CAG cautions against Railways style of handling PPP projects

Says may lead to delays in project execution and additional financial burden of Rs 128 crore

A report of the Comptroller and Auditor General of India (CAG) says Indian Railways’ implementation of public-private partnership (PPP) projects has been marred by several deficiencies, costing the organisation hundreds of crores.

The report studied six PPP projects from 2000 to 2012. It was presented in Parliament on Friday. CAG says the projects were marred by arbitrary concession periods, weak project monitoring and lack of a model concession agreement. These consequent additional financial burden was Rs 128 crore. A further Rs 218 crore was lost due to delay in project implementation.

This is significant, since Railways Minister Sadananda Gowda had put a lot of emphasis on PPP projects in his Budget this year.

The Railways has laid down an ambitious target of Rs 6,000 crore for PPP projects in the current financial year. The 12th Plan period expects Rs 1 lakh crore through this route for the Railways.

A CAG report tabled in February this year had estimated a loss of Rs 4,300 crore in the Railways between 2008-2012 because of improper documentation in a dual pricing system for iron ore transport.

As for the current report, the Railways had implemented eight PPP projects since 2000 through Special Purpose Vehicles (SPVs). Of these, CAG sampled six for clarity, transparency, and completeness of the concession agreement and financial prudence. These six projects cost Rs 2,167 crore in all — four gauge conversion projects and two ongoing new line projects.

The report says the railways faltered in assessing the economic viability of the Hasan-Mangalore gauge conversion and the Obulavaripalle-Krishnapatnam new line project.

The internal rate of return (IRR) in both these projects was less than the benchmark provided by the finance ministry. And, the IRR assessment in the other four was “unrealistic”, says CAG.