<div><em><strong>Sutanu Guru</strong> on how 'bidding' is often a farce in India</em></div><div> </div><div>On the face of it, the news seems extremely positive. Andhra Pradesh recently invited bids for ten 50 MW solar power projects under the National Solar Mission. The response was overwhelming. The total bids received amounted to 5,500 MW - ten times more than required. Even more heartening, and surprising, is the fact that in many of the bids, the per kilo watt hour cost of power works out to about Rs 5. If that does pan out, India is indeed on the cusp of a Green Energy Revolution. And the oft-repeated statements of Power Minister Piyush Goyal about India generating 100,000 MW of solar power by early next decade appears credible. So is it time to stand back and start applauding?</div><div> </div><div>Wait. As with most things in India, there could be a catch. The landscape is littered with examples of "low cost" and transformational Public-Private Partnerships that have flattered to deceive, or even hoodwink if you prefer so. Across a broad range of infrastructure projects, private sector companies have won contracts through aggressive bidding. Almost invariably, after the project is in the bag, the private companies have announced that they are unviable since there has been significant escalation in costs. In many cases, financial audits and other investigations have discovered that the "transparent and open" bidding process that led to the award of infrastructure projects was often a sham, or a scam.</div><div> </div><div>Just three examples will show how. </div><div> </div><div>The most egregious example of this is the issue of gas supply from the famous (or notorious) KG basin by Reliance Industries Ltd. When the Government of India awarded the exploration, discovery and exploitation rights of the KG basin to a consortium led by Reliance, it was estimated that the gas supplied from the KG basin will be priced at $2.34 per btu. For Indian companies investing in downstream projects like power and fertilizer plants, this was a dream come true. And tens of thousands of crores were committed to building power and fertilizer plants that would get gas from the KG basin; at $2.34 per btu. Reliance Industries even signed a commercial agreement with state owned NTPC to supply gas at $2.34 per btu. We all know what happened after that. A few years down the road, Reliance claimed that the capital costs were far higher than originally estimated and that it would not be viable to supply gas at $2.34 per btu. Reliance then wanted to sell the gas at more than $4 per btu; and then at more than $ 8 per btu and then again at more than $12 per btu. Power and fertilizer plants that were depending on gas from the KG basin have been left high and dry and billions of dollars lent by banks for these projects have become "distressed assets"; euphemism for loans that might never be repaid. The KG basin gas mess is yet to be completely sorted out.</div><div> </div><div>The second high profile case of a "prestigious" infrastructure project becoming an albatross for consumers was the privatization of the Delhi Airport. Once again, there was "transparent and open" bidding and an emerging super star of infrastructure called GMR won the project by quoting a total cost in the region of Rs 4,600 crores. A few years after it bagged the project, GMR announced that the costs were far higher than originally estimated and the project was unviable unless it was allowed to charge a development fee to every passenger that walked through the Delhi airport.</div><div> </div><div>Astonishingly, GMR was allowed to charge Rs 200 from domestic passengers and Rs 1,200 from international passengers and keep charging till an incensed Supreme Court ordered an end to this practice. From the initial estimate of about Rs 4,600 crores, the final cost ballooned to more than Rs 13,500 crores. The "consumers" in this case, airlines and their passengers continue to bear the brunt of this alleged "gold plating". Incidentally, both the KG basin gas and the Delhi Airport privatization project have received blistering criticism from the CAG.</div><div> </div><div>The third such project was the Delhi Airport Express Metro line. This was another PPP venture between Delhi Metro and a consortium dominated by the ADAG group. The same story was repeated here. Costs were far higher than initially estimated and ADAG "discovered" that the project was not really commercially viable. In 2013, it withdrew from the project and the line is now being operated by the state owned Delhi Metro.</div><div> </div><div>So before cheering the Rs 5 per kilo watt hour price of new solar energy projects coming up after "transparent and open" bidding, let's look at the fine print. The devil always lies in the details.</div>
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