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Airport Privatisation CasePublic Law and Public Sector Reform

The matter of Reliance Airports vs Airports Authority of Indiaallows the Supreme Court the unique opportunity to intervene inthe public and policy discourse around public-private partnershipprojects at an early stage in their development in India. If thecourt uses this opportunity to emphasise the centrality of thepublicness in PPP, and to remind the government that it

continues to play the most significant role in the provision ofpublic goods and services in this new phase of the evolution ofthe Indian state, it would have performed a critical role.

court, this case will clarify the role andresponsibility of various actors in thefield of public sector reform, includingthat of the various organs of government,senior civil servants and that of thecourts. In this comment, I will examinethe key arguments raised before the courtin this protracted dispute to highlight theprinciples of public law and public sectorreform central to any view that the courtmay take.

Understanding PPPs

PPPs have emerged as a preferred modeof public procurement of infrastructureservices in India in the last few years.There is much confusion about preciselywhat PPPs mean, and how they may bedistinguished from previous modes ofpublic procurement and whether the novelstructuring of PPP arrangements requires

us to modify our existing public law rulesand principles.

At the core of a PPP programme is ashift from the procurement of physicalinfrastructure assets to the procurement ofinfrastructure services. For example, let usexplore how these modes of procurementwould affect the development of portinfrastructure. Under the mode of procure-

ment practised till recently, the relevantgovernment agency or enterprise wouldbuild a port through piece rate or engineer-ing, procurement and construction (EPC)contracts, and then subsequently hire staffand procure necessary equipment to deliverport services. In the PPP mode, we directlyspecify the infrastructure outcomes we seekto achieve and procure high quality portservices through facilities developed andmaintained by private parties at tariffs whichare either contractually predetermined ordetermined by a competent regulator. In thePPP mode we focus on the private deliveryof infrastructure services rather thanphysical assets, by inviting private capitalto build, develop and own infrastructureassets as long as they are able to deliverhigh quality infrastructure in relatively shortperiods of time. A well-structured PPParrangement which allocates risks andrewards appropriately, allows the govern-ment to rapidly scale up infrastructuredelivery by optimising public investmentand simultaneously directing private sec-tor capital investment and operating effi-ciencies to secure public service outcomes.

PPP projects proceed through variousstages: the public sector agency or gov-ernment must first define the service itseeks to procure by specifying output basedparameters, select a technically competentprivate partner through a competitivebidding process, devise a long-termcontracting framework, which distributesrisks and rewards suitably and finallymanage the contract successfully to securespecified outcomes. As will be obviousfrom the broad outline above, PPPs, farfrom eliminating the role of governmentand being privatisation by stealth, requirea central and critical role to be played bythe relevant government actor.

The Airports case is at its core about therole of a responsible government in theearly stages of the PPP process selectinga technically competent bidder through acompetitive process. The decision of thecourt will rest on the conclusion it arrivesat on two interlinked critical issues. First,if the process by which the technical andfinancial evaluation of bidders took placewas justifiable and secondly, the standardsof judicial review that should apply to the

SUDHIR KRISHNASWAMY

The arguments in the RelianceAirports vs Airports Authority ofIndia and Others case concluded

in August. Over three weeks, the SupremeCourt heard a panel of senior lawyersarguing about the legal validity of theselection of airport bidders in therecently concluded Delhi and Mumbaipublic-private partnership (PPP) pro-gramme. The court granted the lawyerstime for written submissions and hasreserved judgment on what is the mostsignificant case on public sector reformsince the early privatisation cases relatingto BALCO and the telecom industry.

For those who anticipate that I willendeavour to predict the likely outcomeof this dispute, they are likely to bedisappointed by what follows. Irrespec-tive of which party succeeds before the

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scrutiny of the governments power tocontract. Let us look to each of these in turn.

Technical and FinancialEvaluation of Bids

The Airports Authority of India (AAI),a statutory authority which builds andoperates most airports in India, was given

the responsibility to select the joint venturepartner for the Mumbai and Delhi airportsin 1998. AAI selected financial, technicaland legal consultants to structure and stew-ard this selection process. The process oftechnical evaluation of bids adopted by theconsultants was found to be subjective andinconsistent by the Government ReviewCommittee (GRC) and the Inter-MinisterialGroup (IMG), which were set up to reviewthe bidding process. The empowered groupof ministers responsible for the airport PPPprocess then requested the committee ofsecretaries to set up a process wherebythese inconsistencies could be ironed out.Sridharan, the chairman of the Delhi MetroRail Corporation, undertook this task andsought to correct the inconsistencies pointedout and moderate the evaluation made bythe consultants. In this elaborate multi-layered selection process, there were boundto be losers and gainers at each stage.Eventually, Reliance was disqualified bythe Sridharan Committees moderation oftechnical evaluation marks and it challengedthis action before the Delhi High Court.The Delhi High Courts decision to uphold

the committees decision was subsequentlychallenged before the Supreme Court.

This extended and multilayered processof bid evaluation throws up several issues.First, AAIs delegation of control over theentire bidding process to the consultantsmay be understood as a distancing deviceto eliminate political or bureaucratic inter-ference. However, this effort rests on theglib assumption that consultants are im-mune from these pressures or other con-flicts of interest, which may affect theirevaluation process. In any event, when the

GRC and IMG raised several queries aboutthe technical evaluation process, it wasclear that AAI officials had not appliedthemselves to the technical bids. There isno gainsaying that the PPP does not absolvethe lead government agency from takingfull responsibility for the selection of thejoint venture partner. Insofar as govern-ment agencies imagine that PPP contractingprocesses may be delegated to third partiesand public responsibility may somehow beavoided, they have misunderstood the PPPframework and abdicated their legal dutiesto protect the public interest.

Secondly, the qualification of bidders onthe basis of a detailed technical proposalthrew up peculiar consequences. As bid-ders were given design freedom to developmaster plans for the airports to the best oftheir ability, the technical evaluation ofbids was made extremely difficult as theconsultants had to compare proposals whichwere substantially different, akin to com-

paring apples with oranges. The PPPprocess envisages bidders who are givenfreedom to design projects provided theyachieve output-based specifications clearlyset out in the request for proposals (RFP)document. While there is no doubt that aprequalification process must distinguishcapable and serious bidders from thosewho are not, it is not apparent that theconsultants were in a position to rationallyreview detailed technical bids of the sortinvited in the airport bids. Moreover, theAAIs technical advisors had themselvesdeveloped master plans which they usedas a benchmark to assess the plans pre-pared by the bidders. As bidders whovirtually copied the technical consultantsmaster plans were regarded as morequalified, this made a complete mockeryof the design freedom which is critical tothe PPP procurement framework.

Finally, the decision of the additionalsolicitor general to place the entire officialrecord before the courts must be seen tobe a strategic master stroke. The vitalsignificance of the candid expression ofdisagreement among several government

officials responsible for decision-makingmay well prompt the court to uphold thedecision-making process to be a fair one,free from illegality. The ability of officersto comment critically on the bidding pro-cess is a rare public display of integrityand character, which allowed the govern-ment to change its mind on the bidders tobe selected, albeit at a late stage in theprocess. The current debate on the disclo-sure of file notings under the Right toInformation Act 2005 would gain strengthfrom the critical role played by publicofficials writing with candour and integ-rity on the record in the airports biddingcase. It is often asserted in public law thatsunlight is the best disinfectant and ifthe Supreme Court were to uphold theairport bidding process, it will entrenchthis fundamental principle of public gover-nance and embolden honest public officialsto express themselves without fear orfavour. In the absence of these wellreasoned justifications of the decision toalter the evaluation of the bidders, thegovernment may well have found itimpossible to defend the technical and

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financial aspects of the bidding process.Given the lengthy, expensive and con-

tentious process through which the biddersfor the Delhi and Mumbai airports wereselected, it may well be advisable to abbre-viate the PPP bidding process to two clearstages: a technical prequalification ofbidders based on their capacity and expe-rience to deliver the output-based speci-

fications set out in the RFP documentfollowed by a financial evaluation of thebids. This must be carried out by the relevantgovernment agency directly. Where theassistance of consultants is found neces-sary, the ultimate decision should not reston the unexamined recommendations ofconsultants, irrespective of their qualifica-tions and integrity. By eliminating theproject-specific detailed evaluation of thebidders at the bidding stage, and allowingfor these parameters to be specified andcontrolled through the concession contracts,we may be able to achieve desired out-comes at significantly lower cost.

The core of the legal challenge to theselection of joint venture partners for Delhiand Mumbai airports rested on threeadministrative law grounds: whether theauthorities which carried out the bid evalu-ation were duly authorised to do so, whetherthey considered all relevant considerationsand excluded irrelevant considerations andif the decision-making process was fair andreasonable. The courts decision on eachof these legal challenges will turn on thestandard of scrutiny to which it will subject

the governments action in this case.The freedom to contract is a common

law civil liberty enjoyed by all persons.When the government is contracting withprivate parties this common law freedomis circumscribed by the administrative lawprinciples, which ensure the legality ofexecutive action. The court has in recentyears been willing to review executiveaction with deference when such action isin the sphere of economic policy. Duringthe hearings, the court was urged to adopta very low standard of scrutiny so that itwould interfere with the executive actiononly if there was bias or other glaring malafides. If the court agrees with this pro-position, it would transform administrativelaw judicial review into an anti-corruptiondevice rather than a test of legality.

Though corruption in executive actionshould be stamped out by the court, thereis no need to rob administrative lawjudicial review of its potential to ensure fairand reasonable executive decision-making.The contours of the Indian state arerapidly changing with the techniques ofnew public management which we are

presently deploying. As regulatory insti-tutions and public-private partnerships in-creasingly replace the ageing departmen-tal state, our courts will have to adapt theexisting administrative law principles tothe new shape of the Indian state. Thereis no doubt that judicial control of executiveaction through administrative law judicialreview will play a less significant role in

the regulatory and privatised state whencompared to the command and controlministry/department state. However, till weevolve and modify our rules and principlesof administrative law to deal with these newrealities, the court must refuse the presentinvitation to dilute the scope and rigour ofjudicial review and maintain the higheststandards for adjudicating the legality ofexecutive action in the airports case.

Conclusion

New public management is a phraseused to describe a range of public sectorreform efforts which seek to harness theefficiencies of the private sector to deliver

public infrastructure services. PPP is oneof the several new public managementtechniques which promises to deliverbetter public services at lower costs. Theaiports case allows the Supreme Court theunique opportunity to intervene in thepublic and policy discourse aroundPPP projects at an early stage in itsdevelopment in India. If the court uses

this opportunity to emphasise thecentrality of the publicness in PPP, andto remind the government that it continuesto play the most significant role in theprovision of public goods and services inthis new phase of the evolution of theIndian state, it would have performed acritical role. Our ability to evolve com-mon law-based administrative law prin-ciples to coherently apply to this newpublic law environment is a challenge thatthe Supreme Court must embrace fully toensure the legal and political account-ability of the evolving administrativestate in India.

Email: krishnaswamysudhir@gmail.com

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