Chinese construction companies in India - Just another opinion

Let me say this upfront – I am as pained by the martyrdom of our 20 soldiers as anyone can be. The barbaric manner in which the coward opponent attached our men holds no place in this 21^st century world. This is no less than a ‘war crime’ that needs be answered - both politically as well as militarily.

Ever since the devastating news came out in public, there has understandably been a sudden rise in anti-china sentiments. As expected, trade between the two countries came under the fire and online campaigns have been started with an appeal to boycott Chinese manufactured goods and companies having Chinese origin.

Coinciding with the unfortunate developments in Ladakh, the bid opening results for “Package 4: Design and Construction of Tunnels by TBM from near New Ashok Nagar DN Ramp to Sahibabad UP Ramp” of Delhi – Meerut RRTS (Rapid Rail Transit System) were announced and Shanghai Tunnel Engineering Company (STEC) emerged as the L1 bidder (lowest tendered cost) by quoting a bid price of Rs. 1,126 Crores. The Indian company Larsen & Toubro Ltd. emerged as L2 bidder by quoting Rs. 1,170 Crores.

Results of Financial Bid opening of Contract Package 4: Delhi-Meerut RRTS Project

Needless to mention, the news created a furore and demands were raised that government should cancel the tender awarded to STEC. It is prudent to clarify here that as on date, the tender has not been ‘awarded’ to the company as issuance of Letter of Award and signing of Contract Agreements takes many days perhaps even months, after the announcement of results. However, the question is – can the government stop the award of the contract to the firm and what can be done with several others similar projects being awarded to various Chinese companies?

The answer is “No”. The government cannot reject the tender about to be awarded to STEC after declaring the financial bid opening results. Even if they do so, STEC can file a case against the order in the High Court / Supreme Court and can easily get a stay on the order and subsequently a decision in its favour. The reason is simple – the project is being constructed under the funding of Asian Development Bank and as per the procurement rules of ADB, all ADB funded projects are open for bidding by companies originating from ADB member countries.

There exists a ‘Nationality’ clause in every bid document funded by ADB / World Bank which specifies companies originating from which countries are allowed to participate in the tender. While small value contracts often give preference to domestic companies, big-ticket projects like the Delhi – Meerut RRTS are always open for all.

The immediate second question that may come to anyone’s mind is – Why can’t we scrap this whole project altogether and return ADB’s funding back to them? Well, the answer is ‘Yes’ it can be done but the real question is not this, the real question is – what are going to be the aftermaths of it?

An agreement between ADB and a borrower country is a sovereign document which cannot be changed. It has been purposely made this way so that a change in government resulting from a recently concluded election, does not result in cancellation of awarded tenders to a specific company. It may happen that the new government is inclined towards cancelling the project awarded to a specific company and prefer another company taking up the job. The reasons for the same could be many and I leave it your imagination but let me assure you, there is always only one reason for this, which you and I are well aware of. 

India gets the maximum share of funding by ADB

Thus, even if we take the bold step and return the funding given for Delhi-Meerut RRTS Project, we are eventually going to risk ADB’s funding for several other ongoing projects in India like the Mumbai Metro Rail project, Gujarat Solar Power project, Assam Urban Infrastructure Investment Program, Visakhapatnam–Chennai Industrial Corridor Development Program, State Highway Development projects in Bihar, Rajasthan, West Bengal and several other states etc. Refusing to adhere with the terms of a sovereign agreement opens up a worm hole and we do not know where it will lead us to. Remember, India is the biggest beneficiary of ADB loans and a conflict with ADB  may not only stop the grant of future loans but will also seriously impact the progress of many under development critical projects.

 

Sector wise breakup of ADB funded projects

Therefore, it will be interesting to see how government plans to handle the current issue regarding the Delhi – Meerut RRTS project. One smart way of doing it is to cancel the project in its existing shape and bifurcate it into 2-3 smaller packages and invite new tenders for the same. Sufficient justifications can be made for such a step by citing reasons like better administrative control, timely completion etc. ADB shall have no objections to the same as this is well within the permitted set of activities. However, even in the case of new tenders being floated, STEC or any other Chinese company cannot be stopped from submitting its tender once again. 

Thus, we cannot stop Chinese companies from coming forward and taking part in the bidding process of big-ticket projects in India. We have to systematically create a system that discourages Chinese companies to come and explore work options in India.

Let me say it very clearly, no construction project in India can be completed if the government agency executing it starts diligently monitoring the activities of the Contractor. The requirements regarding maintaining environmental standards, hygiene standards, quality of construction material etc. are so stringent in contract agreements that no construction company can adhere with them. That is why, the government departments often ignore several errors observed in the working of contractors on day to day basis.

Let NCRTC or any other government department where a Chinese company is working, keep a hawk eye on day to day routine working of the company. The moment slightest of a deviation from the Contract Agreement is observed, let a hefty fine be levied. Impose conditions like daily health checks of labourers, pollution check and mandatory service records of construction equipment, no subcontracting of work beyond the prescribed limits etc. Let the company get busy with so many compliances that it becomes practically impossible for them to meet the deadlines.

Ok, I admit, got a bit carried away there. While the purpose was to tell you that there are several ways by which we can pressurise a Chinese firm and set an example for others to consider before coming here but this will largely be amounting to ‘harassment’.

What we really need to understand is the economic equations behind the whole argument. Even if Chinese STEC has been able to secure a project worth Rs. 1200 Crores in India, we really should not see this from the same spectacles as we see other aspects of Chinese business in India.

First of all, a bid price quoted by a STEC is lower than the L&T’s quoted price by an amount of Rs. 50 Crores – this Rs. 50 Crores is a straight saving for the government. Further, a foreign company like STEC cannot execute a project of such magnitude on its own in India. They will engage local Indian companies for doing majority of the work. The labourers, engineers, equipment providers, sub-contractors etc. are all going to be Indians. It is estimated that over 90% of the tendered project cost shall get utilised in constructing the project itself.

It is a well-known fact that Chinese construction companies are backed by the Chinese Government and losses incurred on a project as a result of bidding aggressively are reimbursed by the government. The Chinese government has done this for many projects in Sri Lanka, Bangladesh, Nepal with the sole aim of supporting their geopolitical ambitions. Indian companies however do not have such a ‘support system’ in place.

The only way Indian companies can beat their Chinese counterparts is by enhancing their capabilities. 20 Years back, Chinese companies were constructing roads, bridges, treatment plants in India but now they are not. Indian companies were able to enhance their construction capabilities and have thrown Chinese out of competition in these areas. Complex engineering projects like Tunnels, High Speed Railways etc. are still relatively new to our companies. As majority of them do not have the requisite machinery or manpower to undertake such complex jobs, they are forced to load some additional costing in their bids to cover the expenses and mitigate potential risks. In coming years, many Indian companies would acquire necessary technical expertise which will enable them to rise through the competition given by Chinese companies.