Tuesday, September 01, 2020

Thiruvananthapuram International Airport privatisation: Getting RoFR right

If only the Government of Kerala (GoK) or Kerala State Industrial Development Corporation (KSIDC) had paid attention to the auction process in Indian Premier League (IPL), the controversy over the state government not winning the contract for managing Thiruvananthapuram International Airport could have been avoided. The GoK could have agreed to participate in an auction, but should not have agreed to the proviso that it will be eligible for the right of first refusal (RoFR) only if its bid is within 10% of the winning bid.

Civil aviation minister Hardeep Puri tweeted, “If Kerala Govt is against privatisation, then why did it participate in the bidding process? State Govt was given a fair chance & Right of First Refusal (RoFR) if their bid was within 10% below the range of highest bid. However, they bid 19.64 % below.” The point is not whether the Kerala government is pro- or anti-privatisation. The point is that Kerala should have bargained to have the option of matching the winning bid. The price of a commodity is discovered via the bids submitted by other participants, and the entity with RoFR can essentially sit out of the bidding process. What Kerala agreed to was not a standard RoFR since it not only had to participate but also had to be within 10% of the winning bid to be eligible for matching the winning bid.
A good example of RoFR is the Right-to-Match (RTM) card which was introduced in the Indian Premier League (IPL) 2018 auction. The RTM was introduced to help a team reacquire a player who had played for the said team in the last season. Consider the case of Shikar Dhawan. He had played for Hyderabad Sunrisers the earlier year. Kings XI Punjab placed the winning bid of Rs 5.2 crore for Dhawan. At that point, Hyderabad Sunrisers used their RTM and ensured that Dhawan continued to play for them. In the 2018 IPL auction, Mumbai Indians, Chennai Super Kings, Rajasthan Royals all used RTM to retain Kerion Pollard, Faf Du Plessis and Ajinkya Rahane, respectively. A total of 19 players were bought by different franchises using RTM. None of them had to bid for these players in order to be eligible to use their RTM card.
But then, the Supreme Court of India had ruled participation in the tender as a necessary condition for exercising RoFR. The case was in the context of an unfinished road project unlike the contract for airport in Kerala. Even if the state government is required to participate in the auction, the stipulation that the state’s bid had to be ‘within 10% below the range of highest bid’ is against the spirit of RoFR. The objective of the auction is to facilitate price discovery.

Adani Enterprises offered per passenger fee of Rs 168 while KSIDC and GMR Airport offered Rs 135 and Rs 63 per passenger, respectively. At this point, the logic behind IPL auction process should take over: KSIDC will have the RTM the offer made by Adani Enterprises. If the state government believes that the winning bid of Rs 168 is a viable one, then it should match the offer rather than litigate. Otherwise, it should simply walk away.
01/09/20 Shivangi Chandel & S Chandrasekhar/Financial Express

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