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BW Businessworld

Road Robbery

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In the last week of May this year, the Central Bureau of Investigation (CBI) raided the offices of the National Highway Authority of  India (NHAI) and arrested two senior officials. They were suspected to have taken money to help certain bidders win lucrative projects given out by the highway authority. The investigative agency also raided the offices of Oriental Structural Engineers (OSEPL) and arrested its managing director and another senior executive. OSEPL, a mid-sized construction firm that is active in the road building sector, had just won the tender for the Nagpur-
Betul stretch — a contract that several other bidders claimed was rigged from the start.

That there is a certain amount of corruption and rigging in road contract projects is something that most bidding firms take for granted. But the CBI action in May was followed next month by an internal report titled "Sub Prime Highways" by the Planning Commission on the NHAI's style of functioning, which caused a fair amount of worry in the finance ministry, the Prime Minister's Office (PMO) as well as in several other ministries. The reason: the NHAI had moved into high gear and started giving out contracts at a rapid pace after Kamal Nath took charge of the ministry of road transport and highways. And even as Rs 64,000 crore worth of road contracts were given out in 19 months, allegations of corruption and bid rigging reaching new highs had also started doing the rounds.

Click here to view enlarged imageThe Planning Commission paper, in fact, opened a Pandora's box of allegations. It claimed that competition in the sector was plummeting and hinted that the award of contracts was based on factors that had little to do with merit. It said that the NHAI was hurtling towards bankruptcy because of the way it was functioning. It also painted a bleak picture of projects costing far more than justified, procedures being routinely ignored, and collusion and rigging in the awarding of contracts. The paper claimed that the whole programme would eventually cost the public exchequer far more than it had bargained for. Though some critics feel that the paper's author — Planning Commission member Gajendra Haldea — has taken a particularly jaundiced view, they admit that highway projects need closer scrutiny because of the way at least some projects, especially in 2010, have been awarded.

"In all government projects, some money changes hands. But in some of the cases of projects awarded recently by the NHAI, there seems to be fairly blatant rigging and collusion," says the head of a road project of a Mumbai-based construction firm on the condition of anonymity. Planning Commission officials say that the projects are being increasingly structured to make them lucrative for the winning bidder — and then they are being rigged to make sure that a handful of specific bidders bag them. CBI sources say that both the ministry and the highway authority have been uncooperative, and have stonewalled their enquiries.

The roads minister declined to be interviewed on the issue, and passed the queries on to the NHAI chairman, Brijeshwar Singh. The latter says that the Planning Commission does not have a clear picture of the ground realities and its approach to the subject of road building is academic. S.K. Dixit, CEO of OSEPL, says that the complaints about rigging come from bidders who lose out and is a case of sour grapes.

But privately, many officials within NHAI itself say that rigging has grown — both in size and sophistication — in the recent past. Interviews with bidders, Planning Commission officials, and current as well as past NHAI officers, most of whom spoke only on the condition of anonymity, paint an alarming picture. Companies, too, are ringing the alarm bells because there is a large number of projects yet to be awarded and because many large institutionalised bidders appear to be losing out to smaller, lesser known and, in some cases, dubious rivals.

The Potholes
Essentially, there are four separate areas in which manipulation is taking place resulting in hundreds of crores of losses to NHAI and the government (and by extension to taxpayers), while fattening the bank balances of certain bidders and corrupt officials.


  • To start with, many projects are being converted from the build-operate-transfer (BOT)-toll schemes to the BOT-annuity schemes (see ‘Road Blocks', page 32). In toll projects, the builder makes his money from toll collected over the 10-15-year period of his concession. In annuity projects, the government simply gives half-yearly fixed payments to the builder for the period of his concession — which could stretch to 15 or even more years. Annuity projects, therefore, carry no risk for the builder and are particularly attractive for all bidders. Conversely, they commit the NHAI (and therefore, the government) to pay out money regularly for the entire period of the concession and can add up to a significant financial burden if too many such contracts are given out. More worrying is the fact, some bidders claim, that most annuity projects are being padded up to give a more than reasonable rate of return. An annuity project where the NHAI should be giving out Rs 100 crore annually, say, is now being given out for Rs 150 or 200 crore; which means a bonanza for the bidder who wins the contract.
  • KAMAL NATH (CONG) May 2009-present Has awarded 76 projects covering about 6,870 km since taking over as roads minister, for Rs 64,000 crore so far (BW pic by Sanjay Sakaria)Then the NHAI is giving a lot of money to the builders of winning projects to help them complete the roads. According to the Planning Commission paper, the Viability Gap Funding (VGF) — or the amount that the NHAI gives to the concessionaire as its contribution for building the road — is also ballooning beyond all rationale. While this is derisking the project for the winning bidder, it has serious implications for NHAI's finances, which are getting stretched. The paper paints a bleak picture of the NHAI going bankrupt very soon — something that NHAI chairman Singh says is a coloured view of the actual picture.
  • Projects are being over-engineered to increase the total project cost resulting in a colossal waste of funds and great gains for winning bidders. In many cases, where traffic projections justify a two-lane road, they are being converted to four- or six-lane roads to make them more lucrative to contractors. "What this amounts to is that roads are being built today, which the next several generations will be paying for," explains one government official. The standards laid down by the Indian Roads Congress have been adopted by the NHAI, but are being "routinely exceeded and excessive costs continue to be incurred by adding elements that lack justification", says the report. Over-engineering is also taking place in another way — far more flyovers, underpasses and side lanes are being built into the projects than may be justified. All these inflate the cost of the project and, therefore, make it more attractive to bidders. The problem, says the Planning Commission paper, is that much of this is unnecessary. Many infrastructure experts, however, don't buy this. Says Jayesh Desai, CEO, Unitech Infra: "There is no such thing as too much infrastructure in India. We can do with all we can get."
  • T. R. BAALU (DMK) 2004-09 Was cabinet minister under UPA-1. Tenure is known for slow work — contracts for only about 6,078 km were awarded (ABP)Perhaps the most worrying of all allegations is that a cartel of sorts is operating. Who will win certain contracts is decided in advance. Many other bidders are actively discouraged from bidding for those contracts. In some cases, senior NHAI officials call these bidders to tell them to withdraw from the fray. (A number of bidders as well as the CBI have alleged that S.I. Patel, who was member (projects) till recently at NHAI, had a hand in this. Patel has recently been sent back to his parent cadre, probably as a result of the CBI asking the Cabinet Secretary's permission to investigate him.) The net result is that in many projects, there are many pre-qualified bidders, but only one or two final bids are received. In some of these cases, the bids received appear rather close to each other and reek of collusion.

Speeding Ticket
All this should be worrying Kamal Nath, whose stated aim was to push highway construction into high gear once again, given the slow pace of projects awarded in his predecessor's regime. The highway construction programme was moving quite fast under the NDA regime before it came to a grinding halt under the first UPA government, and the then minister of roads and highway development, T.R. Baalu. Between 2007 and 2009, in Baalu's time, the NHAI awarded a miserly 17 projects covering 1,786 km at a total project cost of Rs 17,000 crore.

B.C. KHANDURI (BJP) 2000-04 During his time, 2,800 km of the Golden Quadrilateral and 630 km of the North-South-East-West (NSEW) corridor was built (PIB)When Nath took charge of the ministry in the second UPA government, he promised to get things moving again. And he certainly moved to keep his promise. The NHAI has already awarded 76 projects covering a length of 6,871 km for a total cost of Rs 64,000 crore in the 19-odd months that he has been in charge. By March next year, the total kilometres awarded are expected to touch 9,000. In other words, in the coming months, another 40-odd projects will be awarded worth another Rs 30,000 crore.

The pace has been frenetic and activity levels at NHAI unparalleled. As the NHAI chairman Brijeshwar Singh puts it: "The last few months have seen activity equivalent to the previous four years (2005-09) put together".

But the whole programme could come to an abrupt halt once again if large-scale rigging is proven in the contract tendering process. With the 2G brouhaha still going on, the government can ill-afford another big scandal — especially in the arena of an infrastructure sector that it considers extremely important. The CBI raids in May had resulted in a paralysis in the NHAI for almost two months, before things started moving again. The big question is: can the minister clean up the highway programme problems before it blows up in everyone's face, the way the telecom scandal did?