New PPP norms to keep out frivolous bids

The government has enhanced the threshold technical capacity of bidders to twice the estimated cost of projects under the public-private partnership, or PPP, model. The finance ministry today revised the request for qualification, or RFQ, norms for such projects.

Under the new norms, if a developer is bidding for a PPP project worth Rs 500 crore (Rs 5 billion), it should have a record of executing projects worth Rs 1,000 crore (Rs 10 billion), or at least double the cost of the new project.

Earlier, to qualify, a developer needed to have executed projects one-and-a-half times the cost of the proposed project in the last five years.

Of the 60 projects put up for bids last year, only 13 attracted bidders. Of the rest, 10 have been bid under the old RFQ. The remaining 37 will follow the new RFQ norms, said a senior NHAI official.

The government has increased the number of shortlisted bidders from five to six for projects over Rs 500 crore (Rs 5 billion), and from five to seven for projects worth less than Rs 500 crore or repetitive projects.

Bidders welcomed the tightening of qualification norms, which will attract serious bidders, but expressed unhappiness that the government had retained restrictions on the number of bidders.

They said the restrictions were counter-productive to raising the threshold limit. ''Once people are meeting the threshold capacity and have the capacity to bid for the project, restricting the number of bidders is meaningless,'' said Ankineedu Maganti, director, Soma Enterprises, an infrastructure developer.

The notification says the project authority will be allowed to put a clause, which restricts the number of projects awarded to a single bidder.

''Both these clauses should be done away with. Once you have a threshold criteria, it is counter-productive and negative to have these clauses,'' Maganti said.

Developers said the two clauses were responsible for much of the confusion and delays in the road sector last year. Some said the new technical threshold capacity would deter bidders.

 "The new technical capacity limit criteria will bring down the number of bids, as only big bidders will be eligible. As it is, the National Highways Authority of India is facing problems in attracting bids for projects," said M Murli, director general, National Highways Builders Association.

The cross holding limit has been raised to 5 per cent from 1 per cent, which will bring in more investments. If one investor holds equity in two companies, which are partners in a project, it can hold up to 5 per cent in each company. There are some exemptions to this rule, such as for financial institutions.

"Increasing the cross holding limit to 5 per cent from 1 per cent will remove a lot of fear among investors. This will help bring in more investments," said Parvesh Minocha, managing director, transportation division, Feedback Ventures.

According to the new guidelines, each of the consortium members, in addition to holding 26 per cent equity in the special purpose vehicle floated to bid for the project, will also be required to hold equity equal to at least 5 per cent of the total project cost for a period of two years after the commissioning of the project.

"This will be good for the project," said Minocha.