A key tender condition that forbids firms involved in contract terminations from participating in new auctions for cargo handling deals at State-owned major ports is not in consonance with the concession/contract agreements and this “lack of clarity” could hurt the government’s national monetization and infrastructure pipeline plans, multiple sources said.
The fate of clause 2.2.8 of the tender conditions is yet to be decided some three months after the country’s top court ruled on 5 September that the disqualification of Adani Ports and Special Economic Zone Ltd (APSEZ) arising from the termination of its contract at Visakhapatnam Port “shall not bar or act as a disqualification for the petitioner (APSEZ) for future tenders floated by public bodies”.
“An Applicant including any Consortium Member or Associate should, in the last three years, have neither failed to perform on any contract, as evidenced by the imposition of a penalty by an arbitral or judicial authority or a judicial pronouncement or arbitration award against the Applicant, Consortium Member or Associate, as the case may be, nor been expelled from any project or contract by any public entity nor have had any contract terminated by any public entity for breach by such Applicant, Consortium Member or Associate,” according to clause 2.2.8 of the tender conditions.
India’s biggest private port operator was excluded from tenders issued by some of the major ports earlier in the year citing this tender condition.
A coal handling terminal run by a unit of APSEZ at Visakhapatnam Port was terminated by the port authority in December 2020, a few years into its 30- year concession.
APSEZ challenged its disqualification from one of the tenders to privatize the container handling facility self-run by Jawaharlal Nehru Port Authority- in the Bombay High Court but lost the case. The firm then approached the Supreme Court for relief.
The Supreme Court verdict, according to industry sources, has made the clause more or less “redundant”. The government, though, is yet to decide on what to do with the clause.
“We are still reviewing that clause within the Ministry; we will take a call on it,” said Bhushan Kumar, a joint secretary in the Ministry of Ports, Shipping, and Waterways. As an afterthought, Kumar quickly added: “That RFQ (Request for Qualification) is not made by us; it is made by the Finance Ministry, so they will have to take a stand on it”.
Major ports or those owned by the Union government that are involved in monetizing or developing cargo handling projects through the public-private-partnership (PPP) route allude to a lack of clarity that has emerged due to a disconnect between the tender condition and the concession/contract agreement that governs projects.
“If clause 2.2.8 is to be interpreted, it bars anyone whose contract has been terminated previously. There are no if’s and but’s in that. But, post-termination, a private entity can always invoke the arbitration clause written into its concession/contract agreement and challenge the termination before an arbitral tribunal. Clause 2.2.8 is not clear about this aspect,” said an official overseeing tendering works at one of the 12 major ports.
“As a result, there is no clarity amongst anyone on this issue. This has thrown the entire tendering process into confusion, pan India,” he said.
The official questioned the “meaning of termination when arbitration is in progress”.
“That clarity should be there. Any entity against whom a termination order has been issued for whatever reasons, including contractual non-performance, can go for arbitration per the scope of the contract/concession agreement signed with the public authority. And, when he goes for arbitration to dispute the termination per the same contract/concession agreement, he will automatically become eligible to participate in new tenders issued by port authorities. They cannot disqualify him in such an event,” he explained.
“When the contract/concession agreement itself permits the private operator to go for arbitration to challenge the termination and the verdict is awaited, how can any public authority not allow him to participate in new tenders? By merely stating that arbitration is in progress, he will become eligible to participate in new tenders. The clause 2.2.8 has thus lost its relevance,” he said.
“Whosoever has framed the model RFQ document should now issue a clarity in the tender conditions. Otherwise, the entire public tendering process will go for a toss,” the official said.
“This clarification is important because the issue has larger ramifications for other infrastructure sectors also,” he added.