Urgent need to revamp NHAI, to clear up the huge mess in road projects
The MakeInIndia mega show is all set to hit Mumbai over the weekend as this column goes to print. Prime minister (PM) Narendra Modi will, probably, showcase five ministries that are widely perceived to be doing well in their respective domains. These are: the ministries of external affairs, railways, power and petroleum and the ministry of road transport and highways (MORTH). Each has had to clean up the mess of the past decade before it could start showing results; there is a lot more to be done.
This column will focus on MORTH which got the biggest impetus under another Bharatiya Janata Party (BJP) led government under prime minister Atal Bihari Vajpayee (1999-2004). The growth continued over the next few years with highways expanding across India and new expressways linking key centres.
But the slide that began in the second term of the United Progressive Alliance (UPA) has now assumed dangerous proportions with no sign of a real turnaround. The Narendra Modi government, which will complete two years in May 2016, can no longer blame the previous regime for its own failure to kick-start stalled projects and empower institutions under ministers, like Nitin Gadkari, who are capable of delivering results.
The situation is evident from a report in the Indian Express that NHAI (National Highways Authority of India) will surrender the Rs5,000-crore limit of tax-free bonds this fiscal (out of its quota of Rs24,000 crore). Sources say the actual amount surrendered may be significantly higher and even twice as much. The organisation is not confident of spending the money for several reasons.
When it comes to road building, the problems are multi-fold and have been clearly identified by the ministry itself. NHAI was structured by the Vajpayee government as a powerful body charged with building the 6,000km golden quadrilateral project in phase-1 and 7,000km north-south/east-west project in phase-2. In the past decade, it gradually became dysfunctional because of a steady dilution of its authority and decision-making powers, leading to dubious practices, lack of accountability and the induction of poorly qualified people. This led to disputes, delays, cost escalation and worse. Here are some of the broad issues that have cropped up, as a result.
- Long delays in earlier projects; aggressive bidding by construction companies; diversion of funds; and a complete halt in fresh funding especially from public sector banks (PSBs) whose portfolio of bad loans has assumed dangerous proportions.
- Shockingly, we learn that when private companies bid for projects, the concession agreements signed with them contain a number of dubious clauses that allow the very scope of the project to be changed on a ‘mutually acceptable’ basis. This immediately impacts project cost and the time for completion and renders the bidding process fairly meaningless. In fact, delays work to the advantage of companies that win such bids. Further, NHAI also has the practice of providing ‘provisional’ completion certificates, whatever that means.
- If this weren’t bad enough, the project costing itself is flawed. Long delays in obtaining various clearances (environmental clearance being the most notorious of the lot) make the project cost as calculated two or three years earlier and inadequate, even before implementation begins. Sources tell us that NHAI and banks assume cost of funds to be 8%-10% when, in fact, the actual cost of funds is over 12%. Many bids also do not follow international practices of providing a margin for increase in cost due to delays, increase in prices or other contingencies. Since there is no independent verification of costs, companies can make unrealistic bids, confident of being able to tinker with contracts on a ‘mutually agreeable’ basis. This opens the doors to corruption or disputes and litigation. Several projects are stuck after 70% of the work is complete because infrastructure companies are unable to raise funds for completion.
- Way back in December 2014, a top audit firm pointed out that NHAI was one of the biggest litigants in Indian courts. One learns that there are nearly 200 cases pending in the Supreme Court, over 2,000 cases pending in various high courts and nearly 3,000 cases in other courts. Strangely, most concession agreements have an arbitration clause which is clearly not working at all because the number of arbitrations is less than 1,000. This sad state of affairs is another example of the massive waste of taxpayers’ money by public sector companies and government bodies in expensive and debilitating litigation. These court cases not only destroy trust, but are the cause of mounting bad loans of banks as well.
- Incomplete projects means patchy roads; but NHAI has been quick to levy a toll on the public and transporters, confident that users rarely get together to protest. Queries filed by activists under the Right to Information Act have revealed shocking corruption and fudging of numbers by toll contractors. This happens because toll contractors are not compelled to start electronic tolling, or use simple technology-based tools to calculate traffic data. It is NHAI that ought to be concerned about the massive revenue leakage. Instead, desperate transport unions, burdened by long delays and high costs due to multiple tolls across the country, have been trying hard to get the ministry to find a solution. At the same time, local politicians, in various states, are exploiting the situation to incite violence at toll-booths from time to time, without pushing for any change in usurious toll collection.
- Sanjay Shirodkar, a Pune activist who has been investigating the toll issues, says that although vehicular traffic growing at 10% per annum is the reason for four-lane highways being converted into six-lane ones, the bids for toll contracts, often, show zero growth in the number of vehicles paying toll. Isn’t it strange that neither NHAI nor the transport ministry is interested in getting to the bottom of this, even though funds for new projects are scarce? The answer is obvious.
There are many other issues with regard to cost of projects, including the ability to raise long-term funds and how to raise viability-gap funding and which projects require support in the form of various grants.
A smart government, which acts with authority, can easily force quick resolution of a large number of these disputes so that many stalled projects can be revived and a solution found for those that are stuck for want of funds. At present, the market sentiment is so low and funds for road projects so scarce that there is a very poor response to build-own-and-transfer (BOT) projects.
If the prime minister truly believes in his own MakeInIndia slogan, he needs to push for a revamp of NHAI urgently, empower it adequately and ask it to change the bidding process to ensure that the most competent and realistic bidders win infrastructure contracts rather than the ‘lowest bidder’ who can manipulate the system. But this will happen if the competent ministers are allowed to take decisions, rather than being forced to operate in the shadows of an omnipotent prime minister’s office.
(Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected])
As for provisional certificate (PCC), it is a very important provision in the agreement. 100% completion of a road is near impossible due to land issues. So, if only a small % of land acquisition is pending and project is complete in all other respects, PCC is issued. In the absence of such a provision, even when 90% project is complete, the developer will be unable to make any revenue for years beyond due date. It may be noted that the toll collection in such cases is partial, i.e. linked to the road length completed.
Modi has the mandate, Vajpayee did not.
Gadkari being RSS is an old hand when it comes to corruption as shown by his work in Bombay.
Why are there so many casea and even SC is sleeping.We donot hear such cases in Europe and USA why in India.Presume being old PWD hand Gadk for payback and Gadkari might have left a door open. Is there any accountability and transperancy in such road contracts???
Gadkari keeps claiming how amny kilometers are being completed per day but what is true.
So when will the nation see Achey Din in roadways?
He is a powerful central minister now, responsible for the highways and what you expect from him?
It is a pity that we run down good work of fantastic persons like Mr R C Sinha, because we dont know facts.
The mumbai-pune expressway was completed at half the cost of private bidders + the panvel bypass which was not in the private bidding deal. And in time. The rot started in the NCP-Congress led regime