Expressway project may lead to cost overrun

THIRUVANANTHAPURAM JAN. 28. The organisational and financial framework proposed for the Expressway from Thiruvananthapuram to Kasaragod can lead to time and cost overruns. The best option for the Government under these circumstances may be to facilitate the land acquisition, stand aside and watch the implementation by private agencies.

The Rs. 6,400-crore project is now proposed to be implemented by a company in which the Government and a strategic partner would have equity holding of just Rs. 696 crores each. This company would not be much different from other public sector units, or for that matter, the Public Works Department. Past experiences show that such Government enterprises in the State were not able to execute projects of this dimension in a time-bound manner owing to lack of professional management and political interference. The structure of the company would leave it open to manipulation and corruption by politicians and officials.

About 4,000 hectare of land, required for the 507 km Expressway, will be acquired by the Government at its own cost. The total cost of land acquisition, resettlement and rehabilitation will be Rs. 1,758 crores. This amount is to be raised by the Government through a cess on motor fuel at the rate of Rs. 1 per litre.

Apparently, this land is to be handed over to the proposed company free-of-cost. The project details released by the Government on Monday to members of the Assembly and the Press list only the cost of construction under the head `Means of Finance'. Of the Rs. 4,642 crores required for construction, Rs. 1,392 crores is to be raised as equity and Rs. 3250 crores as loan.

It is a moot question, why the Government should go in for a strategic partner when the partner would be investing only ten per cent of the real cost. The Government could raise this amount just by increasing the proposed cess from Rs. 1 to Rs. 1.25, and the project could be executed by the Roads and Bridges Development Corporation of Kerala.

This is not to say that a cess could be the most appropriate way to finance the Project. The main beneficiaries of project would be the upper and middle class, especially the business class. There is little justification in making the general public pay for this. Equity would be served better if more revenues for the project are raised through toll and other incomes. The resettlement and rehabilitation cost may preferably be incorporated into the project cost and financing structure. Private investment has to be substantial, if it is to reduce the burden of exchequer and benefit the State.

The project can be contracted to private companies in segments on a build, operate and transfer basis. Risks relating to timely completion of the project, interest rate fluctuations and collection of revenue will have to be borne by companies under such a scheme. Rehabilitation may also be their responsibility, with the Government or its agencies acting as the watchdog and regulator.Under the structure proposed now, there is every chance of collusion developing between the strategic partner, politicians and Government officials in award of the contracts and deliberate prolongation of the project.

The strategic partner would practically face no risk as the Government is an equal partner. The Government would be forced or persuaded to amend terms as the project may run into trouble.

A promising project can thus turn into something like the Kallada Irrigation Project or the Lower Periyar Project that sucks considerable amount of tax payer's money.

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