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Airport Privatisation Case

The matter of Reliance Airports vs Airports Authority of India allows the Supreme Court the unique opportunity to intervene in the public and policy discourse around public-private partnership projects at an early stage in their development in India. If the court uses this opportunity to emphasise the centrality of the "publicness" in PPP, and to remind the government that it continues to play the most significant role in the provision of public goods and services in this new phase of the evolution of the Indian state, it would have performed a critical role.

Airport Privatisation Case

Public Law and Public Sector Reform

The matter of Reliance Airports vs Airports Authority of India allows the Supreme Court the unique opportunity to intervene in the public and policy discourse around public-private partnership projects at an early stage in their development in India. If the court uses this opportunity to emphasise the centrality of the “publicness” in PPP, and to remind the government that it continues to play the most significant role in the provision of public goods and services in this new phase of the evolution of the Indian state, it would have performed a critical role.

SUDHIR KRISHNASWAMY

T
he arguments in the Reliance Airports vs Airports Authority of India and Others case concluded in August. Over three weeks, the Supreme Court heard a panel of senior lawyers arguing about the legal validity of the selection of airport bidders in the recently concluded Delhi and Mumbai public-private partnership (PPP) programme. The court granted the lawyers time for written submissions and has reserved judgment on what is the most significant case on public sector reform since the early privatisation cases relating to BALCO and the telecom industry.

For those who anticipate that I will endeavour to predict the likely outcome of this dispute, they are likely to be disappointed by what follows. Irrespective of which party succeeds before the court, this case will clarify the role and responsibility of various actors in the field of public sector reform, including that of the various organs of government, senior civil servants and that of the courts. In this comment, I will examine the key arguments raised before the court in this protracted dispute to highlight the principles of public law and public sector reform central to any view that the court may take.

Understanding PPPs

PPPs have emerged as a preferred mode of public procurement of infrastructure services in India in the last few years. There is much confusion about precisely what PPPs mean, and how they may be distinguished from previous modes of public procurement and whether the novel structuring of PPP arrangements requires us to modify our existing public law rules and principles.

At the core of a PPP programme is a shift from the procurement of physical infrastructure assets to the procurement of infrastructure services. For example, let us explore how these modes of procurement would affect the development of port infrastructure. Under the mode of procurement practised till recently, the relevant government agency or enterprise would build a port through piece rate or engineering, procurement and construction (EPC) contracts, and then subsequently hire staff and procure necessary equipment to deliver port services. In the PPP mode, we directly specify the infrastructure outcomes we seek to achieve and procure high quality port services through facilities developed and maintained by private parties at tariffs which are either contractually predetermined or determined by a competent regulator. In the PPP mode we focus on the private delivery of infrastructure services rather than physical assets, by inviting private capital to build, develop and own infrastructure assets as long as they are able to deliver high quality infrastructure in relatively short periods of time. A well-structured PPP arrangement which allocates risks and rewards appropriately, allows the government to rapidly scale up infrastructure delivery by optimising public investment and simultaneously directing private sector capital investment and operating efficiencies to secure public service outcomes.

PPP projects proceed through various stages: the public sector agency or government must first define the service it seeks to procure by specifying output based parameters, select a technically competent private partner through a competitive bidding process, devise a long-term contracting framework, which distributes risks and rewards suitably and finally manage the contract successfully to secure specified outcomes. As will be obvious from the broad outline above, PPPs, far from eliminating the role of government and being privatisation by stealth, require a central and critical role to be played by the relevant government actor.

The Airports case is at its core about the role of a responsible government in the early stages of the PPP process – selecting a technically competent bidder through a competitive process. The decision of the court will rest on the conclusion it arrives at on two interlinked critical issues. First, if the process by which the technical and financial evaluation of bidders took place was justifiable and secondly, the standards of judicial review that should apply to the

Economic and Political Weekly October 7, 2006 scrutiny of the government’s power to contract. Let us look to each of these in turn.

Technical and Financial Evaluation of Bids

The Airports Authority of India (AAI), a statutory authority which builds and operates most airports in India, was given the responsibility to select the joint venture partner for the Mumbai and Delhi airports in 1998. AAI selected financial, technical and legal consultants to structure and steward this selection process. The process of technical evaluation of bids adopted by the consultants was found to be subjective and inconsistent by the Government Review Committee (GRC) and the Inter-Ministerial Group (IMG), which were set up to review the bidding process. The empowered group of ministers responsible for the airport PPP process then requested the committee of secretaries to set up a process whereby these inconsistencies could be ironed out. Sridharan, the chairman of the Delhi Metro Rail Corporation, undertook this task and sought to correct the inconsistencies pointed out and moderate the evaluation made by the consultants. In this elaborate multilayered selection process, there were bound to be losers and gainers at each stage. Eventually, Reliance was disqualified by the Sridharan Committee’s moderation of technical evaluation marks and it challenged this action before the Delhi High Court. The Delhi High Court’s decision to uphold the committee’s decision was subsequently challenged before the Supreme Court.

This extended and multilayered process of bid evaluation throws up several issues. First, AAI’s delegation of control over the entire bidding process to the consultants may be understood as a distancing device to eliminate political or bureaucratic interference. However, this effort rests on the glib assumption that consultants are immune from these pressures or other conflicts of interest, which may affect their evaluation process. In any event, when the GRC and IMG raised several queries about the technical evaluation process, it was clear that AAI officials had not applied themselves to the technical bids. There is no gainsaying that the PPP does not absolve the lead government agency from taking full responsibility for the selection of the joint venture partner. Insofar as government agencies imagine that PPP contracting processes may be delegated to third parties and public responsibility may somehow be avoided, they have misunderstood the PPP framework and abdicated their legal duties to protect the public interest.

Secondly, the qualification of bidders on the basis of a detailed technical proposal threw up peculiar consequences. As bidders were given design freedom to develop master plans for the airports to the best of their ability, the technical evaluation of bids was made extremely difficult as the consultants had to compare proposals which were substantially different, akin to comparing apples with oranges. The PPP process envisages bidders who are given freedom to design projects provided they achieve output-based specifications clearly set out in the request for proposals (RFP) document. While there is no doubt that a prequalification process must distinguish capable and serious bidders from those who are not, it is not apparent that the consultants were in a position to rationally review detailed technical bids of the sort invited in the airport bids. Moreover, the AAI’s technical advisors had themselves developed master plans which they used as a benchmark to assess the plans prepared by the bidders. As bidders who virtually copied the technical consultants’ master plans were regarded as more qualified, this made a complete mockery of the design freedom which is critical to the PPP procurement framework.

Finally, the decision of the additional solicitor general to place the entire official record before the courts must be seen to be a strategic master stroke. The vital significance of the candid expression of disagreement among several government officials responsible for decision-making may well prompt the court to uphold the decision-making process to be a fair one, free from illegality. The ability of officers to comment critically on the bidding process is a rare public display of integrity and character, which allowed the government to change its mind on the bidders to be selected, albeit at a late stage in the process. The current debate on the disclosure of file notings under the Right to Information Act 2005 would gain strength from the critical role played by public officials writing with candour and integrity on the record in the airports bidding case. It is often asserted in public law that “sunlight is the best disinfectant” and if the Supreme Court were to uphold the airport bidding process, it will entrench this fundamental principle of public governance and embolden honest public officials to express themselves without fear or favour. In the absence of these well reasoned justifications of the decision to alter the evaluation of the bidders, the government may well have found it impossible to defend the technical and

Economic and Political Weekly October 7, 2006

financial aspects of the bidding process.

Given the lengthy, expensive and contentious process through which the bidders for the Delhi and Mumbai airports were selected, it may well be advisable to abbreviate the PPP bidding process to two clear stages: a technical prequalification of bidders based on their capacity and experience to deliver the output-based specifications set out in the RFP document followed by a financial evaluation of the bids. This must be carried out by the relevant government agency directly. Where the assistance of consultants is found necessary, the ultimate decision should not rest on the unexamined recommendations of consultants, irrespective of their qualifications and integrity. By eliminating the project-specific detailed evaluation of the bidders at the bidding stage, and allowing for these parameters to be specified and controlled through the concession contracts, we may be able to achieve desired outcomes at significantly lower cost.

The core of the legal challenge to the selection of joint venture partners for Delhi and Mumbai airports rested on three administrative law grounds: whether the authorities which carried out the bid evaluation were duly authorised to do so, whether they considered all relevant considerations and excluded irrelevant considerations and if the decision-making process was fair and reasonable. The court’s decision on each of these legal challenges will turn on the standard of scrutiny to which it will subject the government’s action in this case.

The freedom to contract is a common law civil liberty enjoyed by all persons. When the government is contracting with private parties this common law freedom is circumscribed by the administrative law principles, which ensure the legality of executive action. The court has in recent years been willing to review executive action with deference when such action is in the sphere of economic policy. During the hearings, the court was urged to adopt a very low standard of scrutiny so that it would interfere with the executive action only if there was bias or other glaring mala fides. If the court agrees with this proposition, it would transform administrative law judicial review into an anti-corruption device rather than a test of legality.

Though corruption in executive action should be stamped out by the court, there is no need to rob administrative law judicial review of its potential to ensure fair and reasonable executive decision-making. The contours of the Indian state are rapidly changing with the techniques of new public management which we are presently deploying. As regulatory institutions and public-private partnerships increasingly replace the ageing departmental state, our courts will have to adapt the existing administrative law principles to the new shape of the Indian state. There is no doubt that judicial control of executive action through administrative law judicial review will play a less significant role in the regulatory and privatised state when compared to the command and control ministry/department state. However, till we evolve and modify our rules and principles of administrative law to deal with these new realities, the court must refuse the present invitation to dilute the scope and rigour of judicial review and maintain the highest standards for adjudicating the legality of executive action in the airports case.

Conclusion

New public management is a phrase used to describe a range of public sector reform efforts which seek to harness the efficiencies of the private sector to deliver public infrastructure services. PPP is one of the several new public management techniques which promises to deliver better public services at lower costs. The aiports case allows the Supreme Court the unique opportunity to intervene in the public and policy discourse around PPP projects at an early stage in its development in India. If the court uses this opportunity to emphasise the centrality of the “publicness” in PPP, and to remind the government that it continues to play the most significant role in the provision of public goods and services in this new phase of the evolution of the Indian state, it would have performed a critical role. Our ability to evolve common law-based administrative law principles to coherently apply to this new public law environment is a challenge that the Supreme Court must embrace fully to ensure the legal and political accountability of the evolving administrative state in India.

EPW

Email: krishnaswamysudhir@gmail.com

Economic and Political Weekly October 7, 2006

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