Why Shimla failed to impose green tax

Stringent monetary terms and condition may have been a disincentive for potential bidders

By Shashank Gandhi
Published: Friday 13 April 2012

It was about two months ago that the Shimla Municipal Corporation (SMC) proposed a green fee on all vehicles entering Shimla. Commercial and private motor vehicles not registered in Himachal Pradesh were to pay the fee on entering the city from April 1 onwards. The job of collecting the fee was to be outsourced. But 11 days after the date for implementing the scheme, things stand where they were. Reason: no company wants to take up the job of collecting green tax at the borders of the queen of hill stations.

Why is that so? There are a number of reasons to explain the apparent unwillingness of the potential bidders. These can be broadly classified as economic disincentives and stringent request for proposal (RFP) document terms and conditions. The cash-starved municipal corporation had put stringent conditions. Consider this: a non-refundable fee deposit of Rs 10,000 was made a pre-requisite for the bidder to advance his bid as RFP documentation fee which in turn was a part of a Rs 20,000 processing fee. Ostensibly, the intention of the municipal corporation was to screen all the serious players for the bidding process, but such a clause might also be interpreted as an economic disincentive for the bidders who would stand to lose the money on failing to win the bid.  A large number of bids would also have ensured that SMC gets a tidy income from the whole bidding process.

Stringent eligibility criteria for the bidders may have been another reason for the indifference shown by potential bidders. These included an immediate three year prior experience in handling projects worth Rs 10 crore or above, minimum annual turnover of Rs 10 crore in preceding three financial years, and an upfront security deposit of Rs 1.5 crore.

The corporation is now planning to invite fresh bids. Mayor Madhu Sood says: “We will simplify the eligibility conditions while inviting fresh bids which we felt were very stringent while inviting bids earlier”.

Another reason for the indifference of the bidders could be the miscalculation that has gone into fixing the base price at Rs 6 crore per annum. This doesn’t seem to be a lucrative enough project amount for the bidders to post their bids. Municipal Commissioner M P Sood says the fresh bids would be invited after fresh calculations for the expected revenue are made.

But relaxation of the eligibility criteria as such may not attract many bidders. What is needed is correction of financial incentive distortions.

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