Users Of 8 Highways To Cough Up Rs 28,096-cr Extra Toll: CAG – Financial Express – 24-Dec-2014

December 27, 2014 - Uncategorized

The Comptroller and Auditor General (CAG) has said users of eight highways being developed through the Public-Private Partnership (PPP) mode — including Delhi-Agra and Varanasi-Aurangabad stretches — will have to pay an extra Rs 28,096 crore as toll to developers because of the National Highways Authority of India (NHAI) fixing a longer-than-required concession period.

The government auditor also found undue benefit to concessionaires worth Rs 2928.64 crore, including non-levy of damages, premature release of viability gap funding and performance security as well as diversion of toll revenue worth Rs 303.62 crore as investment instead of utilising on project construction. The factors that affected projects adversely included delays in signing of concession agreement and in achieving financial closures besides environmental hurdles and the problems associated with getting right of way, the apex auditor noted. “One of the main hurdles was failure of NHAI to acquire land and obtain approval from government agencies in time,” it said.


CAG’s observations come at a time when developers have quit PPP projects  in the sector due to inadequate toll revenue and lenders’ apathy, among other things. Award of new PPP projects has slowed down over the last few years. The government still wants to accord priority to PPP projects wherever feasible but given the continued investor pessimism, it is now looking at the conventional EPC route.

Owing to delays in regulatory approvals, problems in land acquisition and court interventions, road projects worth around Rs 3 lakh crore were stalled during the UPA regime.

In its performance audit on the ‘implementation of PPP projects in NHAI’, tabled in Parliament on Tuesday, the auditor covered 94 projects under phases 2 to 5 of NHDP accounting for over 45% of the total 207 Build-Operate-Transfer (BOT) projects awarded (as on March 2012) through the PPP route. In the BOT mode, the developer invests in the project and recoups it either through tolling rights or annuity. “Instead of adopting the total traffic on the stretch of highway for determining the concession period, NHAI, while fixing the concession period, considered only tollable traffic. This resulted in fixing higher concession period which put extra burden on road users. During these extended concession periods, the concessionaires would collect toll at least to the tune of Rs 28095.94 crore, while the roads would become congested for the toll paying users,” CAG said.

The extra burden of Rs 28,095.54 crore (whose net present value is Rs 3233.71 crore) is the projected toll revenues calculated by financial consultants and analysts in eight projects, including Delhi-Agra and Pune-Satara (developed by R-Infra promoted SPVs), Varanasi-Aurangabad (by Soma Isolux), Beawar Pali Pindwara (by L&T) and Jaipur Tonk Deoli (by IRB).

RInfra spokesperson said: “The allegations in the CAG report are baseless and devoid of facts. We have not violated any law/concession agreements. All investments and expenses are made in full compliance of the agreements signed with NHAI and lenders.”

Significantly, the CAG said in 85 projects, the total project cost (TPC) worked out by concessionaires was higher compared to the TPC worked out by NHAI and it ranged from 0.32% to 223%, in turn benefiting the concessionaire with lesser fiduciary risks.

Transport minister Nitin Gadkari had in September claimed the Narendra Modi government had cleared stalled road projects worth Rs 1.5 lakh crore and will soon launch projects worth Rs 2 lakh crore. He had said the government will build two lakh km of roads under PPP mode, including widening of existing one lakh km of highways.

Following investor disinterest in BOT projects, NHAI had tried to revive the engineering, procurement and construction (EPC) model. Under an EPC contract, the government funds the construction and the road developer only has to develop the project in a stipulated time. The EPC mode takes three to four months for a project to be awarded, while BOT contracts take 18-20 months, which NHAI thinks is another major advantage.

Projects of 3,055 km were awarded through the EPC mode in 2005-06 but it rapidly lost its sheen. The following year, only 345 km were awarded, slipping to 89 km a year later, the time when BOT projects were on the ascendant, peaking at 6,491 km in 2011-12. Not even a single EPC project was awarded in the sector between 2008-09 and 2011-12. However, in recent times EPC has once again made a comeback because of lukewarm response shown by private developers.

The CAG also observed that NHAI failed to achieve the target of 20 km per day for widening and upgradation during 2009-10 to 2012-13.


Financial Express

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