Selection of the right private partner in a scientific way for sustainable, effective and viable results is the key to the success of a project. Sumit Barua takes us through the process in this concluding part of the series.
Quantitative technical criteria should be deterÂmined based on the complexity and extent of work involved in the entire project life cycle (conÂcÂession period) including design, construction, operÂations and management, besides other auxiliary activitÂies. The technical criteria shall be fixed to evaluate bidders' capability to undertake the project from scope, time, cost, quality and risk management point of view, during the entire concession period.
It is a good practice to distribute 100 marks between multiple technical parameters covering all the aspects of project and set minimum qualifying marks (such as 75) to be eligible for participate in the financial bid stage.
Participation as a consortium
In many cases, where the project size is large and/or involves multiple type of experience, it is common for a number of participants (maximum up to six) to partiÂcipate as a consortium. In such cases, a joint bidding agreement is sought as one of the documents as a part of the bid. The joint bidding agreement is an undertaking by the members of the consortium to form a separate company or Special Purpose Vehicle (SPV) with pre-determined equity holding, in the event of the consoÂrtium is successful in the bid.
As per the guidelines of Government of India, the technical and financial capabilities of all the consortium members, who hold or intend to hold 26 per cent or more equity in the SPV, are considered for evaluation.
Case study: Integrated SWM, Dehradun
The project involves multiple activities: collection and transportation, segregation, secondary storage, comÂposting and land filling. Thus the technical criteria have been set to evaluate bidding consortium's capability to perform all requisite project deliverables.
The number would include any project on setting up or operations and management (O&M) of Integrated solid waste management (SWM), collecÂtion and transpÂortation, composting, landfill, and manÂuÂÂÂfÂacture of RDF.
The project(s) would include O&M of waste collecÂtion from urban areas. The project-wise matrix would be prepared to arrive at average quantity. The overall marks would be given on the average quantity.
The project would include setting up or O&M of composting facility.
The project wise matrix would be prepared to arrive at average quantity. The overall marks would be given on the average quantity.
The project wise matrix would be prepared to arrive at average quantity. The overall marks would be given on the average quantity.
Engineered landfill: Each engineering landÂfill built will be given 5 marks, with a maximum of 10.
Approach, methodology & plan: The bidder would be given marks on the basis of their underÂstanding of the project plan. The bidding may be invited to make a presentation on approach, methodology and project plan to judge their understanding of the project.
Financial bid: The bidder/consortium who secÂures minimum qualifying marks is invited to participate in the financial bid. In case of one stage-two bid system, the technical and financial bids are received together in separate envelopes and post technical evaluation the financial bids of technically qualified bidders are opened, in the presence of bidders. In case of two staÂge-two bid system, the technical bids are received in the first stage and post technical evaluation the qualiÂfiÂed bidders are issued RFP to submit their financial bid.
In case of commercially viable projects, the PPP partner offers payment to the government, upfront and/or revenue share, whereas in case of non-viable projects (eg, social sector), where user charges are regulated, the government provides capital and/or revenue grant to the PPP partner. The financial bid structure needs to be formulised so as to create a level playing field for all the technically qualified bidders.
Case study: Financial bids
Ayurvedic Hospital and Wellness CentÂre, Nainital: The financial bid criterion was fixed up front payment of Rs 2.5 crore and percentage annual revÂenue share over a minimum level of 5 per cent.
Is it viable? The project is commercially unviable due to regulated user charges from citizens (very nomiÂnal) and minimal revenue from compost sale compared to overall operational expenses. The government, in this project, has offered one-time capital grant (subject to a maximum level) and per metric tonne (mt) of tippÂing fee. The one-time capital grant (Rs) and tipping fee (Rs/mt) was combined in the following formula to arrive at a comparable value.
PV (Rs = 14 crore)
Capital grant+mt/day×365×? (Tipping fee)n
n=1 (1+r)n
Present value = PV, Capital grant = Rs, Waste generated per day = 250 mt, Number of days in a year = 365, Concession period = 14 years, Tipping fees = Rs per mt, Discounted rate = “r” considered as 16 per cent.
The financial bids should be opened in the presence of all the qualified bidders and declared.
Draft Concession Agreement (DCA)
DCA is an integral part of bid documentation and must be as elaborated as possible. The models DCA have been provided by Planning Commission, National Highway Authority of India and other sectoral agencies. The DCA must elaborate in detail, the responsibilities of both parties-the concessionaire and concession autÂhority-to enable the bidder to perceive various risks and its allocation as structured in the project.
The emphasis should be to conduct a transparent and fair bid process with no room for qualitative assÂessment. The bid process, documents and evaluation methodology should be designed to create competition among most eligible PPP partners and to receive best value for money.
The author is Public Private Partnership Expert, Asian Development Bank.
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