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Metal To The Moolah

Discretionary bending of rules marked UPA bid to enhance GQ highway project

Metal To The Moolah
Metal To The Moolah
outlookindia.com
-0001-11-30T00:00:00+0553

Accident-Prone Stretch

  • The traffic density norm of 40,000 passenger car units per day for four-lanes was lowered to 25,000 PCUs for six-lanes
  • Instead of a risk analysis before inviting bids, NHAI got it done only when evaluating the bids
  • Rule on viability gap funding was flouted in two cases with over 36 per cent being allowed
  • Enhanced government funding was justified in both cases saying it “is amongst the busy stretches of GQ”
  • Low toll revenue from one of the stretches puts question mark on the UPA government’s largesse

***

One of the greatest gifts of the NDA-I government under then PM A.B. Vajpayee was the 5,846-km Golden Quadrilateral (GQ) which connects the four big metros—Delhi, Mumbai, Chennai and Calcutta—via four-lane highways. Even as the mega project was under execution, in 2005-06 the UPA regime decided to steal the thunder and proposed six- laning 6,500 km—some 5,700 km of GQ plus some high-density traffic corri­d­ors, at an estimated cost of Rs 41,210 crore.

On September 15, ’06, the Cabinet Com­mittee on Infrastructure (CCI) hea­ded by PM Manmohan Singh decided to lower the specification for six-lanes. Thus, from the then existing traffic volume of 40,000 passenger car units per day necessary for four-lanes, it was lowered to 25,000 PCUs for six-lanes. This was the first of many norms/rules chan­ged to hasten project implementation.

Documents recently availed by Cobra­post under RTI by act­ivist Vivek Garg revealed that in at least two spe­cific cases the government considerably bent the rules to help the private sector. This was done despite concerns raised by bureaucrats in various ministries.

Kamal Nath, then Union minister of road transport and highways, had got the cab­inet nod for the six-laning project under PPP mode with the private con­tr­i­b­ution of Rs 35,692 crore out of the total Rs 41,210 crore project cost. The rem­ain­ing Rs 5,518 crore was envisaged as gover­nment contribution from the cess fund.

To incentivise private investment, the government made a rule to provide 5 per cent of the construction cost as viability gap funding (VGF), which would help offset part of the risk, including low traffic flow. In exceptional cases, up to 10 per cent VGF was permitted. But the UPA reg­ime flouted its own policies and norms. Sources say despite reservations of some top bureaucrats, VGF was raised from the maximum prescribed limit of 10 per cent to over 36 per cent in at least two cases. Documents clearly establish bending of rules in two stretches of the Chandikhol-Jagatpur-Bhubaneswar section of NH-5 and part of the Varanasi-Aurangabad section of NH-2.

The VGF of 36.96 per cent—or Rs 387 crore—was provided to the contractor for two stretches in Orissa totaling 67 km on the Chandikhol-Jagatpur-Bhubanes­war section of NH-5, out of the estimated total project cost (TPC) of Rs 1,047 crore. Similarly, 38.48 per cent VGF, or Rs 1,096 crore of the TPC of Rs 2,848 crore, was provided for 192 km in the Varanasi-Aurangabad section of NH-2 in Uttar Pradesh and Bihar on BOT (toll) mode on design-build-finance-and-operate (DBFO) pattern. All told, in these two cases, it resulted in an outgo of around Rs 1,483 crore from the exchequer.

Manmohan Singh, Former prime minister Lowered traffic norm for six-lanes even below four-lane requirement   P. Chidambaram, Former FM Cleared path for speedy approval of projects by bypassing cabinet

Kamal Nath, Former roads minister Okayed request from former PM to raise VGF as sought by Orissa CM   Naveen Patnaik, Orissa CM Put pressure for raising VGF to 36 per cent from maximum 10 per cent

A ministry of road transport and highways document titled ‘Agenda Item No. XI’ clearly states that the National Hig­h­way Authority of India (NHAI) approved the proposals. But it made it known that this was in contravention of the approved rule by the cabinet committee on econ­o­mic affairs (CCEA) on VGF. (On its part, the NHAI also violated prescribed rules when it failed to conduct sensitivity analysis on risk factors before calling for project bids.) The project for six-laning of the Varanasi-Aurangabad section on NH-2 was cleared by the Public Private Partnership Appraisal Committee (PPPAC) on November 21, ’08. Subseq­ue­n­tly, the CCEA gave approval on Jan­u­ary 28, ’09, along with a nod for other national highway projects, for six-laning.

When the financial bids were opened, the lowest financial quote in terms of VGF grant by the preferred bidder was Rs 1,096 crore, or 38.48 per cent of project cost.

Despite reservations of the babus, viability gap funding was raised from max limit of 10% to over 36% in two cases.

As stated, the NHAI conducted a sensitivity analysis with the help of financial consultants only when evaluating the bids and justified the hike in VGF stating the “project stretch is amongst the busy stretches of Golden Quadri­lat­e­ral and pas­ses through many important cities which have large volume of local non- tollable traffic. As a result, a large number of structures are required to be built on these stretches to segregate local traffic from fast moving highway traffic...”.

It further justified that “out of total len­gth of 192.4 km of Varanasi-Aurang­abad section, about 137 km falls in Bihar. As on date no BOT (toll) project could be awarded by NHAI in Bihar”. Quoting the concessionaires, NHAI argued, “They have their own risk perception for working in Bihar...Varanasi-Aurangabad sec­t­ion passes through Naxal-affected area.”

For six-laning of Chandikhol-Jagatpur-Bhubaneswar section of NH-5, the bidding process was initiated during 2008-09. Fifteen firms/JV/consortiums had submitted the RFQ for the project on May 7, ’08. After two rounds, only three of the 13 pre-qualified applicants agr­­eed to bid. On January 2, ’09, when the bids were opened, the lowest financial quote for VGF grant was Rs 387 crore or 36.96 per cent of TPC. Again, the NHAI justified the VGF hike with potential traffic growth.

Post facto, the government auditor cag’s performance assessment report on the project was critical of the fact that despite a low traffic of only 18,407 PCU on the Chandikhol-Jagatpur-Bhubaneswar stretch in February ’10, “awarding the work of six-laning prematurely would result in extra burden of Rs 565 crore by way of VGF on NHAI as well as forgoing of toll revenue by GoI for 24 years”.

What is to be noted is that NHAI in a document seeking approval of the CCI had mentioned that “the overall VGF requirement of all the sub-projects put together will still work out...far less than the overall VGF limit of 5 per cent of the total project cost of national highway dev­elopment project (NHDP) Phase V pro­jects”. So it’s apparent that the higher VGF fitted in with the numbers game as it was within total funds available.

According to official sources, plans to increase VGF limit beyond 10 per cent was objected to by many secretaries in the finance ministry, but were overruled. 

Documents received thro­ugh RTI reveal that Orissa CM Naveen Patnaik was a major mover beh­ind the hike in VGF in the Cha­ndikhol-Bhubaneswar project. During a meeting with Man­m­o­han Singh in ’09, it appears Pat­naik moun­ted pressure on him to increase the VGF to 38 per cent.


Varanasi-Aurangabad section of NH-2 got Rs 1,096 cr VGF. (Photograph by Priyanka Rai)

According to a source, the PMO in a letter dated August 7, ’09, told the ministry of road transport and highways that the Orissa CM had apprised the PM that there’s been substantial increase in tra­f­fic on NH-5 connecting Calcutta and Chennai.

“There is a proposal to take up six-laning work between Bhubaneswar and Chandikhol within the state of Orissa belonging to NH-5. It appears that the NHAI has floated necessary tenders for this work. But the viability gap funding is found to be 38 per cent. It is requested that the Govt of India may sanction necessary funds to bridge the viability gap”. The letter addressed to the road transport and highways minister by Dav­inder P.S. Sandhu, director in the PMO, fur­ther says, “PM has desired that the request from CM Orissa should be bro­u­­ght to the notice of minister for road transport.” Following this, P.K. Tripathi, the then joint secretary in the ministry of shipping, road transport and highways, duly sent a request to the finance ministry on September 29, 2009, for expediting the process for increasing the VGF for both these sub-projects.

Official sources claim that the government seemed in a hurry to expedite the clearances for the six-laning projects which were split into 65 stretches of 100 km to bypass getting cabinet approvals. Accordingly, a PPPAC of secretaries was set up in October 2010 to grant clearances, with the secretary, department of economic affairs (DEA) as chairman.

The whole procedure was violative of a cabinet note dated July 25, 2006, which had laid clear guidelines on the procedures to be followed before inviting bids. This included getting the PPPAC clearance and approval of the NHAI board.

This cabinet decision too was set aside by ex-finance minister P. Chidambaram who, via a note on October 5, ’06, directed the DEA secretary: “If each package would be of a length of 100 km, there would be 65 packages and each one would have to be approved by PPPAC. There would be a two-stage screening by PPPAC and each project costing Rs 100 crore would have to be taken to cabinet for approval thereafter.”

In a bid to expedite clearances for the six-laning projects, they were split into 65 stretches of 100 km to bypass cabinet nods.

Chidambaram added: “Having regard to the enormity of the task, it seems to me that we should carve out an exce­ption, subject to suitable safegua­rds, for NHDP projects. Could not PPPAC work out some criteria and allow NHAI to go through the bidding process sub­ject to mee­t­ing these criteria? If NHAI wis­hes to depart from the criteria, could not those cases alone be brought before the PPPAC for approval?” The Varanasi-Aura­n­gabad section of NH-2 was awarded to Soma-Isolux consortium and an spv, Soma Isolux Var­anasi Aurang­abad Toll­way Pri­vate Ltd, formed on July 21, ’10. “We stopped work two years back, within one-and-half months of taking up the sub-contract. We found their system not upright as soon as we began work. We have faced payment, work, cle­arance and other issues there,” says Ramesh Lallan Singh, a director in Radix Infra, one of the sub-contractors given project work by Soma-Isolux consortium.

Similarly, the Chandikhol-Jagatpur-Bhubanes­war section of NH-5 was awa­rded to SREI-Simplex-Galfar Consortium and an SPV called Shree Jagannath Expressway Pvt Ltd. The EPC contractors were Simplex Infrastructures Ltd and RKD Construction Pvt Ltd. “We get only Rs 20 lakh a day, instead of the projected Rs 30 lakh...the traffic is however being looked after by another vertical,” reveals a senior source in the company on the condition of anonymity. “Unless there is bumper-to-bumper traffic of trucks there is no money coming.... The stretch is passing through a peaceful area. There is no security threat.”

Till the time of publishing this report, no response was forthcoming to a questionnaire sent by Cobrapost to ex-PM Manmohan Singh, Chidambaram, Kamal Nath, CBI director or the NHAI chairman. Both the projects for which special concessions were accorded are still under implementation. The question remains: why were the two project handpicked for such huge VGF even as doubts were being raised about the rush for six-laning in low traffic density areas. Isn’t this a fit case for the CBI to probe?

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