NHAI violated contract sanctity, gave concessionaires undue perks: CAG

The top auditory body found that concessions in 20 projects led to deferments of Rs 9,296 crore premium payable to NHAI between 2014 and 2019

The Comptroller and Auditor General (CAG) of India came down heavily on the National Highways Authority of India (NHAI) for giving undue benefits to concessionaires and violating the sanctity of contracts by making post-tender amendments favourable for the private parties, granting concessions to them beyond the scope of the legally binding agreement.

The top auditory body found that such concessions in 20 projects led to deferments of Rs 9,296 crore premium payable to NHAI between 2014 and 2019.

“The premium payable by the concessionaire was laid down in a legal contract drawn up after an open bidding process, in which premium offered was the one and only parameter in deciding upon the financial bids (request for proposal). Any post tender/ contract amendment tantamounts to vitiating the entire tendering process, against the principle of sanctity of contracts, and unfair with respect to other bidders,” the CAG found in its audit.

The auditor also cracked the whip of the Ministry of Road Transport and Highway (MoRTH) for violating cabinet secretariat guidelines for circulation and approval of cabinet notes.

The audit looked at the deferment or rationalisation of premium in built-operate-transfer (BOT-Toll) projects under the highway authority. Under this mode, bids are quoted either on a viability gap funding (VGF) projection, which the NHAI pays to concessionaires, or a premium projection, which concessionaires pay to the highway authority.

Also read: NHAI extended undue benefit to concessionaires, says CAG report

The probe found that a proposal made to rationalise these premiums was altered in a late development, which allowed a relaxed benchmark for rationalisation. Initially, premium restructuring was only to be limited to 23 projects, but the latest provision allowed for such rationalisation in all stressed highway projects. Notably, the initial 23 projects did not even avail of this scheme.

The scheme was bulldozed in by NHAI, which essentially looked away from other viable alternatives, and cited a possible Rs 1-trillion loss to the exchequer on account of problems faced by concessionaires if the scheme wasn’t brought in, the CAG observed. Despite the rigid justification behind the scheme, neither was it considered nor approved in the NHAI Board meeting.

CAG also slammed the nodal highway body for neglecting its fiduciary responsibility and risking loss to the exchequer.

“NHAI failed to ensure adequate safeguards against exchequer money as modalities of guarantees were left to the discretion of NHAI Board. Bank guarantees to the tune of Rs 429.89 crore were taken against the deferred premium of Rs 7,363.63 crore, which were inadequate to cover the exposure,” it said.

Moreover, NHAI also failed to act against massive discrepancies between its own projected cost vis-a-vis the concessionaires, effectively laying the foundation for deferred premiums. In simple terms, a higher project cost would lead the concessionaire to raise higher debt, which would reduce its ability to pay the required premium, essentially making a case for its rationalisation or deferment.

The CAG also found instances of money in the escrow account (supposed to be monitored) being invested in mutual funds by concessionaires. Money in an escrow account is a temporary pass-through that is supposed to be accessed only for costs related to the project. The auditor found that Rs 5,303 crore from these accounts were invested in mutual funds.