CAG Redflags Rlys over PPP Projects

The projects with high IRR, such as Pipavav Railways Corporation Ltd (PRCL), witnessed loss due to shortfall against the projected traffic.

Published: 19th July 2014 06:00 AM  |   Last Updated: 19th July 2014 12:22 AM   |  A+A-

NEW DELHI: The CAG on Friday said the public-private partnership (PPP) projects undertaken by the Ministry of Railways were not economically viable, as unrealistic assessment of internal rate of return (IRR) was done. Also, faulty procedures were followed for projects’ execution and there was weak monitoring of progress of projects.   

The Railways executed eight PPP projects, consisting of five gauge conversion and three new line projects since 2000, through Special Purpose Vehicles (SPVs) and one Special Purpose Company (SPC) in collaboration with the private players. Audit study was done on a sample of four gauge conversion and two ongoing new line projects.  

The audit observed that two of the six PPP projects - Hassan Mangalore Rail Development Company Limited (HMRDC) and Kutch Railways Company Ltd (KRCL) -- undertaken by the railways, were not economically viable, as the IRR was less than the benchmark prescribed by the Ministry of Finance. It also found that the assessment of the IRR was not realistic in all the cases.

The projects with high IRR, such as Pipavav Railways Corporation Ltd (PRCL), witnessed loss due to shortfall against the projected traffic.

The railway’s earnings from the Viramgam Mahesana Private Ltd (VMPL) project was about 60 per cent less than the annual cash outflow, though the IRR was estimated as 22 per cent. The audit also highlighted that the railways did not formulate any Model Concession Agreement, nor did it prefer the one prescribed by the Planning Commission for the PPP projects in infrastructure sector.     

Criticising senior railway officials, the audit said the concerns regarding inadequacy of contractual provisions, as expressed by the authorities at the field levels, in the case of Kutch Railway, were not addressed by the competent authorities.

The CAG has recommended framing of a model concession agreement, for the execution of projects within the stipulated timeframe, adopting uniform approach to all the PPP projects. 

The CAG also called for streamlining the approval process, formation of the SPVs, and signing of requisite agreements in a time-bound manner, to avoid delay.

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