Road projects in limbo, thanks to red tape

August 20, 2006

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NEW DELHI: The Planning Commission’s failed attempt at redesigning public-private partnership contracts for roads since January 2005, has paralysed the nation’s highway building exercise, once the showpiece of government performance.

Government sources concede that apart from roughly 30 projects processed earlier, not a single kilometre of new BoT (build-operate-Transfer) projects have been awarded since early 2005. After two years, matters have reached a new low, with NHAI taking a decision in a July 29 board meeting, to hold award of projects, pending resolution of new norms.

In January 2006, government put a new Model Concession Agreement (MCA) for road contracts in place, eight months after the scheduled date of delivery.

It created a new public private partnership appraisal committee (PPP-AC) headed by secretary, department of economic affairs to clear projects over Rs 100 crore, considered an unnecessary and potentially dilatory bureacratic layer. However, NHAI’s hands remained tied as the new MCA remains incomplete and unresolved on three contentious clauses and also unaccompanied by a new toll policy, a crucial supporting document.

The New MCA had been violently opposed by minister for road transport, highways, TR Baalu and NHAI, on grounds that road projects are not financially viable or bankable under new model. This is because of a new clause which pegs the annual increase in toll rates to just 40% of the increase in Wholsale Price Index (WPI), far less lucrative than the old system of linking tolls 100% to any rise in the WPI.

Ministry sources say though personal ego prevented copyright holder of the new MCA, Gajendra Haldea, from changing this figure in the MCA, returns have been placed at par with those through the old MCA withsuitable changes in new toll policy.

But the new toll policy is yet to be announced, which is holding up work. It also exposes the futility of this exercise since the final solution rests on reverting to the old and tested formula

To gain speed, Baalu has now written to finance minister, P Chidambaram asking for an exemption of PPP-AC for about 12 projects which already have Cabinet approval. It is learnt that there has been no response to this letter, written in the first week of July 2006.

Haldea is now attempting to stop even Cabinet-approved annuity projects from being awarded on the old MCA. A PMO representative is learnt to have unsuccessfully opposed Haldea on this front in an inter-ministerial group meeting last month

Since this hijacks delivery schedules, former road secretary, L K Joshi, is learnt to have asked for a written letter from the Planning Commission advising the road ministry not to process annuity projects without the new MCA.