Scam at Toll plazas and other BOT projects
#1
Received this via email from a friend and it contains some serious charges on corrupt practices. The author is a former CBI director B R Lall.

"Infrastructure Building

All the infrastructure works have tremendous potential to generate black money and also capacity to hide all the slush. It may be the work of laying a Railway line, constructing an airport, a power plant, a village road or a national highway. Any number of examples could be quoted from any of the sectors. It is proposed to cite an actual illustration from the national highway sector where a brilliant engineer had to sacrifice his life for exposing the loot.

Satyendra Dubey, an alumnus of IIT Kanpur, was selected for civil services at a fairly high merit but chose to continue in Engineering service. He had the guts to expose the system and take it headlong. He brought out and wrote to the then PM in 2002 that there was complete bungling in the Rs. 54000 crore National Highways construction programme. He submitted that the mischief started with the selection of contractors and continued through the appointment of supervisors and consultants, in awarding very liberally the mobilization advance. Works were sublet against the laid down norms and the bidder contractors acted only as the commission agents who pocketed 40 percent of the contract value and walked away. Since he had hit where it hurt the most, the contractors as also the authorities feared being exposed, Satyendra was murdered. Though he left everything in black and white about the NHAI, but nothing has happened. He had written during the regime of NDA that changed long back. The political shade makes no difference to the attitudes of governments towards corruption. The same rates continue and have rather been revised further in due course. He, as site engineer left firsthand account that there was a play of 40 percent in the estimates and the rates at which the works were being awarded.

That is the sample story. As mentioned elsewhere, my personal experience of working in an engineering department in Haryana is identical to that and so is also my experience in CBI by observing various departments of Government of India. I state even at the risk of repetition that in Haryana I could bring the rates of Construction down by 35-40 percent and the works were executed in the corporation that I headed at almost half the rates as compared to PWD and almost all the other departments of the government.

Whereas the social costs of road building to this country should be hardly anything in comparison to what we actually incur. The labour costs are rock-bottom low and Stone, the basic raw material comes free to our country. The only cost is that of mining i.e. nominal and the transport. Transport costs are also very low as this resource is available all over the country. Contrast with Netherland that is supposed to have one of the best roads in the world, but it has no stone whatsoever. It imports stone from the neighboring countries from an average distance of 800 kms. It is transported to the port of the exporting country through rail or road and then it is loaded into the ship that carries it to their own coast, where again it has to be carried by rail or road to the place of use. Not only their transport costs are very heavy, they have also to pay for the material. In India the only costly item in road building is the bitumen or the cement depending upon what material is used. We have traditionally been using the bitumen, an imported item as against the cement that can be manufactured within the country. Limestone, the basic and the bulk ingredient for cement is also amply available in the country and like the other stone this is also a free gift of nature, but cost of cement has also been pegged very high by the cartels. However, now progressively we are diverting to concrete roads. But costs continue to be very high.

The answer lies in the corruption and the black economy. Satyendra Dubey pointed to 40 percent inbuilt play. As an engineer, he rightly took market prices of inputs as given, but in view of the discussion in the foregoing paragraph , the real cost of road building to this nation should not be more than 25 to 30 percent of what is being charged at present.

The BOT (Build Operate and Transfer) projects are the worst possible. Besides executing at higher rates, much more is collected on the BOT Toll Plazas. The National Highway Authority of India (NHAI) is constructing highways and expressways on the principle of BOT for which toll fee is levied on the users for a period of 20-30 years from the time of allotment of the work. The rate of collection of toll is so high and for such a long period that it has no relation or relevance with the expenditure incurred. Delhi Gurgaon, Express Highway along with its flyovers has been completed at a cost of Rs.701.62 crores. The private agency has been given rights to collect toll at three points namely km 14 (IGI Airport ) km 24 (Gurgaon Delhi border) and km 42 (Kherkidaula) plazas for a period of 20 years from January 2003 (collection to commence on completion of construction) upto January 2022 . The entire amount is to be retained by the builder upto the traffic volume of 1.30 lac vehicles for each plaza beyond which the revenue has to be shared with the NHAI. The rates of toll prescribed initially w.e.f. Feb 2008 on this stretch are given below in table 2.5:


Table - 2.5

Rates at Toll Plaza At

Km 14 Km 24 Km 42

Bus/Truck/ MAV (in Rs.) 34 51 64
Minibus/ LCV (in Rs. ) 17 25 32
Car (in Rs. ) 11 17 21

The rates are to be reviewed annually w.e.f 1st April every year based on the wholesale price index. The due revisions have already occurred twice."

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#2
contd....

The daily collections as per the media reports averaged between Rs. 70 lacs and 1 crore a day or upto Rs. 365 crores a year at the commencement of collections in January /February 2008. As per the figures supplied by the NHAI based on the statement of the tolling firm, the collections at km 14 and km 42 were over 10 crores a month initially or 130 crores a year, but the Authority did not give out the statistics for the third barrier at km 24. However, the inference is clear from the number of collection points put up at each barrier that puts the traffic volume at km 24 easily more than the aggregate at the other two places. Safely, the total collections will work out to Rs. 22 crores per month for February-March 2008 and with 13 percent increase in rates on 1st April 2008, the figures rise to Rs. 293.8 crores per annum. In further analysis for the sake of simplicity, I propose to ignore the collections that the firm made in two months of February and March 2008.

The two factors that determine the collections are the number of vehicles that is ever rising and the rate per vehicle which is to be revised annually. In 2008 between January and April the rates witnessed an upward revision of over 13 percent and the number of vehicles on these points has been rising much faster than the available estimated rate of 9 percent. These estimates are not very reliable as the vehicle population in recent past in Delhi has seen a rise of 15 percent and in Gurgaon 25 percent. So the number of vehicles plying on this stretch should go up by 20 percent, but in absence of any authentic assessment, even if we adopt the old conservative projected rate of 9 percent, the total collections on both counts together will see an annual rise of 22 percent. This rate of increase in annual collection has been adopted in the table 2.6 below.

The total investment on the project was Rs. 701.62 crores. The firm has to be paid only interest over and above this investment and nothing more. From the table below it is clear that even if a very high interest @ 18 percent per annum is allowed, in less than three years, the entire amount with interest would stand paid, leaving a surplus of Rs. 116.55 crores and the barriers should disappear thereafter.

Table -2.6

Statement of Annual Payments and Balance

( In crores of rupees)
Outstanding Annual interest Total Recovery Balance
Uptil March 2008
2008-09 701.62 126.29 827.91 293.80 534.11

2009-10 534.11 96.14 630.25 358.44 271.81

2010-11 271.81 48.93 320.74 437.30 - 116.55

Total 1089.54

There should be no need for any more payments and hence any more collections after three years, but, the agreement authorizes the firm to collect Toll for 15 years upto 2022-23 if it is not extended beyond that. At the enhanced rate of fee and the rapidly growing traffic volumes, the collection for the remaining 12 years will add to a whopping sum of Rs. 23290 crores.

The collections at the same annual rate of growth as above worked out for the next 12 years are listed in table 2.7 below:

Table – 2.7
Collections for Remaining period of the Concession

Year Collections

2011-12 533.50
2012-13 650.87
2013-14 794.07
2014-15 968.76
2015-16 1145.29
2016-17 1397.25
2017-18 1704.64
2018-19 2079.67
2019-20 2537.19
2020-21 3095.37
2021-22 3776.37
2022-23 4607.16

Total 23290.13

Allowing any collections beyond three years would tantamount to robbing the road users and it would further escalate if actual collections were more than 293.80 crores during 2008 (on the basis of which all other figures have been arrived at), or number of vehicles rises faster or if wholesale price index escalates faster.

Does it appeal to reason that against Rs.700 crores of investment the nation should pay over Rs. 24,000 crores? If such are the rates, it will be better that government make lump sum payment to the contractor by levying a further cess of a rupee or two on every litre of petrol/diesel sold in the NCR to defray these expenses. Incidentally the entire amount would stand paid in three years for all the toll points that function in this area including DND, the Gurgaon-Express Highway and all others

The assumptions and the criteria that form the basis of determining the rates and the time period at Toll Plaza need intense scrutiny for all the 20 odd projects under BOT category all over the country. Detailed information had been asked for through the RTI route, but as usual there is tendency to conceal more than communicate, as the departments feel threatened in informing the citizen for fear of being exposed. The citizen naturally and rightly smells rat and wonders why there should be such grave fear from information becoming public if they do not have any bungling to hide.

The information, received in response to the application under RTI, makes two rather surprising revelations. First, that “The rates……are being revised for every year starting from 1st April on the basis of Wholesale price index” and secondly “the fee shall be collected in perpetuity by the Central Government.” It is not understood, what is the link between a payment that has been frozen after the construction and the future price index. Further how and why can even the government go on collecting huge money in perpetuity when it is a fee and not a tax?

The rules covering the agreement provide for all sorts of escalations but are silent on the annual count of vehicles. The way the traffic volume is rising on this road,the count should be a monthly exercise. Now at least a onetime census for counting the number of vehicles by some neutral agency, in association with some members from civil society, is very necessary in order to know the exact dimensions as the estimated base number as also the rate of increase of the vehicle population assumed at 9 percent, has been left far behind. Experts informally confided that the number of vehicles at km 24 alone was over 2 lacs in place of 1.4 lacs being quoted generally in state briefings." Contd..

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#3
Contd...

The most serious aspect, with which we are concerned immediately, is the creation of black money, evasion of taxes and the resultant further loss of incomes that accrue through the multiplier effect and the further cumulative loss of taxes. Bulk of the surplus of Rs. 23290 crores will be disposed of in many ways. First of all, the receipts at the windows will not be shown in full. Secondly, lots more people will be shown as working and drawing salary that will go to the pocket of the builder. It has happened in case of a firm like Satyam that salary for 10000 non existing employees used to be remitted to USA and received by the men of Ramalingam there. Further, there are many more ways to show fake expenses and evade taxes on the same. The state and the society will not only lose the tax, but also suffer drain of the accumulated black money, part of which will surely find its way into the secret accounts of the foreign banks in the tax havens.

It may not be possible to check the above fully, but there are ways and means to contain it. Satyendra Dubey in his letter of 2002 (annexure B) has discussed how to prevent 40 percent extra in building of National Highways. That leaves Gurgaon Express Highway, a project of only Rs. 420 crores, against which the nation is made to pay as high as 24000 crores. What a pity? At this rate getting works executed under BOT is not worth. It is a prolonged curse. Total works on highways executed both by the NHAI and the Surface Transport Ministry including under BOT, are worth Rs. 20000 crores for 2008-09.If another rupee is levied as cess on the petroleum products, that will yield an additional amount of Rs.8000 crores raising the total to Rs. 24000 crores, more than sufficient to cover the whole of the annual expenditure during the year and still leave out some surplus, rendering all the collections all over the country irrelevant. The expenditure may increase in future but so shall also be the petroleum consumption that will automatically push up the revenue on this count. That will eliminate the need for Toll barriers altogether and remove the irritants at so many places for all times to come.

It can be looked from another angle as well. The total expenditure of NHAI on its 15-year programme is projected as Rs. 2,20,000 crores. The average annual expenditure works out to less than Rs. 15000 crores per year. As against that the petroleum cess after raising its rate by another rupee for ehe entire country, will yield more than the annual expenditure. So, where is the need for barriers? Moreover if payments are made side by side, many more firms will be able to undertake and participate in the process .That will certainly bring the rates steeply down to the competitive levels.

It was really surprising when the new surface transport minister Kamal Nath immediately after taking over made a startling statement that for many projects none had offered to bid as the rates in BOT projects were not attractive to the contracting firms. This is in sheer contrast to what Sateyender Dubey had strove and died for. It is also directly opposite to our findings above. To understand why firms are not coming forward, one has to go a little deeper into the working of the system that permits only the big firms to bid and there are very few big firms that are eligible to bid. All others are eliminated in the peculiar conditions that are prescribed for determining the eligibility. These conditions are worked out in a way that most of the firms are automatically rendered ineligible, leaving only the desired few in the field. Thus NHAI has zeroed down only a few big contractors who only are able to bid. They form cartels and make offers according to the rates agreed among themselves. These firms act more like commission agents that get the works allotted and further distribute the same for execution to many sub-contractors and the petty contractors. They themselves walk away with a hefty sum that Satyendra Dubey put at 40 percent. As he depicted, the worst is that it happens with the blessings from the officials. Rates naturally go high. The real competition has to be generated by allowing smaller firms that may not be able to bid for 200 km stretch, but would participate effectively and bring down the rates considerably if the stretch of road is broken into 10 to 20 parts of 10 to 20 km length each with a value of about Rs. 50 to100 crores only.

The subletting makes matters further worse as was witnessed in the case of Delhi Metro when the pillar gave way. There was no one to take responsibility as the contract of DMRC was with one party, but that party sublet the work to the other and now tried to pass on the responsibility to it. But DMRC has no agreement or official relation with it, nor can it force this firm. This of course is a legal tangle. Besides the problems in fixing responsibility, the rates also go high as more and more agencies participate in the process of outsourcing every process practically."
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