Tuesday, March 29, 2011

Chhattisgarh Accelerated Road Development PPP: brazen corruption

The state government makes a crude attempt at allowing an unfair advantage of Rs 5700 crore to the private partner in a PPP project for roads, finds an RTI activist.

In January 2007, Chhattisgarh government and IL&FS (Infrastructure Leasing & Financial Services Ltd) signed a ‘programme development agreement’ for ‘Chhattisgarh Accelerated Road Development Programme’.
A June 2007 advertisement issued by the state government said it was building 1754 lane kms of roads under Chhattisgarh Accelerated Road Development Programme (CARDP) at a cost of Rs 2500 crore.
The programme was to be executed in ‘fast track mode’ as a public private partnership (PPP) between the government and IL&FS.
The two partners incorporated Chhattisgarh Highways Development Company Ltd (CHDCL), a special purpose vehicle (SPV) for project implementation, in which IL&FS held 74 per cent equity and the government held the remainder.
The project was described as ‘annuity-based programme’ because the government were to make annuity payments to the concessionaire.
An investigation by an RTI activist
Starting from July 2007, Rajesh Bissa, who is one of the secretaries of Chhattisgarh Pradesh Congress Committee, made a series of RTI requests to the public works department (PWD) to seek more information about CARDP.
He asked for the following information, among other things.
(1) Copies of expressions of interest for selection of private partner for upgrade and construction of roads, all correspondence about tendering system, copies of bids, file notings for evaluation of bids and documents related to pre-bid meeting, etc.
(2) Copies of agreement signed between the government and IL&FS.
(3) Copies of amendment, if any, made in the agreement with IL&FS and relevant file notings.
(4) List of roads to be constructed.
(5) Documents of incorporation of CHDCL and relevant correspondence.
Grave illegalities
In response, PWD released copies of expressions of interest (EOIs) for selection of private partner, the programme development agreement signed with IL&FS, and other information some of which was let out only after months of struggle by Bissa and adjudication by the state information commission (SIC).
The documents showed that the EOIs were invited for 1500 kms of roads, but the programme development agreement had mysteriously acquired a figure of 2500 kms.
The lists of roads under CARDP showed that the government had already asked IL&FS to start work on 2286 kms of roads.
What it meant, in simple terms, was that the government had illegally awarded 1000 kms of extra road work worth thousands of crores of rupees to the private partner without so much as a legal procedure.
The agreement had been signed on the government’s side by P. Joy Oommen, who was then Principal Secretary, PWD, but there were no signatures by witnesses.
“The entire procedure for selecting the private partner from four bidders appeared to be loaded in favour of IL&FS,” says Bissa.
In assessing the bidders, their parent company or subsidiaries should not have been considered, but IL&FS had been considered along with IL&FS Transportation Networks, a subsidiary.
IL&FS made the second best bid, behind a Malaysian company, which mysteriously opted out at the final stage.
The bidders were not required to deposit any earnest money, but only a small processing fee of Rs 50,000 each.
Cheques of processing fee accompanying two of the four bids did not conform to the prescribed mode of payment, but the bids were still accepted, presumably to create an appearance of sizeable competition.
While IL&FS had asked in its original bid to be paid Rs 351 for every Rs 100 of cost, the agreement allowed a larger amount of Rs 384, or Rs 825 crore in absolute terms.
The cost was estimated to be Rs 1.50 crore per km of road length, i.e. Rs 1500 crore for 1000 kms. So IL&FS was to be paid about Rs 5700 crore for Rs 1500 crore of the cost at the rate of Rs 384 for every Rs 100 of cost.
Given that 1000 kms of additional road length had been fraudulently introduced into the agreement, IL&FS would have received Rs 5700 crore of payment in addition to what it was to be paid for constructing road length that was agreed upon.
More revelations
The documents also revealed that the state cabinet gave ex post facto approval to the programme development agreement 10 months after it was signed.
The revelations were widely reported in the Media. In September 2007, almost all local newspapers carried the news about illegal addition of 1000 km of road length to the contracted road length.
As the opposition parties demanded scrapping of the agreement with IL&FS, the state government was compelled to do some damage control. It stated that a “typing error” had caused 1500 km to become 2500 km and hurriedly signed an amendment to the agreement with IL&FS to restore the lower figure.
The state government had no convincing explanation, however, as to why it sent to IL&FS a list of roads totaling 2286 km in length if the contracted road length was only 1500 kms.
Writ petition
As the government continued to trot out unconvincing explanations, Bissa filed a writ petition (PIL) in April 2008 at Chhattisgarh high court, seeking an independent enquiry, action against officials involved in the scam, and quashing of the agreement with IL&FS.
The court, however, disposed of Bissa’s petition with the suggestion that the matter needed a thorough enquiry, which Chhattisgarh Lok Ayog was in better position to conduct.
In May 2008, Bissa made a formal complaint to Lok Ayog, which issued in June 2008 notices to the chief minister, the PWD minister, and other top officials. The enquiry is still on.
Interestingly, the uncovering of the “annuity scam” has stalled the entire road project without any stay order from the court, according to Bissa.
(The scam was well reported in the local Hindi press. The details of the scam, based on documents obtained by Rajesh Bissa through RTI Act and press reports, have also been reported by Public Cause Research Foundation or PCRF, a Ghaziabad-based NGO that organizes RTI awards. http://www.rtiawards.org/rajesh_bissa.html)

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