The CAG in its latest report tabled in Parliament on Friday has found that faulty assessment was made on internal rate of return (IRR), project approvals were marred by delays and there was lack of any monitoring mechanism for these projects.

The audit body found that railways did not formulate any model agreement for execution of the projects within the stipulated time frame, nor did it adopt the model prescribed by the Planning Commission for PPP projects in infrastructure sector.
        
Taking the example of Viramgam Mahesana Private Ltd (VMPL), a gauge conversion project between Viramgam and Mahesana to cater to the defence requirement, the CAG said the approval of Finance Ministry was not taken for Build Operate and Transfer (BOT) mode of payment of access charge.

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"The annual earning of the project was Rs 6.45 crore against the annual access charge payment of Rs 15.94 crore. The project sustained loss despite estimated internal rate of return (IRR) of 22 per cent," the audit report said.
        
The CAG criticized the lack of a model concession agreement (MCA), a framework of contract that sets the terms for incentives and targets for the private player.

Railways did not formulate model concession agreement for PPP projects.
        
"The audit observed that Railway Ministry did not formulate any MCA for these projects. On the contrary, it finalized each agreement separately based on its experience in Pipavav Rail Corporation Limited (PRCL), the first PPP project and the same was adopted as a benchmark while finalizing subsequent agreements," the report said.

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It noted that though monthly progress reports were being prepared by special purpose vehicle (SPVs), there were however, no records confirming the fact that the progress of the projects was being monitored by the construction progress review board.
        
"The role of Railway Ministry for monitoring the performance of projects was not laid down in any of the concession agreements," it said.
        
The CAG has also observed that absence of model concession agreement led to adoption of varying approaches towards fixation of concession period, lease rent and liability of railways at the time of transfer of assets by the SPVs.

 

Railways at fault
Indian Railways failed to adhere to standard procedures and rules were violated in selection of private players.
Faulty assessment was made on internal rate of return (IRR)
Railways did not formulate any model agreement for execution of the projects within the stipulated time frame
CAG criticized the lack of a model concession agreement (MCA), a framework of contract that sets the terms for incentives and targets for the private player.
Absence of model concession agreement led to adoption of varying approaches towards fixation of concession period, lease rent and liability of railways at the time of transfer of assets by the SPVs.
Implementation of VMPL and Kutch Railway projects was modified without the approval of CCEA.

Railways launched schemes to supplement investment in partnership with private players for specific projects to develop port linkages. PPP is one of such initiatives to develop infrastructure in railways.

Punching holes in railways' PPP projects, CAG observed that shareholders agreements with PRCL and Krishnapatnam Rail Corporation (KRCL) were incomplete as the same were executed before finalisation of the stakeholders and the modalities of recovery of subordinate debt were not specified in the shareholder agreement.

Assessment of initial rate of return (IRR) was not realistic in all cases as was observed in case of PRCL and VMPL where the projects suffered losses since commencement of operation, the audit body noted.
        
It has found that mode of implementation of VMPL and Kutch Railway projects was modified without the approval of CCEA. Modified approach adopted for implementing VMPL project resulted in additional financial burden of Rs 127.88 crore.

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Railways failed to secure minimum traffic guarantee in respect of Kutch Railway Company Limited though the project was conceived at the expressed interest of the stakeholders, it said.
      
"Further under utilisation (42 percent) of the shortest route (Gandhinagar-Palanpur) resulted in avoidable loss on account of haulage charges due to diversion of traffic through 133 km longer route," CAG noted in its report.
    
It said that traffic guarantee agreement was not executed in respect of VMPL, Hassan Mangalore Rail Development Corporation (HMRDC), Kutch Railways Company and Krishnapatnam Rail Corporation Ltd (KRCL) despite the expressed interest of the stakeholders.
    
Criticising railways, CAG said, "IRR and traffic potentiality of the projects was not given due consideration while fixing concession period. Extant instructions were also not given cognizance in deciding lease rent for the area of land leased to the SPVs."
    
CAG has recommended that the Railways need to frame a Model Concession Agreement for execution of its projects within the stipulated time frame adopting uniform approach to all PPP projects in railways.
       
"The provision of the agreement need to be complete and clearly defined with requisite safeguards to address any unforeseen event during the concession period," it said.

It has also suggested that railways need to resort to calling of expression of interest for selection of all equity partners other than principal stakeholders.
        
"Railways should ensure securing minimum traffic guarantee from the principal stakeholder," it added.

(Agencies)

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