Jai ho!

Two things have really bugged me over the week – the fact that the Mumbai airport also wants an Airport Development Fee (ADF) and that the Railways was allowed to go ahead and set up a diesel locomotive factory on its own despite getting a lower quote from a private sector firm. There’s no real link between them except that both make a mockery of the whole system of getting global bids, of transparency, and stuff like that.

Take the Railways case first. I’ve written about this earlier in my column “Getting PPP back on track”. Very briefly, the Railways wanted to set up two factories, one each for diesel and electric locomotives; the tenders moved from the extreme of being very favourable to the bidders to being extremely unfriendly, before they were fixed; there were no bids for the electric loco; there was one bid for the diesel one from General Electric of the US, a bid that was lower than what it would have cost the Railways if it were to build on its own, but the Cabinet allowed it to reject the bid and instead set up the loco factory on its own. In which case, you can expect the usual cost and time overruns that plague all PSU projects – a start has, of course, already been made since the Railway Minister has even decided where the plant is to be set up!

I met a very senior bureaucrat last night, and he put a totally different spin, one that’s even more worrying. He argued that turbines supplied by General Electric to the Dabhol power plant continue to malfunction, and GE is most reluctant to take responsibility for them. While the original Dabhol plant asked GE to give a performance guarantee, when the government entered into a renegotiation and restarted the plant after paying GE and Bechtel around $300 mn for their share of Dabhol’s equity, it did not insist upon a similar guarantee!

The government even brought this matter up with GE’s global chief, but clearly to no avail. So why aren’t we penalising GE, he argued, making it clear that it cannot expect more government business unless it takes responsibility? Why not indeed?

Relate this now to the agreement the US signed recently with Swiss bank UBS. The US has got UBS to agree to give it details of US citizens who’re dodging US taxes using UBS. Why doesn’t our government do something similar, given how Indians are supposed to have stashed away more than a trillion dollars (that’s India’s entire GDP by the way!) in Swiss banks. I mentioned this to another senior bureaucrat, from the finance ministry, at the same party. Since there were other guests around, he loftily told me that the government got all the details it wanted, only these were not publicised the way the US did! If that’s true, how come there’s been no sign of this wealth being taxed? Certainly the tax numbers don’t show this. Once again, a sign that the government just continues to pander to corporate interests.

The best, or worst, example of this of course is what’s happening on the Delhi airport and how this is now to be extended to other airports. The GMR Group won the bid for the Delhi airport by promising to share 49 per cent of topline revenue with the Airports Authority of India (AAI). It was obvious this was going to fail since you can’t share 49 per cent of your topline and still hope to make money, but anyway. Soon enough, GMR redefined what topline was, and came up with a proposal to take deposits which were not going to be shared with the government – to the government’s shame, it okayed this. As a result, the AAI share of revenues fell by 20-50 per cent, depending on what real estate values are. Anyway, given the real estate slump, GMR couldn’t raise enough deposits, so the government has allowed it to charge an Airport Development Fee by charging a few hundred rupees to everyone who flies.

Now other airports, like the one in Mumbai want to levy a similar fee.

Why bother to have agreements if you can just flout them in this manner? Indeed, it’s best to offer to share 99 per cent of revenue, win the contract, and then renegotiate it the way GMR has. After all, if the airport has to be completed, or a road has to be completed, the government will agree to anything.

By the way, this is not some fanciful stuff from the top of my head. In some cases, the Tariff Authority of Major Ports (TAMP) was actually allowing companies to charge their revenue shares as cost! So, let’s say a company’s costs were Rs 80 and if, say a 25 per cent return was to be allowed to it, it would need to earn Rs 100. So, 100 units of cargo were being despatched from the port, it would be allowed to charge Re 1 per unit. Now let’s say it promised to share half of its earning with the government – so, it has to give Rs 50. TAMP, in several cases, assumed the company’s costs were Rs 130, and so allowed it to charge Rs 1.3 per unit of cargo! The company, if it had wanted, could have offered to share 99 per cent of its revenue with government and still not have been out of pocket.

The story’s the same in all cases – the government appears to be run solely/largely by what corporate interests dictate.

Jai ho!