Delhi-Noida Toll Bridge irregularities should serve as

warning about perils of the PPP model

NR Mohanty Jul 25, 2016 19:24 IST

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Public-private-partnership (PPP) became a buzzword after India embarked on

the path of the economic liberalisation in 1991. It continues to be a favourite
for the powers-that-be - Finance Minister Arun Jailey said in his maiden budget
speech: "India has emerged as the largest PPP market in the worldPPPs have
delivered some iconic infrastructure like airports, ports and highways, which are
seen as models of development globally. But we have also seen the weaknesses of
the PPP framework, rigidities in contractual arrangement"
The finance minister did not mention how some PPPs are virtual sell-outs to
private interests at public expense. The Delhi-Noida Toll Bridge, popularly
known as DND Flyway, is one such example of a corrupt contract that would
render the very idea of PPP an anathema.
The facts: In 1990, the National Capital Region Planning Board conducted a
study that highlighted an urgent need to to build a bridge across the Yamuna to
ease traffic congestion between Delhi and Noida.

In 1991, a few prematurely retired IAS officers came together to float, in

collaboration with some businessmen, a company called Infrastructure Finance
& Leasing Services (IF&LS).
On 7 April, 1992, a memorandum of understanding (MoU) was signed between
the Uttar Pradesh government, the Delhi administration and IL&FS for the
implementation of a toll bridge across the Yamuna.
The obvious question arises: Why did the UP government and the Delhi
administration sign an MoU with a private body that was less than a year old, a
body with no track record to take up such a big assignment? At the time the MoU
was signed, the company did not have a single completed project to showcase its
claim to be the sole bidder - yes, the sole bidder - for the mammoth enterprise!
And the story does not end there. Subsequent to the MoU, a steering commiittee
- comprising representatives of the Delhi administration, UP government and
IL&FS - decided to award the contract for the construction of the bridge to a
company owned by IL&FS.
Accordingly, IL&FS set up and subsequently incorporated the Noida Toll Bridge
Company Limited (NTBCL) and established its corporate office at
Lucknow. Thereafter, the Noida administration was given the authority to flesh
out the detailed framework of collaboration. After due deliberations, Noida,
IL&FS and NTBCL signed a concession agreement on 12 November, 1997.
And what were the salient provisions of the agreement? That was an even bigger
scam.
The agreement gave IL&FS and NTBCL sole charge of the Noida-Delhi
expressway on a Build-Own-Operate- Transfer (BOOT) basis. It allowed the
NTBCL to fix the toll rate on its own, without any approval from the Noida
administration.
What's more, there was no cap as to for how many years the NTBCL could collect
toll from the public. The NTBCL was authorised to collect toll for at least 30
years from the commencement of the expressway; a clause was also inserted in
the agreement that the NTBCL could collect toll for an indefinite period after 30
years, if it had not earned enough returns on the investment after three decades
of toll collection.

And what was the stipulated returns the company was supposed to get? That it
must earn at least 20 per cent annually on its initial investment. And what was
the initial investment? The company, by its own admission, said that
the engineering, procurement and construction (EPC) cost was Rs 193 crore. The
cost for getting the land, which was facilitated by the Noida administration, was
Rs 11 crore. But by the time the Delhi-Noida route commenced in 2001, the
NTBCL projected the total cost at Rs 408 crore, since the initial estimate had
doubled.
There was no delay in the project, so why this cost overrun? The company said
that it had to pay a huge management fee - the cost of men, material, machinery
and land was Rs 200 crore, and the management fee was also Rs 200 crore!
The Noida authority was supposed to have no say in the matter. The NTBCL
appointed its own auditor which endorsed the claim made by the company. Well,
then, the earning had to be calculated on the initial investment of Rs 408 crore.
And at the stipulated rate of 20 per cent, the earning to the company must be at
least Rs 82 crore a year.
But a year after the commencement of the DND expressway, the company said
that its real earning (toll collection minus the operational cost) was just about Rs
2 crore, which means it had a shortfall of Rs 80 crore in the first year.
The question is: Who deterrmined and approved this operational cost? The
NTBCL itself. The Noida authority had no say in the matter. There was no
stipulation of, and no cap on, annual operational cost in the agreement.
And now comes the strangest clause of the agreement: If there was any shortfall
in the annual earnings, then that would be added to the initial investment for the
purpose of determining the subsequent year's earning stipulation.
This woks out in the following way: In 2001-02, there was a shortfall of Rs 80
crore. For the year 2002-03, the initial investment would be construed as Rs 488
crore (Rs 408+80 crore); then the stipulated earning next year has to be Rs 98
crore (at 20 per cent rate). But there is a catch: Even if the toll revenue went up
sharply, the operational cost corrspondingly increased to nullify the net gain.
And the operational cost is whatever the company claims and which the
company-appointed auditor endorses.

No wonder, in a seminal study conducted by the Planning Commission in 200506, noted economist Sheoli Pargal trashed the PPP agreement: "The agreement
does not provide a tight definition of items allowable as cost, so costs are
effectively open-endedthe base upon which returns are guaranteed is unduly
inflated"
The Planning Commission report found that the project cost of Rs 408 crore
- which was in itself hugely inflated - had balloned to Rs 953 crore by 2005-06,
because of the strange clause of adding the shortfall in the annual returns to the
original project cost.
And what was the Planning Commssion so aghast about? That the NTBCL said
that it earned an annual profit of just Rs 2.6 crore in the year while the 20 per
cent rule entailed an earning of Rs 191 crore. So a shortfall of Rs 188 crore in
returns was added to the total project cost, taking it from Rs 953 crore to about
Rs 1,142 crore in a year.
A simulation exercise undertaken by Halcrow Consulting India came out with the
following conclusion in February 2006: With the 2005-06 position in mind, it
worked out that the accumulated project cost could be above Rs 11,817.54
crore by 2021.
That gives a license to NTBCL to collect toll till infinity! How much must the
company earn to make a decent profit? Consider the following facts:
A year ago, when the Bharatiya Kisan Union staged a two-day demonstration
demanding the flyway be made toll-free, NTBCL claimed that 1.6 lakh vehicles
passed without paying toll, causing it a loss of over Rs 50 lakh. Considering the
fact that the demonstrators disrupted the toll collection for only a few hours each
of the two days, by projecting the NTBCL's own claim, the company collected
then, on a conservative estimate, at least Rs 30 lakh a day. That worked out to a
neat earning of Rs 9 crore a month and Rs 108 crore a year.
But then the NTBCL's operational cost is shown to be above Rs 100 crore - and a
major part of it is paid as salary and perks to the top management of the
company. And who constitutes the top management of the company? Three IAS
officers, who were instrumental in the award of the DND contract, who upon
retirement from service joined as directors of the company.

Isn't it an exemplary case of a fraudulent public-private-partnership that the

finance minister ought to worry about?
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