Vijay Kelkar (Ex-Finance Secretary) panel in its report on December 29, 2015 has asked the central government to actively ‘discourage’ the ‘Swiss Challenge’ for auctioning infrastructure projects as they bring information asymmetries in the procurement process and result in lack of transparency and in the fair and equal treatment of potential bidders in the procurement process. The panel called for urgent changes to the Prevention of Corruption Act of 1988 as well as government’s vigilance and conduct rules in order to distinguish “genuine errors” in decision-making by public servants from acts of corruption, the panel has emphasized the need to guard officers against ‘witch hunt’ while taking immediate measures to punish malafide actions.
- Lack of transparency, information asymmetries and competition.
- Foster crony capitalism.
- Scope for companies to employ dubious means to bag projects.
- Strong legal and regulatory framework needed to award projects.
- Understanding of risks involved in a project.
- Direct negotiations with private players can be fraught with downsides.
- Competitive bidding is the best method to get the best value on projects.
- Ends up in granting viability gap funding, commercial exploitation of real estate, etc., without deriving durable and long-term social or economic benefits.
- Results in over sized projects resulting in investments getting blocked and funding huge maintenance expenditure.
- Mumbai-Pune Express way resulted in government making guaranteed toll revenues gap funding to developers for over a decade.
- Enron's Dabhol Power Project resulted in robbing MSEB's revenues by 40% while contributing 15% power to Maharashtra grid, that led to cancellation of contract.
- Hyderabad's 160 km 8 lane ORR costing Rs.7,000 crores. Even after 6 years traffic is much below the break even mark. Ideally it should have been a 4 lane ORR in the 1st phase and expansion to 6/8 lanes in 2nd phase as and when needed. This would have saved idle investment of Rs.2000-3000 crores.
- Hyderabad Airport built on land parcel of 5,400 acres costed about Rs.3,000 crores became operational in 2008. This resulted in closing of Begumpet airport and no airport to come up with 150 km radius depriving Warangal & Mahboobnagar airports for a period of 30 years. Annual passenger traffic increased was from 6 million to 12 million (21%) and aircraft movement from 80,000 to over 100,000 (7%) in the past 8 years making it huge loss making venture. In contrast, Mumbai Airport is on land parcel of 1450 acres, handling 42 million passengers and 300,000 aircraft movements, annually. Even though losses are borne by the concessionaire for now, they will get compensated by allowing commercial exploitation of real estate sooner or later. Due its high charges, Lufthansa & KLM Airlines have withdrawn their operations to Hyderabad.
- Riyadh Airport (78,000 acres) in Saudi Arabia was built in 1983 costed $ 3 billion with over 100 gates has capacity of over 100 million passengers. The 2013 figures are 19 million passengers and 160,000 aircraft movement.