Anatomy Of A Scam

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[<p><div align="justify"><span class='dropthecap'>N</span>agpur (Maharashtra) and Betul are roughly 174 km apart. Betul is in Chhindwara, Madhya Pradesh, and is also the constituency of Kamal Nath, minister for road transport and highways. The highway contract for this stretch has become the most cited case of rigging in NHAI contracts. The highway shot into prominence in April-May this year. First, Larsen &amp; Toubro challenged the NHAI in court for disqualifying them from the bid, in May. Then, on 26 May, the CBI raided NHAI and Oriental Structural Engineers (OSEPL), the company that won the contract for the highway, and made four arrests. L&amp;T later withdrew its case and the CBI failed to file a chargesheet. All arrested were released. But the controversy over the highway remains.<br /><br />We go back to December 2009, when the contract was conceptualised. Sometime in early December, it was decided to offer the project for bidding. As per norms, all highway projects must initially be offered as build-operate-transfer (BOT)-Toll model. So was this stretch. But within 14 days, NHAI changed the model to BOT-annuity on the plea that the traffic was too low to attract any bidders under BOT-Toll. (In toll projects, the company gets its money by collecting toll from users while in annuity projects, the government gives the money twice a year to the bidder, thus cutting out his risk altogether.)<br /><br />The traffic was low — on different stretches, it ranges from 6,423-16,157 passenger car units (PCUs) per year. Things get murky here. According to Indian Roads Congress (IRC) norms, Nagpur-Betul should have been a two-lane highway (which is enough for anything below 17,000 PCUs). Strangely, the roads ministry officials managed to push through a four-lane proposal in the inter-ministerial group meeting on 30 December 2009. A Planning Commission official present at the meeting says: "What was strange was that traffic was too low (for the road) to be given out as a toll project but high enough for it to be four laned. It defied logic."<br /><br />Within two months, the project cost also escalated. At the December meeting, the project was presented at Rs 2,248.31 crore. By the time the proposal was considered by the PPP appraisal committee in February, it had gone up to Rs 2,519.62 crore (despite no increases in the costs of inputs). The cost per km worked out to Rs 14.60 crore — way above the guidelines of Rs 9.5 crore per km. Why was the cost so high? <br /><br />The highway plan had five bypasses, 12 grade separators and flyovers, 68 major and minor bridges, and 32 underpasses — too many for a road with thin traffic. After much prodding from the PPP committee, the roads ministry cut the project cost to Rs 2,498.76 crore. "It was a joke!" says one government official who objected. The PPP appraisal committee meeting held on 15 March gave its final clearance though it wanted further reductions. But the NHAI chairman said the cuts would not be possible.<br /><br /><img src="http://www.businessworld.in/bw/image/Business/Real_Estate/highway_timeline_600x153.gif" alt=" " width="600" height="153" align="middle" /><br /><br />More surprising than the speed of project clearance (see ‘Lightning Speed') is what happened afterwards. Sixteen bidders put in their pre-qualification documents. But some bidders claimed to the CBI (and some confirmed this to Businessworld) that they received calls from senior NHAI officials — including member S.I. Patel, who has since been transferred out of NHAI — asking them to withdraw. Some did so (NHAI records show that GVK, Gammon and DSC withdrew their documents after submitting them) while some did not submit the documents at all. Only five bidders were qualified. But some bidders, including L&amp;T, who had submitted pre-qualification documents, were disqualified. "At the nth hour on 2 April, a technical circular was brought in, which said documents had to be submitted in original. This was used as the pretext to disqualify bidders for non-compliance," says one bidder. This is also evident from the fact that the same circular was withdrawn just 21 days later (on 26 April) after disqualifying the bidders. <br /><br />L&amp;T went to court. NHAI had told the company that its bid was "non-responsive" as some of the documents had been submitted loose.<br /><br /></div> <script type="text/javascript"> var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } </script> <p><div align="justify">This, however, was just a cover. An NHAI internal document shows that meetings were held on 30 March, 5 April and 6 April, and bidders were disqualified for not having technical and financial capability to complete the project. Two among the rejected companies were L&amp;T and Reliance Infrastructure. The net worth for both was shown as "nil" by NHAI — something that no NHAI official can explain satisfactorily. <br /> <br /> L&amp;T finally withdrew its case. It had come under immense pressure from the ministry and the minister, says one executive on condition of anonymity. They had been told that they could bid for other projects but not this one. <br /> <br /> Finally, just five bidders were left in the fray, and OSEPL won the bid. OSEPL CEO S.K. Dixit says that it was impossible to rig the bid, and if any bidder was disqualified by NHAI, the authority has to explain, not the company.<br /> <br /> <strong>Too Close For Comfort</strong><br /> The Nagpur-Betul case is not alone. Bidders allege that there are at least three more cases of blatant rigging: four-laning of Bijapur-Hungund stretch in Karnataka; four-laning of Hungund-Hospet stretch, also in Karnataka; and the elevated corridor on the Hyderabad-Bangalore highway (see ‘Photo Finish'). The CBI is investigating all three cases.<br /> <br /> Bidders say some NHAI officials asked them to stay away from these three projects. In the end, in all the three projects, just three bidders remained. And, not only were all the bids inexplicably close, all three won one project each. "It is virtually the same three bidders, and their bids are almost within Rs 10-20 crore of each other," says one bidder, who also argues that in many cases in recent months, NHAI has been deciding who will get which project without even considering the bids. In fact, in the case of Hungund-Hospet, GMR had come in alone in the pre-qualification stage. But just one day prior to the final bid, it brought OSEPL in as a partner and the project was awarded to the combine.<br /> <br /> The modus operandi is that one bidder is "given" a particular project and, in turn, he gives a supporting bid for another project. However, Brijeshwar Singh, NHAI's chairman, says these allegations are being made by sore losers. <br /> <br /> In all three cases, NHAI argued that because of low traffic the projects need to be given out on grant. But many bidders disagree. "It has been argued that since the traffic on a parallel stretch is very low, it will be very low on these stretches too. You can see the fallacy of the argument," says one bidder, who insists that they would have bid for all three on a premium. <br /> <br /> Calculations by a leading company show that the total loss to the exchequer (loss of premium plus grant given) on account of just these three  projects is over Rs 4,200 crore.<br /> </div></p> <script type="text/javascript"> var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } </script>