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HindustanTimes Mon,20 Oct 2014

Gowda for PPP, but CAG punches holes into model

Brajesh Kumar, Hindustan Times   July 18, 2014
First Published: 01:18 IST(18/7/2014) | Last Updated: 07:57 IST(18/7/2014)

The Comptroller and Auditor General (CAG) has punched holes in Indian Railways’ public private partnership (PPP) projects, raising red flags about the models’ ad hoc execution marred by inconsistent agreements that did not follow any standard procedures.

The CAG report, likely to be tabled in Parliament on Friday, comes days after railway minister Sadananda Gowda made a strong pitch for PPP models as part of a broad strategy to modernise India’s vast network plagued by inefficient systems and long project delays.

The lack of a model concession agreement (MCA) — a framework of contract that sets the terms for incentives and targets for the private contractor — came in for sharp criticism with the CAG stating the railways did not follow procedures.

This is in sharp contrast to India’s highway development programme where a standard MCA drafted by former Planning Commission advisor Gajendra Haldea was adopted many years ago to serve as a benchmark for commercial contracts.

“The audit observed that ministry of railways (MoR) did not formulate any MCA for these projects. On the contrary, it finalised each agreement separately based on its experience in PRCL, the first PPP project and the same was adopted as a benchmark while finalising subsequent agreements,” the report said. 

The CAG was also critical of the way rules were violated in selection of the private players, faulty assessment made on internal rate of return, inordinate delays in giving project approval and lack of any monitoring mechanism for these projects. 
 
Taking the example of VMPL, the audit body said the approval of finance ministry was not taken for build operate and transfer (BOT) mode of payment of access charge. 

“The annual earning of the project was `6.45 crore against the annual access charge payment of `15.94 crore. The project sustained loss despite estimated internal rate of return (IRR) of 22%,” it said.


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