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2020 (2) TMI 1391
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....nd Natural Gas Regulatory Board1 conducted the ninth round of bidding for City or Local Natural Gas Distribution Networks2. On 14 September 2018, a press release was placed on the Board's website notifying details of the successful bidders in various Geographical Areas3. The contest in the present batch of appeals has arisen over the grant of authorisation for laying, building, operating or expanding CGD networks in the following GAs: (i) GA 51 - Puducherry District; (ii) GA 61 - Kanchipuram District; and (iii) GA 62 - Chennai & Tiruvallur Districts. 2. The Appellate Tribunal for Electricity4 was seized of two appeals - Appeal No. 292 of 2018, instituted by Adani Gas Limited and Appeal No. 323 of 2018, instituted by IMC Limited. These appeals were instituted before the APTEL Under Section 30(1) of the Petroleum and Natural Gas Regulatory Board Act 20065. By their separate judgments dated 28 February 2019, the Chairperson and Member Technical (Petroleum and Natural Gas) rendered divergent findings, following which the Chairperson directed that the proceedings in the two appeals be placed before the judicial member. The judicial member recused from h....
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....An Act to provide for the establishment of Petroleum and Natural Gas Regulatory Board to regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas excluding production of crude oil and natural gas so as to protect the interests of consumers and entities engaged in specified activities relating to petroleum, petroleum products and natural gas and to ensure uninterrupted and adequate supply of petroleum, petroleum products and natural gas in all parts of the country and to promote competitive markets and for matters connected therewith or incidental thereto. The PNGRB Act came into force, in terms of the provisions contained in Section 1(3) on 1 October 2007, save and except for Section 16. Section 16 which provides for the authorisation for building or expanding CGD Networks, came into force on 15 July 2010. Section 16, insofar as is material contains the following stipulations: 16. Authorisation.--No entity shall-- (a) lay, build, operate or expand any pipeline as a common carrier or contract carrier, (b) lay, build, operate or expand any city or local natural gas....
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....owing financial criterion to qualify for bidding for a single CGD network namely: Population in the geographical area as per 2011 Census of India Minimum net worth of the bidder entity (1) (2) 5 million or more Rs. 1,500 million for a population of 5 million, plus additional Rs. 300 million for each 1 million of population or part thereof, in excess of 5 million (refer Note-3) 2 million or more but less than 5 million Rs. 1,000 million 1 million or more but less than 2 million Rs. 750 million 0.5 million or more but less than 1 million Rs. 500 million 0.25 million or more but less than 0.50 million Rs. 250 million 0.1 million or more but less than 0.25 million Rs. 100 million Less than 0.1 million Rs. 50 million The minimum net-worth of the bidding entity is thus linked to the population of the GA the entity is bidding for, as set out in 2011 Census data. 7. Regulation 7 of the CGD Authorisation Regulations provides the criteria for determining how the Board should evaluate rival bids for the same GA. Regulation 7 is quoted below, in its entirety: 7. Bidding criteria. 1(a) The Board, while co....
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....r million British Thermal Unit (Rs./MMBTU) 10 Bidder is required to quote transportation rate for CGD only for the first contract year which shall not be less than Rs. 30/MMBTU. Rates for the subsequent contract years shall be derived considering the quoted rate and escalation as per Note. 2 Lowness of transportation rate for CNG - in rupees per kilo gram (Rs./kg) 10 Bidder is required to quote transportation rate for CNG only for the first contract year which shall into be less than Rs. 2/kg. Rates for the subsequent contract years shall be derived considering the quoted rate and escalation as per Note. 3 Highness of number of CNG stations (online and daughter booster stations) to be installed within 8 contract years from the date of authorisation 25 - 4 Highness of number of domestic piped natural gas connections to be achieved within 8 contract years from the date of authorisation 55 - Note: Annual escalation shall be considered from the second contract year and onwards based on the "Wholesale Price Index (WPI) Data (2011-12=100)" for "All Group/Commodity", as normally available on the website of the Office of the Economic Adviser, Go....
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....ie in the evaluated composite score, the successful bidder shall be decided based on the highness of numbers of PNG connections among the tied bidding entities. In case there is tie on number of PNG connections also, highness of inch-kilometer steel pipeline shall be considered and thereafter in case of tie in inch-kilometer as well, highness of numbers of CNG stations shall be considered; Under Regulation 7, the Board while considering proposals for authorisation, shall tabulate and compare all financial bids which meet the minimum eligibility criteria in accordance with the bidding criteria set out as enunciated. The table set out in Regulation 7(1)(a) provides for the tabulation of all eligible financial bids on the basis of five parameters. The table enunciates the five bidding criteria and the weightage which is to be ascribed to each of them. The criteria are as follows: (i) The first criterion is the 'lowness' of the transportation rate for CGD computed in rupees per million for a British Thermal Unit. The weightage ascribed to this criterion is 10 per cent. The explanation stipulates that a bidder is required to quote the transportation rate for CG....
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.... quoted the highest number of PNG domestic connections to be achieved is allotted a score of 100 per cent. The entities below the highest will be assigned a score in relation to the first entity on a proportionate basis. 8. Under Regulation 9, the grant of an authorisation is to be issued to a successful entity after it furnishes a performance bond. The quantum of the performance bond is based on the population of the GA as determined with reference to the census data of 2011. Regulation 9 states: 9. Performance bond. (1) Grant of authorisation shall be issued to the successful entity after it furnishes the performance bond in the form of demand draft or pay order or bank guarantee from any scheduled bank for the amount as per details given below, namely: Serial Number Population in the Geographical Area, as pre 2011 Census of India Amount of Performance Bond (Rupees) 1 5 million or more 500 million 2 2 million or more but less than 5 million 330 million 3 1 million or more but less than 2 million 250 million 4 0.5 million or more but less than 1 million 150 million 5 0.25 million or more but less than 0.50 million 80 m....
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.... bidder can also refer to list of NOCs/Permissions granted by PNGRB to various entities under the provisions of the Internal Guidelines for grant of NOC/Permission for (i) supply/distribution of CBM/natural gas through cascades; and (ii) setting up of CNG/LNG Daughter Booster Stations (DBS), in the areas where the Board has not yet authorized any entity for developing or operating CGD networks at http://www.pngrb.gov.in/CGD-NOCs.html. The scope of work was defined in Clause 1.2 of the Bid Document: The entities bidding for this work shall be required to lay, build, operate or expand the CGD networks to meet requirement of natural gas in domestic, commercial and industrial segments including Natural Gas in the vehicular segment in the said geographical area to be authorized and also comply with the relevant regulations notified from time to time. The entities shall be required to carry out the development of CGD project in line with the regulations laid down by the PNGRB. 13. Clause 2.1.1 required the bidders to examine the contents of the Bid Document and the regulations of the Board. Clause 2.1.2 described Annexure-1 as the map depicting the GA and ch....
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....on for technical bid is under progress for all 86 GAs. Technical bid queries are being issued and it is expected that the Financial bid opening may be started from this week (24th July onwards) for various GAs. The bidding parameters have been completely changed in current round. In order to promote serious bidders and to avoid any unrealistic/unreasonable bidding number committed by entity, PNGRB has included a rejection Clause in Para 4.4.1 of application-cum-bid documents. The Clause is reproduced below: PNGRB reserves the right to reject any Application-cum-Bid comprising quoted work programme considered by it to be unreasonably high or law. Since technical bids for some of the GAs are about to be concluded, it is essential to decide upon the reasonability of the bidding parameters which are constituting work programme. In this regard, following is proposed: 1. No of PNG Domestic connections: Lower Limit: Ministry of Petroleum and Natural Gas (MoP & NG) vide letter No L-16021/9/2013-GP-1 (pt.) dated 16th August 2016, constituted a committee to examine the City Gas Distribution (CGD) bidding related issues. The committee in its report....
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....The financial bids of technically eligible bidders were recommended for opening. The agenda note dated 2 August 2018 spelt out the stipulation contained in paragraph 4.4.1 of the Bid Document, and of the previous decision of the Board, to adopt 2 per cent of the total households as the minimum and 100 per cent as the maximum, both on the basis of 2011 Census data. The agenda note contained a tabulation of the bids of technically qualified entities. The agenda note indicated that for four GAs: 35, 46, 48 and 49 where two bids had been received for each, the highest bidder had quoted an unreasonably low number of projected PNG connections at the end of eight contract years. Where the bid below 2 per cent was the sole bid for the GA, the bid was accepted as the GA would have gone 'dry' otherwise. The agenda note proposed the adoption of three courses of action with respect to the remaining bids: (i) Rejection of the bids received for the above four GAs as being unreasonably low; (ii) Acceptance of the bids for the four GAs by extending to them the same logic that was applied for single bid GAs; or (iii) Inviting the concerned entities with the highes....
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....s not "Not-Qualified". The agenda note recommended that in three GAs, the bids of the highest bidders were liable to be rejected since they had quoted an unreasonably high number of PNG connections to be achieved at the end of eight contract years. Consequently, the names of the entities which were to be declared as successful bidders were tabulated in table 6 of the agenda note. According to the agenda note, after the names of the entities with the highest bids were removed, IMC Limited was recommended for being declared as the successful bidder for GA 61 (Kanchipuram District). Similarly, for GA 62 (Chennai & Tiruvallur Districts), Adani Gas Limited was recommended to be the successful bidder after the highest bid was declared as "Not Qualified". The agenda note was prepared by the Authorisation Division and records that it was concurred with by the Member (I & T) and Member (C & M) and was approved by the Chairperson "for deliberations and approval of the Board". 21. On 10 August 2018, a meeting was held by the Board. The minutes of the Board meeting recorded that out of four cases where the quotes for projected PNG domestic connections were higher than 100 per cent of the ho....
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....e as to why the bids submitted by them for PNG domestic connections be not considered unreasonably high. The Board also decided that under these circumstances, it would not be legally correct to reject their bids without providing them a chance to present their case. 23. On 10 August 2018, a press release was issued by the Board. In pursuance of the decision which was taken by the Board, on 14 August 2018 presentations were made before it by the three entities for GAs 61, 62 and 72 which had quoted more than 100 per cent of the number of 2011 households. Apart from the above three GAs, the financial bid for Puducherry (GA 51) was opened on 18 August 2018. The bidder with the highest composite score for GA 51 had also quoted more than 100 per cent of the total 2011 households and was called on 23 August 2018 for a presentation before the Board. 24. On 28 August 2018, an agenda note was prepared with respect to the Board's decision on four GAs: 51, 61, 62 and 72. The agenda note contained a summation of the submissions made by each of the four bidders who had been called upon to explain why their bids in excess of 100 per cent of the total number of households as per 2011 C....
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....ess of high PNG connections quoted by them for the above GAs. (b) The Board referred to table in Para 15 of the agenda note wherein quoted PNG domestic connections for the above four GAs were compared with the upper limit fixed vide noted dated 23.07.2018 and projected households in 2026 (considering the number of households as per 2011 Census and the historical growth rate during 2001 to 2011 as per census data of 2001 to 2011). It was observed that penetration of PNG domestic connections based upon upper limit fixed by PNGRB with reference to projected number of households in 2026 varied from 45% to 59%. However, penetration of PNG domestic connections based upon quoted PNG connections with reference to projected number of households in 2026 varied from 55% to 99%. The variation between two sets of numbers is 7% to 54%. (c) The Board observed that the highest variation of 54% is in GA-72, which is based on untenable assumptions made by the bidder as described in Para 14.3 of the agenda note. Due to this, 10,05,300 PNG domestic connections quoted by the bidder are 99% of the projected households by PNGRB in 2026, which is unreasonably high. It was also observed t....
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.... 19 September 2018, Appeal No. 292 of 2018 was instituted before the APTEL by Adani Gas Limited, aggrieved by: (i) The decision to award LOIs, in respect of the three GAs - 51 (Puducherry District), 61 (Kanchipuram District), and 62 (Chennai & Tiruvallur Districts) on the ground that the successful bids were beyond the unreasonably high limit adopted by the Board; and (ii) The action of the Board in issuing the LOIs without uploading the decision on the website and without communicating it to Adani Gas Limited. Following the institution of proceedings by Adani Gas Limited, IMC Limited also instituted proceedings before the APTEL (Appeal No. 323 of 2018) challenging the grant of authorisation by the Board in respect of GA 61. The prayers in both appeals were identical and the Tribunal heard both appeals together. 27. During the pendency of the appeal, by an order dated 11 October 2018 the APTEL directed the Board to file an affidavit explaining its decision taken on 23 July 2018 and the reasons on the basis of which bids were rejected, including on the ground of high and low quotes. In pursuance of the above order, the Board filed an affidavit by which it dis....
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....es for population and number of households in the map attached to the Bid Document were drawn from the 2011 Census; (iv) In several areas out of the 86 GAs which were a part of the ninth round of bidding, certain parts of the GAs were excluded from the zone of authorisation; (v) Whenever certain parts of the GAs were excluded from the zone of authorisation, the population/household number was proportionally reduced to reflect the population/households as per the reduced area. Examples of the above are Surendranagar (GA-8); and Medchal-Ranga Reddy (GA-72). (vi) In GA 72, Medchal-Ranga Reddy: (a) The original map attached to the Bid Document showed the entire district with a corresponding number of households of 13,47,118 according to the 2011 Census; (b) The Bid Document was amended to exclude the area in which an existing entity was already laying a CGD network as a result of which not only was the land area reduced but even the number of households was reduced to 4,56,557; (c) Torrent Gas Limited Private Limited, which was the highest bidder for the reduced area had bid 10,05,300 PNG connections, which worked out to 74.6 per ce....
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....ing the period of exclusivity with a weightage of 20 per cent; and (iv) Criteria (d) prescribed the highness of the present value of the number of domestic customers proposed to be connected by PNG with a weightage of 30 per cent. Under the Regulations, no upper or lower ceiling was provided for bidding in respect of the Criteria (a) to (d) of Regulation 7. (B) 2013 Amendment to the CGD Authorisation Regulations 21 June 2013: (i) The 2013 amendment amended criteria (a) and (b) and substituted bidding criteria (c) and (d) with criteria (c); (ii) The successful bidder was required to achieve a Minimum Work Programme "MWP" in respect of the PNG domestic connections and inch-kilometres of steel pipeline; (iii) The minimum number of PNG domestic connections to be achieved within the first five years of authorisation was to be worked out by the Board. This was based on the total number of households to be calculated as per the basic data sheet of the respective districts of the GA and the population according to the latest census data; (iv) The weightage of bidding was shifted to 70 per cent for criteria (a) and 30 per cent f....
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.... (iii) The CGD Authorisation Regulations do not set out criteria for determining "unreasonably high or low" bids and no such criteria can be read into the Regulations and enforced on the Board; (iv) Clause 4.4.1 read with Addendum 1 explicitly states that the Board's power to determine "unreasonably high or low" bids would be exercised on a "case to case basis after considering the relevant factors"; (v) The challenge made by the Appellants is an adversarial challenge and not a Public Interest Litigation. The Appellants cannot try and advance their case by relying on decisions taken in relation to separate GAs which are not presently under challenge; and (vi) The calculations made by the Appellants with respect to the growth rate and projected number of households are based on irrelevant factors. 32. Mr. Gopal Subramanium, learned Senior Counsel appearing on behalf of Torrent Gas Private Limited, supported the arguments urged by the Board and further submitted that: (i) Torrent Gas Limited has attended the hearing before the Board, explained its methodology in calculating its quoted number of PNG connections, and the quoted figure ha....
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....is a separate tender having its own unique geographical and socio-economic factors. Therefore, one cannot compare cases of other GAs with the GA of Kanchipuram where AG & P LNG has been awarded the authorisation. 35. The submission which has been urged on behalf of the Appellants in regard to the relevance of the 2011 census data must first and foremost be assessed in the context of the CGD Authorisation Regulations as amended on 6 April 2018. The Regulations postulate that bidders must submit both technical and financial bids. The procedure specified in Regulation "PNGRB Act" applies to an invitation by the Board for laying, building, operating or expanding a CDG network. Regulation 5(6) requires the fulfilment of minimum eligibility criteria. For a technical bid to pass muster, the minimum eligibility criteria require the bidder to be qualified both with reference to technical and financial parameters. This is evident from Regulation 5(6) under which the Board is to scrutinise the bids of only those entities which fulfil the minimum eligibility criteria. The minimum eligibility criteria include the technical capability of the bidding entity to (i) lay and build; and (ii) opera....
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....ears. The programme is distributed between the first and eighth years for PNG connections', CNG stations' and Inch-kilometres of steel pipelines. For PNG connections, the successful bidder must complete 10 per cent of the work programme at the end of the second year, 20 per cent at the end of the third year, 30 per cent at the end of fourth year, 40 per cent at the end of the fifth year, 60 per cent at the end of the sixth year, 80 per cent at the end of the seventh year and 100 per cent at the end of the eighth year. Under Regulation 7(3), a bidding entity with the highest composite score in terms of the criteria specified in Sub-regulation (1) of Regulation 7 is to be declared as the successful bidder. 38. The provisions contained in the 2008 CGD Authorisation Regulations, as amended on 6 April 2018, indicate that where a specific linkage was sought with reference to the 2011 Census data, a clear and categorical provision was made to that effect. Such provisions are found in regard to the financial capability of a bidder as part of the minimum eligibility criteria in Regulation 5(6)(e) and the extent of the performance bond in Regulation 5(6)(h). 39. Absent a condit....
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....und that it was not consistent with Regulation 7. 41. Now it is in this background, that it becomes necessary to evaluate the Bid Document. Clause 1.1.1 incorporates a reference to the GA as depicted in the map set out in Annexure-1, for which the Board was inviting bids for the grant of an authorisation to develop a CGD network. The main plank of the submissions of the Appellants is that the map contained a reference to population and household figures on the basis of the 2011 Census. Clause 1.1.3 places the responsibility on the bidder to obtain information about the present gas supply availability, the pipeline connectivity and the existing customers in the GA. Significantly, the scope of work in Clause 1.2 required bidding entities "to lay, build, operate or expand the CDG networks" to meet the requirement of natural gas "in domestic, commercial and industrial segments including natural gas in the vehicular segment in the said Geographical Area to be authorised." Bidders are required under Clause 2.1.1 to examine the contents of the Bid Document including instructions, terms and conditions and regulations of the Board. The bidder was required to carefully study the GA and th....
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....useholds in 2026; (iv) For example, in GA-62 (Chennai-Tiruvallur), there were ten bidders of whom the bids of nine were evaluated with reference to the 2011 Census data on the number of households, whereas the bid of one bidder (Torrent Gas Private Limited) has been evaluated with reference to the number of projected households in 2026; (v) The agenda note dated 9 August 2018 which was approved by three out of the four Board members recommended that Torrent Gas Private Limited was not qualified and Adani Gas Limited be declared as the successful bidder. Yet on 10 August 2018, the four Board members including the three who had approved the Board Note concluded that, though the lower and upper thresholds were decided "the same need not be a mechanical exercise"; (vi) Neither the Bid Document nor the CGD Authorisation Regulations contain any provision allowing the Board to call upon bidders to improve their bids; (vii) The Board Note dated 23 July 2018 which defined the minimum and maximum threshold (2-100 per cent of the number of households as per the 2011 Census) without any caveat or provision for relaxation has been virtually reversed on 10 Aug....
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....for the submission of bids. The criterion which the Board Note proposed had not been notified to bidders. Bidders were not on notice that this would be the basis on which their bid would be evaluated. The Board Note took notice of Clause 4.4.1 of the Bid Document and stipulated that since technical bids for some GAs were about to be evaluated, it was necessary to decide upon the reasonableness of the bidding parameters which constituted the work programme. It was in this background that the Board Note proposed that; "...2 per cent of total households (as per the 2011 Census data) may be considered as minimum". As regards the maximum, the Board note proposed that: beyond 100 per cent households may be treated as unreasonably quote The terminology adopted by the Board Note indicates that the 2-100 per cent range was not laid down as an absolute or inflexible basis for disqualifying bids below the minimum or in excess of the maximum. On the contrary, the use of the expression "may be" is one indicator that a bid which was below 2 per cent or in excess of 100 per cent may trigger the exercise of the power which the Board had reserved to itself in Clause 4.4.1 of the B....
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.... a part of the Regulations, was not embodied in the Bid Document and in any event, was not notified to bidders before they had submitted their bids. 46. Another limb of the submission is that, with respect to GA 62, three out of the four members of the Board had in the Board agenda dated 9 August 2018 recommended that Torrent Gas Private Limited was not qualified and that Adani Gas Limited be declared as the successful bidder. This, in our view, is an incorrect reading of the agenda note. What this submission misses is the last paragraph of the Board agenda note which states: 20. This Agenda note has been prepared by Authorization Division, concurred by Member (I & T) & Member (C & M) and approved by Chairperson for deliberations and approval of the Board. The agenda note dated 9 August 2018 was a recommendation which was prepared on the basis of the 2-100 per cent criterion contained in the Board Note dated 23 July 2018. Obviously in the light of that decision, a recommendation was made which was still to be deliberated upon by the Board as a body. When the Board met on 10 August 2018, it correctly came to the conclusion that the lower and upper thresholds wer....
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.... was held on 29 August 2018, the reasonableness of the bids submitted for GAs 51, 61, 62 and 72 came up for consideration. In GA 62 (Chennai-Tiruvallur) Torrent Gas Private Limited, relied on the current LPG domestic connections (41,73,073) according to the statistics of the Tamil Nadu government. This was extrapolated until 2026 taking the growth rate at 5 per cent per annum. On this basis, Torrent Gas Private Limited as the H1 bidder justified before the Board its quoted figure of PNG connections of thirty-three lakhs. For GA 61 (Kanchipuram), AG & P LNG explained that its computation was based on: (i) The urbanisation rates in the Kanchipuram district; (ii) Extrapolations of the number of households based on historical growth rates; (iii) The twin city status of Chennai and Kanchipuram; and (iv) The per capita income growth in Kanchipuram district. On this basis, AG & P LNG justified its number for projected PNG connections. For GA-51 (Puducherry), SKN Haryana based its computation on the compound yearly growth of households in the previous twenty years. Based on this growth rate, the bidder calculated the projected households till 2026 and....
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.... (the highest bidders) respectively was finally taken by the Board in its meeting on 29 August 2018. This decision was taken after hearing the bidders on whether their bids were reasonable or not. The Board did not reject all other bidders or presumptively announce these entities as successful bidders before making a determination as to the reasonableness of their bids. In light of this chronology of events, at no point did the Board reverse its decision with respect to the GAs in question. 51. The appeals before APTEL pertained to GAs 51, 61 and 62. The present proceedings were not in the nature of a public interest litigation instituted Under Article 226 of the Constitution before a High Court challenging the entirety of the tendering process. Both before this Court and APTEL, it was contended that the Board had rejected bids in other GAs which were not-qualified on the ground that they were either below 2 per cent or above 100 per cent of the number of households as per the 2011 Census figures. The Member Technical (Petroleum and Natural Gas) at APTEL examined the submission in paragraph 60 of the decision and held: 60. Though the appeal pertains to only GAs, 51, 61 ....
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....ts, led the Board to accept the submissions made by Torrent Gas Private Limited in justifying an "unreasonably high" quote for the number of households for the year 2026. 53. In his judgment, the Member Technical noted that the Appellant had in fact calculated the CAGR using overall population growth instead of using household growth. Evidently, for the purpose of projecting the number of PNG connections within a GA, it is the number of households and not the overall population that is relevant as each household is unlikely to have more than one PNG connection. Moreover, as neither the CGD Regulations nor the Bid Document required the number of projected households to be calculated on the basis of 2011 Census data, the decision of the Board to accept the justification provided by the bidders cannot be attacked on the ground that the figures provided did not strictly match the numbers extrapolated from the 2011 Census data. Lastly, the Member Technical (Petroleum and Natural Gas) observed: 51. ... Moreover, the calculations have been done by an expert body (the Board) which has been constituted as per Statutory Act. In addition, the estimates on future PNG domestic connections....
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....he Board has correctly applied the unreasonable low criteria to all the bidders whose bid was below 2%, but surprisingly the bids which were beyond the limit of 100% of 2011 census, the Board thought it fit to relax the criteria by calling the high bidders for negotiation. If the Board thought it fit to hear the affected parties, then it ought to have invited all the affected parties of the said GA i.e., all the bidders who stand to lose the bid, since such procedure was exercised so far as unreasonably low criteria to all bidders who quoted below 2% of 2011 census. Assessment of reasonability of a bid cannot be equated with the concept of rejection of a bid as not qualified for a particular criteria. Reasonability of a bid has reference to subjective assessment/satisfaction. The assessment of a bid based on the available material would amount to objective assessment. It is evident from the above extract that the Chairperson's findings are based on three key assumptions: (i) The Board Note dated 23 July 2018 was binding on the Board and the agenda note dated 9 August 2018 was evidence of the Board Note's binding nature; (ii) Because the Board disq....