Dubious model

Published : Feb 13, 2009 00:00 IST

E. Sreedharan, Delhi Metro Rail Corporation Managing Director, objected to the undue advantages accorded to Maytas Infra.-K. PICHUMANI

E. Sreedharan, Delhi Metro Rail Corporation Managing Director, objected to the undue advantages accorded to Maytas Infra.-K. PICHUMANI

BARELY a week after the financial irregularities in Satyam Computer Services came out into the open, sections of the United Progressive Alliance (UPA) government indicated that fresh efforts would be initiated to evolve a viable policy for funding infrastructure projects. The idea was expressed by a number of Ministers and senior bureaucrats who are part of the Committee of Secretaries on infrastructure.

The reason for this was the controversy that had arisen about the Hyderabad Metro Rail Project (HMRP) in the context of the Satyam revelations. The HMRP is being built on the private-public partnership (PPP) mode by a consortium in which Maytas Infra, promoted by a son of Satyam chief Ramalinga Raju, is a leading constituent. Following the Satyam revelations, Maytas Infra is being investigated by the Registrar of Companies for possible fraudulent activity.

While concrete results of the investigation may take a while to emerge, the track record of the HMRP and the controversies regarding the award of the project to the Maytas Infra-led consortium have raised questions about PPP being an acceptable model, particularly in metro rail projects. Central to these controversies are the objections raised by E. Sreedharan, the technocrat who is widely referred to as Indias metro-rail man for his supervision of the installation of a world-class metro rail system in Delhi. Sreedharan, Managing Director of the Delhi Metro Rail Corporation (DMRC), was a consultant to the HMRP when the project was being conceived but was later dismissed from that position by the Andhra Pradesh government when he raised objections to the unprecedented and undue advantages that were being accorded to Maytas Infra.

In a letter to Planning Commission Deputy Chairman Montek Singh Ahluwalia in September 2008, Sreedharan questioned the financial model that was being pursued in the execution of the HMRP. The consortium led by Maytas Infra Ltd had bagged the Rs.12,132-crore project by quoting a negative grant of Rs.1,240 crore to the State government and emerging as the lowest bidder in the project in July 2008. A negative grant is one that has the private partner in the PPP paying the government for executing and operating a project without seeking a subsidy. Moreover, Maytas Infra refused a viability gap funding (VGF) of up to 20 per cent of the project cost offered by the government. Again, the consortium was the only bidder that had committed a revenue of Rs.30,311 crore over the projects 34-year concession period.

Maytas Infra was supposed to make good its negative grant and provide the promised revenue to the government from real estate along the metro route. Infrastructure Leasing and Financial Service Ltd (IL&FS) and Italian-Thai Development Public Company Ltd, Thailands largest civil and infrastructure construction company, were partners with Maytas Infra in winning the project. The negative grant in the HMRP was hailed by many corporate associations and sections in the government as an exemplary illustration of the PPP model. However, Sreedharan suspected the presence of land mafia in the arrangement.

In the letter to Ahluwalia, he pointed out two types of unacceptable land dealings relating to the HMRP. First, the State government was making available 296 acres (one acre is 0.4 hectare) of prime land to the BOT (build, operate and transfer) developer, the Maytas Infra-led consortium, for commercial exploitation. This, he said, was like selling the family silver. He added that it is apparent the BOT operator has a hidden agenda which appears to be to extend the metro network to a large tract of his private landholdings so as to reap a windfall profit of four to five times the land price. These two dimensions, Sreedharan said, would turn into a big political scandal some time later. Referring to the PPP policy, he also said that worldwide the experience has been that no metro project has succeeded so far on BOT basis and added that Indias sole example of Mumbai Metro-I has not given us the required confidence in the BOT route. Even after agreeing to a VGF payment of Rs.650 crore plus 26 per cent equity (total government outflow of Rs.780 crore for a project cost of Rs.1,936 crore), the project is moving at an extremely slow pace, he wrote.

The letter created a flutter. The Andhra Pradesh government stated that all that it had done was to award the project to the lowest bidder, saving as much as Rs.10,000 crore in the process, and that Sreedharan was unnecessarily making insinuations and allegations. Later, State Finance Minister K. Rosaiah, Municipal Administration Minister Koneru Ranga Rao and Managing Director of Hyderabad Metro Rail Limited N.V.S. Reddy addressed a joint press conference and asserted that they would sue Sreedharan if he did not apologise for his unjust comments. Sreedharan did not apologise, but there was no suit against him. His stand seems to have been vindicated now.

It is in this context that the question of evolving a viable funding policy for infrastructure projects is being discussed at different levels of the government. No matter what comes of the discussions, the Planning Commissions much-vaunted preference for the PPP model has now undoubtedly taken some beating.

Its vociferous advocacy of the PPP model is particularly evident in its correspondence with the Kerala government on a proposal to build a metro rail system in Kochi. The Kerala government had proposed to build the metro with government funding and money borrowed from lending agencies. Not only did the Planning Commission reject this proposal but it also exhorted the Kerala government to follow the HMRP model. A letter and a study note sent by the Planning Commission to the Kerala government stated that the Kochi project could be considered only if the State government is ready to provide necessary support for creating a viable PPP project. It went on to add that the successful bidding of the Hyderabad Metro project can be a possible model of delivery of metro projects. However, sections in the government, including the Urban Development Ministry, are reportedly not in favour of such all-out advocacy for the PPP model. And such sections apparently want the issues raised by Sreedharan to be addressed and the PPP policy reviewed. Some Ministers, belonging to the Congress and its UPA allies, even want the government to suspend the HMRP.

However, powerful sections in the Finance Ministry and the Law Ministry are reportedly of the view that no action can be taken against Maytas Infra before March, when Maytas Infra is due to give the Andhra Pradesh government a performance guarantee payment of Rs.180 crore. If the firm does not default on this and if no other fraudulent practices of the company are exposed, it may not be possible even to revoke the project, a Congress Minister from South India told Frontline. The other point to be considered is that finding a new promoter for the project and revising the estimate would jack up the cost by Rs.3,000 crore to Rs.4,000 crore. In such a situation the government may have to come up with a higher VGF.

As this debate goes on in the echelons of power in Delhi, activists such as Dr. C. Ramachandraiah, who had sought steadfastly to expose the role of the land mafia in the HMRP, point out that the frauds perpetrated in the project have been carried out with political support. According to E.A.S. Sarma, former Secretary in the Ministry of Finance, the investigation into the Satyam and Maytas affairs cannot be complete without investigating politicians who facilitated the Satyam and Maytas frauds.

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