Why AP should not adopt Swiss Challenge

EAS Sarma

EAS Sarma

The Andhra Pradesh government is contemplating to adopt the ‘Swiss Challenge’ method for selecting project developers/ consultants for Andhra Pradesh Capital Region Development  Authority (APCRDA) projects.

The AP Infrastructure Development Enabling Act, 2001, refers to the Swiss Challenge as one of the methods for selection of project developers but the Act restricts it to Category II projects. These are defined as those which require the government or a government agency to provide asset support, financial incentives in the form of contingent liabilities or direct financial support, facilities such as water connection etc, and confer exclusive rights on the developer.  In the case of APCRDA projects, none of these conditions seem to apply; therefore, the Swiss Challenge approach should not be adopted.

Moreover, it has been recognised worldwide that the Swiss Challenge method for selection of project developers and consultants lacks transparency, involves arbitrariness and creates scope for corruption. To corroborate this, I cite the following observations made in the Report of the Committee on Revisiting and Revitalising Public Private Partnership Model of Infrastructure (Kelkar Committee) submitted as recently as in November, 2015 to the Union Finance Minister.

6.2.7 Unsolicited proposals (‘Swiss Challenge’) may be actively discouraged 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. Furthermore, the tendency of the authorities to call any pre-identified project to be delivered through a ‘DBFOT’ model (Design, Build, Finance, Operate and Transfer) as ‘Swiss Challenge’ needs to be curbed. Unsolicited proposals are inherently different from DBFOT. A vague definition of the term ‘Swiss Challenge’ risks the danger of encouraging opacity in the bidding process.”

Some of these concerns have also been expressed by the apex court in some cases in which the Swiss Challenge had come up for a judicial scrutiny.

Therefore, the state government should not adopt the Swiss Challenge method in selecting project developers/ consultants. I am certain that, in case, projects are awarded on that basis, they will be subject to litigation and public criticism.

From media reports I understand the AP government is also considering handing over large stretches of land, earlier acquired from farmers, to foreign companies for commercial development on the premise that it would generate funds for the state to develop the infrastructure needed for the capital city at Amaravati.

In principle, this is not a prudent approach as indiscriminate foreign investment in real estate business is not permitted and, moreover, it will attract public criticism if fertile agricultural lands taken away from the farmers are to be handed over to foreign companies for commercial purposes. Legally, lands acquired for a “public purpose” cannot be alienated to foreign business agencies.

Despite all this, what is distressing is the AP government insisting on adopting the Swiss Challenge to select developers for 1700 acres within the Amaravati area, knowing well the cautionary recommendation given by the Kelkar Committee. 

The observations made recently by the AP High Court during the proceedings in respect of a case on the subject should make the government ponder seriously over the efficacy of the Swiss Challenge approach.

The state government is said to have been working at breakneck speed to amend the Infrastructure Development Enabling Act to pave the way for pushing through the proposal put forward by the Singapore Consortium.

According to a report in a Telugu newspaper (Sakshi, October 18, 2016), the proposed amendment will abridge the powers conferred on the State Infrastructure Authority, dilute the collective appraisal process and make it easy for the government to have its way as far as the Singapore Consortium’s proposal is concerned.

In my view, such an amendment is ill-advised, highly imprudent and self-defeating. It is likely to subject the government to further litigation, as any amendment that seeks to compromise the guidelines set out by the Supreme Court on the subject will be prima facie illegal.

In this connection, it is worth looking at the order dated 11-5-2009 pronounced by the  Supreme Court in Ravi Development Vs Shree Krishna Prathisthan & Others [Civil Appeal of 2009 arising out of SLP (C) No 13149/2008]. The observations made by the apex court are:

To make it (Swiss Challenge) an effective approach Swiss Challenge Method or any other encouraging concept should be duly publicized first. The effort of public-private participation can only be possible when private entities are aware of such scheme.

Also in the scheme of availing a new system thorough rules and regulations are needed to be followed otherwise unfairness, arbitrariness or ambiguity may creep in. In order to avoid such ill-effects the State Government is suggested to consider the following aspects:-

  1. The State/Authority shall publish in advance the nature of Swiss Challenge Method and particulars;
  2. Publish the nature of projects that can come under such method;
  3. Mention/notify the authorities to be approached with respect to the project plans;
  4. Mention/notify the various fields of the projects that can be considered under the method;
  5. Set rules regarding time limits on the approval of the project and respective bidding:
  6. The rules are to be followed after a project has been approved by the respective authorities to be considered under the method.
  7. All persons interested in such developmental activities should be given equal and sufficient opportunity to participate in such venture and there should be healthy inter se competition amongst such developers.

These suggestions are not exhaustive and the State is free to incorporate any other clauses for transparency and proper execution of the scheme. The State Government is suggested to frame regulations/instructions on the above lines and take necessary steps thereafter in future.”

In other words, whatever changes AP is now proposing to introduce in the relevant Act should enhance transparency, not lower it; widen scope for competition, not narrow it; minimise the conflict of interest, not increase scope for it; and ensure the best terms for the State, not create scope for compromising the public interest. If these norms stand infringed, it will hurt the public interest.

The political leadership should leave enough room for professionalism and transparency to prevail in decision making at the executive level, not interfere with it. Any dilution in the role of the State Infrastructure Authority will only enhance arbitrariness in decision making and create scope for corruption. 

(This is an edited version of letters  sent to S P Tucker, Chief Secretary, Government of AP, and earlier to his predecessor IYR Krishna Rao by E A S Sarma, former secretary, Government of India. Copies of the emailed letters have also been sent to the ministries of external affairs, home and labour).

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