Sunday, March 28, 2010

Flying out of Delhi: Pay more for someone else's mistake

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It's become very common these days to pay for the mistakes of someone else. The increase in cost estimates by DIAL (Delhi International Airport Ltd) re-affirms the same.


Suppose, you own a company"A" and you have outsourced some work to another company"B" at a certain cost through bidding process. Both the companies agree upon a target date for completion of works with a certain quality at a certain cost when done through bidding. And if, costs increase all of a sudden due to less time to complete or increase in raw-material costs... Who is responsible for this scenario??


1. Either of the parties involved A/B or both A&B haven't calculated timelines properly. 2. Party"B" hasn't considered the risk of increase in raw-material costs, capacity addition in the process of bidding at a lower price than the competitors and later on realised the same..


Because, it was bid at a certain price, if you haven't communicated the timelines properly to the company"B", obviously you are the person to be blamed for this mess-up. If you have communicated the timelines properly then Company"B" is to be blamed for the mess-up and is required to take up the extra costs as a loss on it's balance sheets.


Here, "A" is the government of India and "B" is the consortium that has won the bid for modernisation of Delhi Airport{(i) GMR Infrastructure Ltd., (ii) GMR Energy Limited, (iii) GVL Investments Private Ltd., (iv) Fraport AG Airport Services Worldwide, (v) Malaysia Airports (Niaga), (vi) Sdn. Berhad, (vii) India Development Fund}.


India has won the bid to host 2010 Commonwealth games way back in 2003. And the government has signed up agreement and awarded the bid for modernization of Delhi Airport in 2006. DIAL consists of representatives from both, the government (AAI) as well as the private companies who have won the bids (GMR and other partners). The estimated cost of the project was almost doubled to Rs.8,900 Crores in 2007 and now finally goes up by another 42% to Rs.12,700 Crores as per the latest reports by some newspapers.


When India has won bid in 2003 and has given the bid in 2006 for modernisation by 2010, where did these multiple increases in cost come from?? Either government hasn't communicated it's timeframe properly at the time of bidding.. or else, the consortium hasn't planned it properly for time required as well as increase in other costs to complete by 2010. This results in a possible increase in the Airport development fee on passengers flying out of Delhi who are already paying Rs.200 and Rs.1300 for domestic and international flights.


AERA (Airports Economic Regulatory Authority), responsible for coming out with capping the charges and other regulations related to charges is yet to finalise the methodology. If it might have been your own private company"A", Will you let the company"B" charge you extra or increase the price of your products in the market due to such an increase in input costs?? Obviously, No is the answer. You would sue "B" for not completing works in the time and costs stipulated in the bid. This throws a number of unanswered questions..


Will AERA consider such mess-ups by government or the consortium and make sure that passengers are not charged for the mistakes done by someone else?? And if it by mistake works in the independent manner it is supposed to(opposite to the way independent authorities work in India as of now) and suggests a roll back in the charges as it was the fault of government/the consortium, Will they pay back the customers charged in the past?? If it decides in the favour of consortium and gives nod to increase the charge under airport development fee and DIAL gets into profits in the future, will it give back customers Rs.200/1300 booking tickets henceforth or would it pocket the profits?? And to what extent can it pocket the profits?? Lots of questions await AERA to answer...


But, as of now you and I pay for the mistakes of government/consortium (either or both) and get ready to pay more for the future while government & AAI (Airports Authority of India) makes a mockery of PPP model similar to the way toll tax being collected for years and years...

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Open for Comments..

1 comment:

Amit said...

I am quite interesting in this topic hope you will elaborate more on it in future posts.
bba