidder being awarded a low score during the evaluation.

Here are the marks that were obtained by each of the bidders for the Delhi and Mumbai airport bids as has been given in the Cabinet note.

Delhi Airport: Marks in per cent

Bidder	Management capability, commitment and value add	Development capability, commitment and value add
Pan Parayatan-TAV	39.2	40.3
GMR-Fraport	84.9	80.1
D S Construction-Munich	72.7	69.9
Macquarie-ADP	57	61.9
Reliance-ASA Mexico	80.2	81

Mumbai Airport: Marks in per cent

Bidder	Management capability, commitment and value add	Development capability, commitment and value add
Pan Parayatan-TAV	37.1	28.3
GMR-Fraport	84.9	92.7
D S Construction-Munich	72.7	54.1
Macquarie-ADP	57	65.1
Reliance-ASA Mexico	80.4	80.2
GVK-ACSA	75.8	59.3

Based on this technical evaluation, two consortia -- GMR-Fraport and Reliance-ASA Mexico -- were short-listed.

An 'independent' review of the evaluation was conducted by an eight-member Government Review Committee (GRC) of bureaucrats headed by Raghu Menon, additional secretary, civil aviation.

The evaluation conducted by the consultants was 'based on a subjective analysis of the bid documents', it was stated, adding that a review 'by another evaluation team may yield different (though not materially) markings and conclusions.'

The GRC was 'of the opinion that a majority of the evaluation criteria, as stipulated in the RFP (request for proposals) documents, are necessarily subjective in nature and therefore, it would be difficult to allocate a purely objective marking across all bidders.'

Further, the GRC argued: "This subjectivity does not, however, reveal any apparent indication of bias or prejudice for or against any individual bidder."

Despite these contentions, the GRC's report first went to an Inter-Ministerial Group for consideration. "The IMG could not reach a consensus," the Cabinet note points out, although many of the concerns about the bidding process expressed by the representative of the Planning Commission (Gajendra Haldea) -- which were repeatedly described as his 'personal opinion' -- were not agreed to by a majority of members of the IMG.

The 'final decision' was then left to the Empowered Group of Ministers headed by Pranab Mukherjee, which referred the issue to a Committee of Secretaries headed by the Cabinet Secretary who, in turn, appointed a technical sub-committee headed by E Sreedharan.

Clearly, all was not well with the bidding process.

Amid all the controversy, one proposal was all but forgotten. This was the so-called "alternate plan" submitted by a joint forum of unions and associations of employees of the Airports Authority of India (AAI).

This plan, which basically entailed in-house modernisation of the Delhi and Mumbai airports by the AAI with a joint venture partner, was similar to a proposal that had been worked out by the AAI in 2003.

The consultants appointed by the Ministry of Civil Aviation assessed this plan to be of a 'low to medium level.' They pointed out that AAI's 'development experience is limited with no substantial projects undertaken over the past 10 years.'

The Cabinet note stated that the plan submitted by the joint forum of AAI employees' unions/associations would work only if there were significant attitudinal changes on the part of the employees, besides procedural changes to ensure expeditious decision-making and implementation of investments by the AAI.

'The success of the modernisation by AAI will also depend upon the effective commercial utilisation of the land on the city side to earn non-aeronautical revenue,' the Cabinet note said.

In this context, it should be noted that the most serious flaw in the bidding process -- the handing over of excessively large tracts of land and real estate to the bidders -- had been detected on time and the flaws rectified.

The original plan of the AAI in 2003 had pegged the expenditure on modernising the airports at Delhi and Mumbai at Rs 12,300 crore (Rs 123 billion) though this figure has since gone up considerably.

At that time, it had been proposed that a user development fee be levied on each domestic and international embarking passenger to part-fund the airports modernisation programme.

The CPI-M is pressurising the UPA government to go along with the proposal of the AAI employees. Time will tell whether or not this takes place.

Paranjoy Guha Thakurta is Director, School of Convergence and Ranabir Majumdar is a student at the School.