Outlook (India):  The Great Highway Scam


Outlook magazine, New Delhi, Business, 21 May 01


It's Roadsgate now. A controversial scheme-where contractors get assured bloated sums to build and maintain highways-is one more superscam.


It is not easy to justify forking out Rs 26.5 crore-over a period of 15 years-for the construction of a one kilometre stretch of a highway which costs only Rs 4-5 crore to build.

But the National Highway Authority of India (nhai) and the ministry of roads seemingly think otherwise. They
discern a mysterious logic in this befuddling arithmetic. In fact, finance ministry and Planning Commission officials and technical experts involved in the highways project maintain it's a scam running into thousands of crores. Says an official: "From defencegate we are moving on to roadsgate."

Their objections to the highways project centres around the so-called annuity scheme. Under it, contracts are handed out to construct and maintain highways for which a pre-mandated payment is made regularly over a period of say 10-15 years by the government.  The average cost of constructing a kilometre of highway-including land acquisition-is Rs 4-5 crore. But under the annuity scheme, an annual instalment works out to Rs 2 crore per km every year for a period of 15 years.

In the end, this works out to a shocking Rs 30 crore per kilometre! One justification for the scheme is the
government is free of any maintenance responsibilities for the contracted period. The official explanation for this crazy that there would be no takers for the biggest roads project in Asia worth Rs 68,000 crore if such sops or "comforts", under what the nhai terms the "annuity scheme", are not offered. They also point out that if the future depreciation of the ruppee against the dollar is calculated, then the additional cost would not be so high.

Strangely, Indian engineering companies do not seem to figure under the annuity scheme. Those in the running are a clutch of Malaysian companies-IJM Berhard Corp, Gamuda, Renong and WCT (Malaysia), a consortium. It is in the backdrop of the interests of these companies in the highways project that the PM's visit to Malaysia, which kicks off on May 13, gains significance.  The National Highway Development Project (nhdp) is the prime minister's "dream project" and its components are envisaged to connect the Golden Quadrilateral and the north-south and east-west corridors.

In the prime minister's entourage is Nasser Munjee, managing director and ceo of the Infrastructure Development Finance Corporation (idfc), the sole consultant to the nhai and an active promoter of the annuity scheme. Munjee is very proud of the scheme which, surprisingly, has not been tested anywhere else in the world. "What if it has not been tried out? Let us try it out in India," he told Outlook on the eve of his departure to Malaysia. "I have helped formulate the scheme with the pmo's task force on infrastructure, then under N.K. Singh," he adds.

But, says a finance ministry official: "Even if future maintenance costs for 15 years is three times the cost of
construction, the annuity scheme makes no economic sense, so it must be scrapped. When you give out contracts of this kind, there is every reason to believe that there is corruption or that you are favouring one company or the other."

The first of the contracts under the annuity scheme has been finalised. The 65-km Panagarh-Palsit stretch in West Bengal has gone to the Malaysian firms Gamuda and WCT. According to Munjee, the annuity scheme worked out on this stretch would mean the government pays Rs 138 crore annually for a 12.5-year period. The annuity payment begins after the construction is completed in two-and-a-half years.


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