India's Highways
Follow A Crooked Path by K.P. Narayana Kumar | Nov 2, 2010
Beneath India’s grand scheme to build a world class
highway network lies a web of corruption and inefficiency Sometime in the month
of May, the anti-corruption unit of the Central Bureau of Investigation (CBI)
got an anonymous tip off. The caller was an official in the National Highways
Authority of India (NHAI). The whistleblower told the CBI that some of his
colleagues were on the take, helping contractors with sensitive inside
information on highway projects. The caller gave the investigators names and
asked them to watch an upcoming tender that was rigged.
The information trail led the CBI to NHAI’s chief general manager, S.K. Nirmal, a general manager, Nitin Jain and a Rs. 2,000-crore upcoming tender to build a 174-km highway connecting Nagpur in Maharashtra to Betul in Madhya Pradesh. “Our investigators came to know that these two were regularly in touch with executives with some private companies and had discussed details pertaining to a particular tender that was soon to be opened,” a CBI official told Forbes India, preferring to remain unnamed.
A few days later Oriental Structural Engineers Pvt. Ltd. (OSEL) won the Nagpur-Betul highway tender. The CBI moved quickly and raided the two NHAI officials’ residences and also the homes of OSEL managing director, K.S. Bakshi, and an employee of the firm, S.K. Dixit. Sleuths found Rs. 2.87 crore in cash at the homes of the two NHAI officials. What happened later was intriguing. All the four arrested persons were released on bail because the CBI did not file a charge sheet and NHAI signed the concession agreement with OSEL for the Nagpur-Betul highway. The CBI insists that investigations are continuing but enquiries reveal that the pace is snail like. NHAI says that signing the concession agreement was perfectly normal since the letter of award had already been issued. It says the contract will be terminated if fraud is proven.
The incident brought to light the nexus between powerful contractors and officials of NHAI that not only undermines the tendering process but also roads minister Kamal Nath’s target of building 20 km of highway every day. Yet when CBI wanted to question NHAI board member S.I. Patel in connection with the case, the road transport ministry did not allow it. Minister Kamal Nath did not speak to Forbes India for the story, neither did his office reply to emailed queries. NHAI insists that the clearance has to come from the ministry. But the real mess is at the Authority.
“I don’t think the NHAI is completely clean,” says its chairman Brijeshwar Singh in a rare admission for a government arm.
It would be difficult for the tall, soft-spoken bureaucrat to maintain otherwise. Insiders and people familiar with the organisation say that NHAI officials have capped their signing pens after the CBI started showing interest in highway contracts. NHAI has given out just three contracts in as many months. “No one’s willing to sign on files any more. People are scared that every contract they sign on would be investigated,” says a top bureaucrat familiar with the situation.
Rigging the Wheel
The Nagpur-Betul highway project began courting controversy even before the CBI entered the picture. NHAI disqualified L&T, one of the 13 companies that had participated in the tender, saying that its request for qualification (RFQ) document was not serially numbered. The company filed a writ petition before the Delhi High Court challenging the disqualification but later withdrew it. In its petition, the company had said that the ground on which it was disqualified was “…an incorrect observation and was very easily rectifiable.”
NHAI responded that other applicants could accuse it of acting in an arbitrary manner if it prequalified L&T despite its application not conforming with RFQ documents. Enquiries suggest something else. An executive with one of the bidders in the Nagpur-Betul contract says that his company as well as others got telephone calls from a rival asking them to withdraw their bids. He says it was not the first time.
“There have been several instances of companies getting calls asking them to withdraw their bids. In this case too, such calls were made,” says the executive whose company has participated in several large tenders. He said that it was difficult to imagine that the top brass at NHAI was unaware of such incidents.
“The bane of this whole highways programme is corruption. The Authority never penalises the contractors despite their shoddy performance and thus you cannot expect discipline from them,” says a senior bureaucrat who has closely watched the Authority’s performance.
The information trail led the CBI to NHAI’s chief general manager, S.K. Nirmal, a general manager, Nitin Jain and a Rs. 2,000-crore upcoming tender to build a 174-km highway connecting Nagpur in Maharashtra to Betul in Madhya Pradesh. “Our investigators came to know that these two were regularly in touch with executives with some private companies and had discussed details pertaining to a particular tender that was soon to be opened,” a CBI official told Forbes India, preferring to remain unnamed.
A few days later Oriental Structural Engineers Pvt. Ltd. (OSEL) won the Nagpur-Betul highway tender. The CBI moved quickly and raided the two NHAI officials’ residences and also the homes of OSEL managing director, K.S. Bakshi, and an employee of the firm, S.K. Dixit. Sleuths found Rs. 2.87 crore in cash at the homes of the two NHAI officials. What happened later was intriguing. All the four arrested persons were released on bail because the CBI did not file a charge sheet and NHAI signed the concession agreement with OSEL for the Nagpur-Betul highway. The CBI insists that investigations are continuing but enquiries reveal that the pace is snail like. NHAI says that signing the concession agreement was perfectly normal since the letter of award had already been issued. It says the contract will be terminated if fraud is proven.
The incident brought to light the nexus between powerful contractors and officials of NHAI that not only undermines the tendering process but also roads minister Kamal Nath’s target of building 20 km of highway every day. Yet when CBI wanted to question NHAI board member S.I. Patel in connection with the case, the road transport ministry did not allow it. Minister Kamal Nath did not speak to Forbes India for the story, neither did his office reply to emailed queries. NHAI insists that the clearance has to come from the ministry. But the real mess is at the Authority.
“I don’t think the NHAI is completely clean,” says its chairman Brijeshwar Singh in a rare admission for a government arm.
It would be difficult for the tall, soft-spoken bureaucrat to maintain otherwise. Insiders and people familiar with the organisation say that NHAI officials have capped their signing pens after the CBI started showing interest in highway contracts. NHAI has given out just three contracts in as many months. “No one’s willing to sign on files any more. People are scared that every contract they sign on would be investigated,” says a top bureaucrat familiar with the situation.
Rigging the Wheel
The Nagpur-Betul highway project began courting controversy even before the CBI entered the picture. NHAI disqualified L&T, one of the 13 companies that had participated in the tender, saying that its request for qualification (RFQ) document was not serially numbered. The company filed a writ petition before the Delhi High Court challenging the disqualification but later withdrew it. In its petition, the company had said that the ground on which it was disqualified was “…an incorrect observation and was very easily rectifiable.”
NHAI responded that other applicants could accuse it of acting in an arbitrary manner if it prequalified L&T despite its application not conforming with RFQ documents. Enquiries suggest something else. An executive with one of the bidders in the Nagpur-Betul contract says that his company as well as others got telephone calls from a rival asking them to withdraw their bids. He says it was not the first time.
“There have been several instances of companies getting calls asking them to withdraw their bids. In this case too, such calls were made,” says the executive whose company has participated in several large tenders. He said that it was difficult to imagine that the top brass at NHAI was unaware of such incidents.
“The bane of this whole highways programme is corruption. The Authority never penalises the contractors despite their shoddy performance and thus you cannot expect discipline from them,” says a senior bureaucrat who has closely watched the Authority’s performance.
Contractors pay overseeing engineers to raise the cost of
projects to increase their profit margins. They bribe officials to deviate from
the terms of contracts and allow execution delays. “They are allowed to overrun
the costs as well as time, and that too many times over,” the bureaucrat says.
The Comptroller and Auditor General had said in a report
two years ago that the NHAI’s estimates had gone haywire in many projects
because of faulty preparation of detailed project reports (DPR). In the
Delhi-Gurgaon project, for instance the DPR envisaged construction of an
eight-lane highway. However, the Authority changed the scope of work on several
occasions, which led to a 21 percent increase in the project cost. In two other
highway projects, the NHAI did not even prepare DPRs, the CAG pointed out.
Five years ago, the prime minister’s committee on infrastructure had decided that the authority must take to turnkey projects in order to ensure that deadlines were met and costs were kept under control. The authority has ignored the suggestion so far and does projects on an item-rate basis with the scope of work and deadlines shifting often. That there are frequent lapses in execution is evident as NHAI keeps warning contractors for shoddy execution. Yet, it is more like a rap on the knuckles.
Five years ago, the prime minister’s committee on infrastructure had decided that the authority must take to turnkey projects in order to ensure that deadlines were met and costs were kept under control. The authority has ignored the suggestion so far and does projects on an item-rate basis with the scope of work and deadlines shifting often. That there are frequent lapses in execution is evident as NHAI keeps warning contractors for shoddy execution. Yet, it is more like a rap on the knuckles.
The Soft Whip
If you look at the list of companies who have been blacklisted, you will find that half of them are foreign players who had already started pulling out of NHDP [National Highway Development Project] works. NHAI will not pull up the large domestic contractors simply because they need the services of these players if they want to build more roads,” said an expert on the sector who did not wish to be identified. In fact, the Authority has not updated its list of non-performers for six years. That is not because the contractors had suddenly fallen in line.
NHAI terminated the 485-km Lucknow-Muzzafarpur highway project last year after the World Bank, which had funded the project, threatened to pull out because of poor contractor performance and large variation from original estimates. The authority did not, however, act until the then finance minister P. Chidambaram wrote a stinker to T.R. Baalu, who was then holding the highways portfolio, urging him to intervene as the NHAI had consistently failed to take remedial action.
“This decision [the World Bank’s decision to pull out] poses a reputational risk as far as India’s engagement with the World Bank is concerned, specially taking into account the fact that the country strategy for India will be discussed before the board on December 12, 2008,” Chidambaram wrote on November 18, 2008.
NHAI issued a warning to the contractors — Madhucon Projects Ltd., Progressive Constructions Ltd. and Nagarjuna Constructions — but did not take any follow-up action. A former NHAI official says that the Authority was reluctant to even encash bank guarantees because its board was under political pressure for over a year. The companies did not respond to Forbes India’s queries. “There is a severe scarcity of seasoned contractors and to that extent NHAI also has no choice but look the other way every now and then,” he says.
Even human tragedies have failed to move it. NHAI gave a clean chit to Gammon India and its partner after a bridge that they were building in Kota in Rajasthan last year collapsed, killing more than 20 people, mostly workers.
NHAI’s general manager in charge of Rajasthan, L.P. Padhy, says Hyundai Engineering and Gammon continue to be part of the project. “We are trying to save this project and are trying to identify what the problems are. The contractors are definitely part of this effort as of now.”
In April 2010, minister of state for road transport, R.P.N. Singh, informed Parliament that three-fourths of the 230 projects were completed behind schedule. Another 123 projects that are under construction are also delayed, he told lawmakers.
If you look at the list of companies who have been blacklisted, you will find that half of them are foreign players who had already started pulling out of NHDP [National Highway Development Project] works. NHAI will not pull up the large domestic contractors simply because they need the services of these players if they want to build more roads,” said an expert on the sector who did not wish to be identified. In fact, the Authority has not updated its list of non-performers for six years. That is not because the contractors had suddenly fallen in line.
NHAI terminated the 485-km Lucknow-Muzzafarpur highway project last year after the World Bank, which had funded the project, threatened to pull out because of poor contractor performance and large variation from original estimates. The authority did not, however, act until the then finance minister P. Chidambaram wrote a stinker to T.R. Baalu, who was then holding the highways portfolio, urging him to intervene as the NHAI had consistently failed to take remedial action.
“This decision [the World Bank’s decision to pull out] poses a reputational risk as far as India’s engagement with the World Bank is concerned, specially taking into account the fact that the country strategy for India will be discussed before the board on December 12, 2008,” Chidambaram wrote on November 18, 2008.
NHAI issued a warning to the contractors — Madhucon Projects Ltd., Progressive Constructions Ltd. and Nagarjuna Constructions — but did not take any follow-up action. A former NHAI official says that the Authority was reluctant to even encash bank guarantees because its board was under political pressure for over a year. The companies did not respond to Forbes India’s queries. “There is a severe scarcity of seasoned contractors and to that extent NHAI also has no choice but look the other way every now and then,” he says.
Even human tragedies have failed to move it. NHAI gave a clean chit to Gammon India and its partner after a bridge that they were building in Kota in Rajasthan last year collapsed, killing more than 20 people, mostly workers.
NHAI’s general manager in charge of Rajasthan, L.P. Padhy, says Hyundai Engineering and Gammon continue to be part of the project. “We are trying to save this project and are trying to identify what the problems are. The contractors are definitely part of this effort as of now.”
In April 2010, minister of state for road transport, R.P.N. Singh, informed Parliament that three-fourths of the 230 projects were completed behind schedule. Another 123 projects that are under construction are also delayed, he told lawmakers.
The Roadblocks
Even the contractors blame the NHAI for delays. National Highway Builders Federation director general, M. Murali, says that projects are delayed because of NHAI’s ambiguous stand on land acquisition. “The contractors rarely get the land on time and even when they do there would be stretches that are locked up in legal disputes. But when the projects get delayed it is the contractors who are targetted,” he says. NHAI had declared in 2002 that it would put up highway projects for bidding only after acquiring 80 percent of the required land. It later lowered the target to 40 percent. “There are cases where contractors have not been given land even after half the concession period has passed,” Murali says.
NHAI has drawn flak for its financial acumen too. A Planning Commission report says that NHAI is inching towards bankruptcy under mounting debt. The report, prepared by Gajendra Haldea, advisor (infrastructure) in the Planning Commission, says NHAI would spend about Rs. 50,000 crore in the next three years, only half of which will come from cess. “They are also talking about enhancing the Viability Gap Funding for highway projects. From where are they going to raise this money?” asked a government official familiar with the report.
Another senior government official who has inspected the working of NHAI says that the highways programme would run into trouble unless the implementing agency was cut loose of government control. He suggested that NHAI could enter into an MoU with the government undertaking to construct a certain length of highways every year. The selection of officials to the board and their postings should be kept out of the purview of the road transport ministry, he said. “The NHAI has had seven chairmen in recent years. How will they ever be able to function properly unless they are given autonomy?” he asked.
An inter-ministerial group’s two-year-old suggestions to reform the Authority are gathering dust. The group had suggested a fixed three-year term for the chairman and increasing the number of board members. It had also suggested better project evaluation systems and superior project reports.
So far, no one is listening.
INTERVIEW
Brijeshwar Singh: “I don’t think NHAI is completely clean”
Excerpts from an interview with NHAI chairman Brijeshwar Singh
How has the NHDP programme progressed and how many projects have been awarded this year compared to last year?
In 2009, we awarded 27 projects up to December with a total length of 2,491 km. This year, we have finished 50 projects with a length of 4,555 km. We now have 10,000 km as work in progress while last year we had less than 5,000 km. There is an almost 100 percent increase when compared with last year.
But between July and September, the NHAI awarded only three projects. There is speculation that the reason for this slow down in awarding contracts is that there is now a sense of caution in the NHAI after the CBI investigation into the Nagpur-Betul highway contract…
If there was a sense of caution, we would not have had a four-fold increase in land acquisition. After the agreement was signed [in the Nagpur-Betul project], that sense of caution should have got reversed. It really has to do with the fact that you are at the tail end of the work plan.
What are your observations on the CBI inquiry into the contract and the arrest of NHAI officers?
The concession agreement was signed with the party that was L1 [the company that submitted the lowest bid]. Prima facie, we didn’t see any element of fraud in the process. The CBI is yet to file a charge sheet and they are still continuing investigations. It is for the investigative agency to bring the facts to light before a magistrate.
Why would you want to sign the concession agreement when the matter is under scrutiny?
The concession agreement was signed after a letter of award was issued. So we are duty bound to award the contract. We normally sign the concession agreement within 90 days.
You don’t have an option once the contract is awarded. The letter of award has not been quashed. If any fraud is proved, the contract is liable for termination.
Do you believe that NHAI is a clean institution?
NHAI has had cases of corruption where we have taken action. I don’t think NHAI is a completely clean organisation but we have taken action wherever we found sufficient grounds for doing so. Our disciplinary powers are confined to only our staff and we have a huge number
of people who have come on deputation.
Even the contractors blame the NHAI for delays. National Highway Builders Federation director general, M. Murali, says that projects are delayed because of NHAI’s ambiguous stand on land acquisition. “The contractors rarely get the land on time and even when they do there would be stretches that are locked up in legal disputes. But when the projects get delayed it is the contractors who are targetted,” he says. NHAI had declared in 2002 that it would put up highway projects for bidding only after acquiring 80 percent of the required land. It later lowered the target to 40 percent. “There are cases where contractors have not been given land even after half the concession period has passed,” Murali says.
NHAI has drawn flak for its financial acumen too. A Planning Commission report says that NHAI is inching towards bankruptcy under mounting debt. The report, prepared by Gajendra Haldea, advisor (infrastructure) in the Planning Commission, says NHAI would spend about Rs. 50,000 crore in the next three years, only half of which will come from cess. “They are also talking about enhancing the Viability Gap Funding for highway projects. From where are they going to raise this money?” asked a government official familiar with the report.
Another senior government official who has inspected the working of NHAI says that the highways programme would run into trouble unless the implementing agency was cut loose of government control. He suggested that NHAI could enter into an MoU with the government undertaking to construct a certain length of highways every year. The selection of officials to the board and their postings should be kept out of the purview of the road transport ministry, he said. “The NHAI has had seven chairmen in recent years. How will they ever be able to function properly unless they are given autonomy?” he asked.
An inter-ministerial group’s two-year-old suggestions to reform the Authority are gathering dust. The group had suggested a fixed three-year term for the chairman and increasing the number of board members. It had also suggested better project evaluation systems and superior project reports.
So far, no one is listening.
INTERVIEW
Brijeshwar Singh: “I don’t think NHAI is completely clean”
Excerpts from an interview with NHAI chairman Brijeshwar Singh
How has the NHDP programme progressed and how many projects have been awarded this year compared to last year?
In 2009, we awarded 27 projects up to December with a total length of 2,491 km. This year, we have finished 50 projects with a length of 4,555 km. We now have 10,000 km as work in progress while last year we had less than 5,000 km. There is an almost 100 percent increase when compared with last year.
But between July and September, the NHAI awarded only three projects. There is speculation that the reason for this slow down in awarding contracts is that there is now a sense of caution in the NHAI after the CBI investigation into the Nagpur-Betul highway contract…
If there was a sense of caution, we would not have had a four-fold increase in land acquisition. After the agreement was signed [in the Nagpur-Betul project], that sense of caution should have got reversed. It really has to do with the fact that you are at the tail end of the work plan.
What are your observations on the CBI inquiry into the contract and the arrest of NHAI officers?
The concession agreement was signed with the party that was L1 [the company that submitted the lowest bid]. Prima facie, we didn’t see any element of fraud in the process. The CBI is yet to file a charge sheet and they are still continuing investigations. It is for the investigative agency to bring the facts to light before a magistrate.
Why would you want to sign the concession agreement when the matter is under scrutiny?
The concession agreement was signed after a letter of award was issued. So we are duty bound to award the contract. We normally sign the concession agreement within 90 days.
You don’t have an option once the contract is awarded. The letter of award has not been quashed. If any fraud is proved, the contract is liable for termination.
Do you believe that NHAI is a clean institution?
NHAI has had cases of corruption where we have taken action. I don’t think NHAI is a completely clean organisation but we have taken action wherever we found sufficient grounds for doing so. Our disciplinary powers are confined to only our staff and we have a huge number
of people who have come on deputation.
Forbseindia.com
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