Wednesday, November 23, 2016

A Bridge That Went Too Far

A debate is raging over one of India's first "successful" Public Private Partnership (PPP) projects.

The Delhi-Noida-Direct (DND), an arterial, privately-built road connecting NOIDA to Delhi has been declared toll-free by the courts, and the company in question, ILFS-NTBCL, is trying it best to return to status quo.

By all accounts, the status quo seems like a perfect sweetheart deal where the private company keeps on making handsome returns in perpetuity, at the cost of the public.

The DND story begins in the early 1990s when the country had just initiated major economic reforms and its public infrastructure was in a woeful state. A company formed by retired government bureaucrats, IL&FS, won a contract for building the road-bridge in 1997. The construction was completed ahead of schedule, and the bridge was opened in 2001. Under the contract, the company was to get an assured return of 20% return on investment, over a 30 year period.

What exactly was the investment involved? Now this is where things start getting murky. IL&FS reported that engineering, procurement and construction (EPC) cost was Rs 193 crore. The cost for acquiring the land, facilitated by the Noida administration, was just Rs 11 crore. On to this amount, the company added an a huge  "management fee" of about Rs 200 crores, bringing the total cost to Rs 378 crores.

As if this was not enough, the Total Project Cost (TPC) was calculated ex-post and remained open-ended to include just about anything (with zero-risk to IL&FS). This ensured that the TPC and the toll-rates could be revised upwards with each passing year. It also ensured that the "20% assured return" would always remain unmet, and the total cost spiraled to Rs.5,000 crore in 15 years!

In 2001, the government was wet behind the ears about PPPs. Soon after the DND project was completed it realized that the private developers were leading it by the nose, and came up with a series of measures to ensure fair-play and public accountability in PPP contracts. By 2005, Model Concession Agreement (MCA) were ready for PPP projects, along with samples of other documents like Request for Qualification (RfQ) and Request for Proposal (RfP).

So what happens to the contract that was signed between IL&FS and the government (UP & Delhi)? The company, quite naturally, continues to claim that it has the legal right to do as it pleases.

Fortunately this issue has come to a head with the filing of a Public Interest Litigation (PIL). The Allahabad High Court noted that NTBCL had “recovered all reasonable returns” on its investment, and was no longer entitled to collect toll. The company filed an appeal to the Supreme Court which tossed it aside with a note of sarcasm - "You have only ten kms of highway", the bench said, "and you claim that you have made a road to the moon"!

A follow-up study is now analyzing the company records for the profits it has made so far. It would be interesting to know exactly how the ex-bureaucrats went laughing all the way to the bank.

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* Puri, Pradeep (2016) Article by the ex-IAS officer who joined IL&FS -
"Making the DND Flyway Toll Free can Ring Death Knell for Private Investment in India"  http://blogs.timesofindia.indiatimes.com/toi-edit-page/making-dnd-flyway-toll-free-can-ring-death-knell-for-private-investment-in-indias-infrastructure/

* Rejoinder - Mohanty, Nalini (23Nov16) - "Why the DND is a Virtual Sellout at Public Expense" - https://www.newslaundry.com/2016/11/22/why-the-dnd-is-a-virtual-sellout-to-private-companies-at-public-expense

* Mint (2Nov2016) - http://www.livemint.com/Politics/sh9pNZbfTPnt7r0ZPjxjtI/Price-of-making-DND-Flyway-free-to-use-amounts-to-Rs5000-cr.html


* DNA (28Oct2016) - http://www.dnaindia.com/india/report-dnd-flyway-row-you-ve-not-built-a-road-to-moon-sc-tells-noida-toll-firm-2268316
* Indian Express (28Oct2016) - http://indianexpress.com/article/explained/issues-and-arguments-how-a-key-delhi-noida-bridge-went-toll-free-3730051/

* Singh, Abhinav Prakash (10Apr2013) -- Delhi-Noida Toll Bridge- Loot in the name of Public-Private Partnerships (An excellent primer!) -- http://centreright.in/2013/04/delhi-noida-toll-bridge-loot-in-the-name-of-public-private-partnerships/#.WDVCctV97IU

* Chandran, Rahul (2007, Mint) - http://www.livemint.com/Companies/GaP1xmYycrKNl8KPvvcFEK/With-DND-he-paved-the-way-for-smooth-publicpvt-partnership.html

* Qunit (16Oct16) -- https://www.thequint.com/videos/2016/10/27/bigger-loss-toll-free-dnd-means-commuters-face-ticket-less-mess-noida-allahabad-high-court
- the court noted that “the Concessionaire, according to their own financial statements, has recovered Rs 810.18 crore (approx) from toll income from the date of commencement of the project till 31.03.2014 and after deduction of operation and maintenance expenses and corporate income tax, the surplus was Rs 578.80 crore.”

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