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Friday, 15 March 2013 01:08
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Good idea to get CAG inputs on contract renegotiation

 

NHAI chief RP Singh has done well to ask the CAG to give its inputs on how to renegotiate the contract for the Kishangarh-Udaipur-Ahmedabad highway project. After walking out of the project some months ago, the GMR Group has said it was willing to come back provided the terms were relaxed. Given that it is NHAI that has to do the renegotiation, it makes sense to get CAG’s inputs at the very beginning.

But it is more than just NHAI playing safe. A large number of projects across various sectors has become unviable today because bidders were too optimistic or because economic circumstances today are vastly different from those a few years ago, at both the macro level as well as at the company level. In such a situation, the government can either take the stand that if companies have bid for projects, they just have to complete them. This may work sometimes, but more often than not, just results in lengthy court cases. Indeed, the Central Electricity Regulatory Commission is, right now, in the process of seeing how it can rework tariffs for ultra-mega power projects where, after having given legally binding supply commitments, the developers are bleeding.

It is not just the CAG, several others need to apply their mind and come up with guiding principles for renegotiation. Be too lenient—without the developer taking any haircut—and that only encourages frivolous bidding; be too inflexible, and you could be tied up in court cases for years. Let’s not forget NTP 1999 was nothing but a renegotiation, but one that changed the fortunes of the telecom industry forever.

 
 

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