CAG questions success of public-private partnerships in road projects

The Government auditor, Comptroller and Auditor General of India (CAG), has questioned the effectiveness of public-private partnership (PPP) projects in the road sector.

In its report on implementation of PPP projects of the National Highways Authority of India (NHAI), the auditor has said road users will have to pay ₹28,096 crore more as toll charges to developers of seven projects, due to extension of the concession period.

The seven projects span across different States, including Rajasthan, Himachal Pradesh, Uttar Pradesh and Orissa.

This increased payout for road users will be spread over two-to-seven years without the users getting any additional benefits such as wider roads. As these toll revenues (₹28,096 crore) would be collected over 15-20 years, the net present value of the revenue is ₹3,233 crore, as estimated by the CAG.

The additional burden on users arises because the NHAI extended the concession period – the period for which a developer can collect toll from road users – for the projects by considering the traffic that can be tolled. This method of arriving at toll revenue for structuring projects is not prescribed by the standard contract agreement.

The CAG report was tabled in Parliament on Tuesday.

While road users face the prospect of added burden of toll charges during the extended concession period, this is not tantamount to any windfall gains for developers, say experts. This burden on road users could have been avoided if the Government had taken on some extra cost without extending the concession period.

However, if the concession agreement had not been extended, the Government would have had to pay a higher subsidy or viability gap funding (VGF), according to Vimalendra Patwardhan, Principal Director of Commercial Audit and Ex-Officio Member, Audit Board-1, CAG. He was speaking at a press conference.

The CAG has also called for better implementation of PPP projects by the NHAI, noting there were delays at various levels of project planning and implementation, all of which resulted in increased costs. There were delays in land acquisition, environmental clearances, forest clearances, and railway clearances.

CAG has stated that though one of the objectives of the PPP mode of execution was to reduce dependency on Government finances, the same could not be achieved completely. While questioning the effectiveness of PPP projects in meeting the expectations, CAG stated that it was not saying that PPP cannot be the way forward.

The auditor has also stated that the process of identifying and prioritising the road projects was opaque and road stretches originally selected for development were replaced with other stretches at a later stage without justification.

In this context, it has mentioned the Nagpur-Betul and Lucknow-Raebareilly projects, which were approved for four-laning despite that fact that minimum threshold traffic was not expected to be achieved in the next five to 12 years. The move resulted in extra cost of ₹1,724 crore, which was avoidable, apart from higher toll fees as toll charges for 4-lane roads are 66 per cent higher than two-lane roads.

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