CAG finds fault with Railways' PPP projects execution

Finding fault with railways' PPP projects execution, the Comptroller and Auditor General (CAG) has observed that the national transporter failed to adhere to standard procedures and rules were violated in selection of private players.
The CAG in its latest report tabled in Parliament today has found that faulty assessment was made on internal rate of return (IRR), project approvals were marred by delays and there was lack of any monitoring mechanism for these projects.
The audit body found that railways did not formulate any model agreement for execution of the projects within the stipulated time frame, nor did it adopt the model prescribed by the Planning Commission for PPP projects in infrastructure sector.

Taking the example of Viramgam Mahesana Private Ltd (VMPL), a gauge conversion project between Viramgam and Mahesana to cater to the defence requirement, the CAG said the approval of Finance Ministry was not taken for build operate and transfer (BOT) mode of payment of access charge.
"The annual earning of the project was Rs 6.45 crore against the annual access charge payment of Rs 15.94 cr. The project sustained loss despite estimated internal rate of return (IRR) of 22 per cent," the audit report said.
The CAG criticised the lack of a model concession agreement (MCA), a framework of contract that sets the terms for incentives and targets for the private player.

Railways did not formulate model concession agreement for ppp projects.

"The audit observed that Railway Ministry did not formulate any MCA for these projects. On the contrary, it finalised each agreement separately based on its experience in Pipavav Rail Corporation Limited (PRCL), the first PPP project and the same was adopted as a benchmark while finalising subsequent agreements," the report said.
It noted that though monthly progress reports were being prepared by special purpose vehicle (SPVs), there were however, no records confirming the fact that the progress of the projects was being monitored by the construction progress review board.
"The role of Railway Ministry for monitoring the performance of projects was not laid down in any of the concession agreements," it said.

The CAG has also observed that absence of model concession agreement led to adoption of varying approaches towards fixation of concession period, lease rent and liability of railways at the time of transfer of assets by the SPVs.
Railways launched schemes to supplement investment in partnership with private players for specific projects to develop port linkages. PPP is one of such initiatives to develop infrastructure in railways.