In a scathing judgement, the Allahabad High Court has prohibited any further collection of toll from users of the tollway that connects Delhi with its suburb of Noida. The affected concessionaire has appealed to the Supreme Court and the matter is sub judice. Nevertheless, some glaring facts are noteworthy from the perspective of public policy.
A particular company became the adviser of Noida (New Okhla Industrial Development Authority) for structuring the tollway project and soon got the concession awarded to its associate. There was no competitive bidding for discovery of the lowest cost to the exchequer or users. As a result, the contract was anything but fair and balanced, virtually Enron-like. Fortunately, such contracts stopped after the Planning Commission published model concession agreements.
In developed countries, such an arrangement would be regarded as severely encumbered by a conflict of interest and, therefore, unacceptable to the government and users. For how much toll would be recovered by a private company from millions of users over a prolonged period was mutually settled between Noida and this company sans any transparency. User interests were thus a casualty.
Pleading sanctity of contract, the concessionaire can surely demand that Noida must honour its obligations or else compensate it for breach of agreement. By the same logic, and with much greater justification, the public can demand civil and criminal prosecution of the Noida officials and the concessionaire for collusion in imposing an excessive toll on millions of users. At any rate, the demand for doing away with such a toll is even otherwise legitimate. This is virtually a city road that should now be taken over by Noida and maintained through an efficient operation and maintenance contractor. If any compensation is justly due to the concessionaire, the apex court would surely pronounce so.
I have since inception been critical of the crony character of this deal. When a junior colleague, returning from a week-long PPP (public private partnership) course at the Indian Institute of Management at Ahmedabad in 2007, told me that this project was discussed as a part of the course, I was appalled at the legitimacy being given to this concession and persuaded her to write an independent case study under my guidance. This was published on the website of the erstwhile Planning Commission and can now be viewed on www.gajendrahaldea.in. Soon after its publication in 2007, the top brass of the company protested verbally but did not respond to a request for a written rejoinder.
Space does not permit a detailed account of the malfeasance brought out in the case study. Suffice it to say that the agreement not only ensured a high level of guaranteed profits on the equity investment of the concessionaire, it also provided a huge profit on the loans taken from banks. In effect, this enabled the concessionaire to milk returns exceeding a whopping 50 per cent on its equity investment that was anyway based on gold-plated costs because the contract allowed the concessionaire to determine its capital costs as well as operational expenses without approval of Noida, and to recover the same from users.
In sum, the agreement was so structured as to make the tollway a perpetual jagir (estate) of the concessionaire since the stipulated concession period of 30 years already appears due for extension of over 100 years. With each passing year, this period would continue to increase, thus making it a grant in perpetuity, unlike any other tollway in the world.
Through a jugglery of contract terms, the total project cost supposedly incurred by the concessionaire has been increased from Rs 408 crore at completion of construction in 2001, to over Rs 5,000 crore at present, and estimated to cross Rs 50,000 crore by 2031. The concessionaire is contractually entitled to recover this entire amount from users – nothing short of a blatant highway robbery! This whole exercise appeared so indefensible that the concessionaire offered a reduction from the said Rs 50,000 crore to Rs 2,168. But, for good reason, the high court has prohibited any further collection of toll, thus providing welcome relief to users. Traffic on this road has since increased significantly, relieving other parallel roads of some congestion. Like the Delhi-Gurgaon expressway, this road also needs to be toll free.
Some may argue that this judgement would scare away much-needed private investment in infrastructure projects. That can hardly be a justification for continuing what is apparently an illicit arrangement. When the reputed Volkswagen company was recently caught deceiving regulators and customers in the US, it ended up paying an equivalent of Rs 1 lakh crore in penalties. While trying to attract foreign investment on an unprecedented scale, India can hardly afford to let crony capitalism prevail. Indeed, the foundations of a civilised society must rest on compliance with the rule of law, especially when it affects the public interest.
Malfeasance in a variety of public contracts has eaten into the vitals of our nation. The manner in which several infrastructure contracts and concessions were granted during the past decade, especially in the power, highways, airports and port sectors, has virtually wrecked the economy. A large number of these capital-intensive projects have predictably begun to fail, in the process drowning the entire banking system under their weight. The worst is not over yet. As a result, private infrastructure investment has virtually evaporated.
There is clear disarray in the economy as far as the infrastructure and banking sectors are concerned. Without fixing these, the economy cannot sustain a healthy growth trajectory. The large volumes of investment required for building infrastructure cannot be financed from public resources alone. Reliance on private capital is, therefore, inevitable, but the government is yet to demonstrate a credible strategy for dealing with the prevailing crisis and attracting investment in infrastructure. Hopefully, there will soon be light at the end of the tunnel.
The writer was Principal Adviser, Infrastructure, in the erstwhile Planning Commission. He has authored 27 books on model concession agreements
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