Business Standard

Noida makes a case for no toll to Delhi

Noida Toll Bridge Company has recovered its investment in the project and should therefore make it toll free, residents of the suburb say

Virendra Singh RawatN Sundaresha Subramanian Lucknow/ New Delhi
NP Singh, the president of Federation of Noida Residents' Welfare Associations, or FONRWA, claims that the people of Noida are being unfairly tolled by the Noida Toll Bridge which operates the Delhi Noida Direct (DND) Flyway between the suburb and south Delhi.

"The company has earned many times more than what it invested in the project. It spent Rs 408 crore but has already earned over Rs 1,400 crore. And it wants more toll," he says. Singh and others at FONRWA plan to mobilise public support against the payment of toll at the DND and threaten that the matter, if not addressed quickly, could turn into a "law and order issue".
 
According to Singh, when the flyway was commissioned, the projected traffic was about 10,000 vehicles a day - it is as high as 150,000 now. "At Rs 56 for a return trip, DND makes an average of Rs 84 lakh per day." It is his contention that at this rate, it is impossible that costs of the project haven't been fully recovered yet.

A team from FONRWA has met Uttar Pradesh Chief Minister Akhilesh Yadav to apprise him of the issue. Alok Ranjan, the chief secretary of the state, recently said that the relevant files were being checked to ascertain the facts about the case.

Emails sent to Noida Toll Bridge Company Chief Executive Harish Mathur did not elicit any response. Noida Chairman & CEO Rama Raman could not be reached for comments.

The many flaws

DND is not new to controversy. In a seminal case study, commissioned by the Planning Commission some years back, economist Sheoli Pargal brought out several flaws in the concessionaire agreement and award of the project under the PPP (public-private partnership) model.

IL&FS, Noida and Delhi signed a memorandum of understanding on April 7, 1992 for the construction and operation of the toll road. Noida Toll Bridge Company was incorporated on April 8, 1996. The concession agreement signed on November 12, 1997, provided that the concession shall last until the concessionaire has recovered the total project cost plus an annual return of 20 per cent of the total project cost. At the end of the concession period, all of Noida Toll Bridge Company's interest in DND would be transferred to Noida for the nominal sum of Rs 1.

The return on the total cost of the project is guaranteed as the contract provides that the concession period will be extended by Noida in installments of two years beyond the initial 30 years until such time as the total cost of the project and the returns thereon have been recovered by the concessionaire. "The agreement does not provide a tight definition of items allowable as costs, so costs are effectively open-ended. Given the public service nature of the project, the base upon which returns are guaranteed is unduly inflated by including the management fee in the project cost and by including land costs, rather than having the government absorb these costs," Pargal said in her study. "By providing a return on the total cost of the project and not specifying exactly what is included under total cost, a perverse incentive is created for the concessionaire to (a) attribute whatever it can to the cost of the project and (b) over-engineer the project."

The study calculated that an annual return of 20 per cent per annum on a total project cost of Rs 953.4 crore would amount to payment of about Rs 191 crore per annum to the concessionaire. In contrast, in 2005-06, the total income of Noida Toll Bridge Company was around Rs 40.7 crore, while profits were only Rs 2.6 crore. If profits are entirely directed towards payment of returns, this would imply a shortfall of about Rs 188 crore in returns that would be added to the total project cost, taking it to about Rs 1,142 crore the following year. "Such spiralling of project costs could lead to a need to keep extending the concession period and/or raising tariffs apart from supporting claims for development rights over real estate," the report stated.

A simulation exercise was undertaken using the traffic and associated revenue projections provided in "Traffic Consultants' Report and Business Valuation" prepared in February, 2006 by Halcrow Consulting India. Starting with a project cost of Rs 953.4 crore in 2006, it appears that even if the entire operating surplus was allocated to payment of returns, there would still be a shortfall in returns each year, with the result that the total project cost in 2021 could be about Rs 11,817.54 crore.

Pawan Maini of Halcrow Consulting, the author of the report, initially agreed to talk but did not take subsequent calls.

In the meantime, the company has constructed the Mayur Vihar link adding to the project costs. Singh, of FONRWA, says the inflated cumulative losses claimed by the company now stand at a whopping Rs 3,600 crore. However, according to the audited numbers for the financial year ended March 2015, Noida Toll Bridge Company made a net profit of Rs 80.8 crore on a revenue of Rs 122.9 crore. The net profit grew an impressive 47 per cent from Rs 5,475 crore over the previous year, helped largely by lower tax expenses.

A reminder to Mathur, CEO of Noida Toll Bridge Company, sent on Thursday did not elicit any response. Company executives say Mathur is the only authorised spokesperson of the firm.

In November 2012, FONRWA had filed a petition in Allahabad High Court praying for toll-free DND Flyway. Noida Authority is also a party to the case, which is still sub-judice.

In its affidavit filed before the High Court, the Noida Authority has supported the rescinding of two clauses in the DND Flyway contractual terms, which it feels are contrary to the public good: one allows the concessionaire to add to its initial investment any shortfall in the stipulated annual realisation, while the second provides for an extension of the concession agreement beyond 2031 if the concessionaire is unable to recoup its investments.

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First Published: Jun 04 2015 | 9:50 PM IST

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