March 19, 2002	Tuesday	Muharram 4, 1423

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ISLAMABAD, March 18: The government seems to have decided to throw good money after bad by converting the Pindi-Bhattain- Faisalabad Motorway from BOT to budget supported project and awarding it, surprisingly, to the same contractor who had failed to mobilize his agreed share (Rs4.5bn) of funds for the defunct six-lane BOT project.

The ECNEC has approved a National Highway Authority (NHA) proposal to provide from the budget the same amount (Rs4.5bn) to the contractor for the construction of a four-lane motorway which he had failed to mobilize as per the BOT agreement for building a six-lane motorway.

The ECNEC approval has been obtained despite highly sensible objections raised by the Planning Commission (PC), especially by the PC’s chief of Transport and Communication as well by its deputy chief, Economic Appraisal section.

Interestingly, under the new decision the amount to be provided from the budget includes 2.07bn which the NHA, the sponsors of the project have already spent on it so far under the BOT terms.

The original cost of constructing the 53-km long 6-lane project at Rs7.2bn had included NHA/GoP contribution of Rs2.18bn (30%) in the form of machinery worth Rs2bn and Rs187m in cash. The contractor’s share of 70 per cent had included loans and equity.

The contractor under the BOT agreement was allowed to collect tolls from Kabirwala-Shorkot-Jhang-Chiniot-Pindi Bhattain section. But strangely enough, due to refusal of government of Punjab to hand over the road for toll collection to the contractor, it is argued by those who have now agreed to convert the project from BOT to budget supported, failed to arrange loan from any source.

It is not known if while engineering this argument on behalf of the contractor, the officials had tried to find out why in the first place the contractor had accepted the agreement without first getting the sponsoring agency to settle with the Punjab government the issue of toll collection, the most crucial aspect of the BOT contract.

The general rule is, when a contractor fails to honour his commitment, no matter under what circumstances, he is normally not considered for award of any other future contract or even the same contract, no matter what amendments had been made in the original project.

Not only this, the Planning Commission in its observations before the final decision had been taken had said that details of terms and conditions for the initial concession agreement with the concessionaire (contractor), reasons for termination of that agreement and conclusion of a new contract agreement with the same bidder/contractor without adopting the course of competitive bidding needed to be provided by the NHA.

The other Planning Commission observations equally pertinent had included: 1. The item rates had no basis and found very high compared to NHA composite schedule of rates 2000. 2. Toll rates proposed were very high in comparison to M-2 rates. It was not known whether any toll study for the proposed motorway was ever carried out or not. 3. The proposed motorway was not justified on the traffic/need basis as a 4-lane motorway was warranted only when the traffic surpassed a level of 50,000 vehicles per day.

Furthermore, the traffic counts carried out for M-4 (Faisalabad- Multan) had been assumed for the proposed motorway, which was not acceptable. 5. The work done was subject to audit verification on the basis of which the cost was to be firmed up. The audit verification was not provided to assess the authenticity of the quantum of the work done and expenditure made thereof. 6. No details regarding land acquisition, relocation of utilities, establishment charges and item-wise quantities had been provided. 7. Matter relating to purchase of industrial estate on behalf of the contractor did not form part of the project and therefore was not to be supported. 8. The economic rate of return of the project as worked out by the sponsors was 4.8 per cent, and that worked out by the Planning Commission was 2.6 per cent, indicating the non-viability of the project.

In addition, the chief of Transport and Communication of the PC had opined that after the termination of the concession agreement, the NHA should have gone for open competition to get better rates and transparency in the matter. He concluded that the project was a case of perpetual subsidy. It neither qualified on traffic/need basis nor on the basis of its economic/financial viability and therefore could not be recommended for approval.

The unit cost analysis of the project indicated that the break-even tariff per car unit per kilometre was Rs5.27 as compared to proposed charges of Rs1.0 per kilometre which would involve a subsidy of Rs4.27 per kilometre per car unit. However, the economic rate of return of the project would increase to 7.7 per cent if the investment made to date were treated as sunk cost.

The representative of the government of Punjab while giving his opinion on the project had stated that the toll rates for the proposed motorway had been kept very high as compared to other roads in Punjab and even compared to Lahore-Islamabad Motorway.

The chairman of NHA in his observations had admitted that the initial idea of floating the project on BOT basis by the previous government was wrong. The concession agreement done with the concessionaire was one sided and the concessions agreed upon could not materialize.

He, however, justified the latest decisions on the basis that a substantial work had already been carried out and that there was no other choice except to continue the project on the present rates and with the same contractor, as otherwise, the contractor could go into litigation and claims, which might render a greater price.

He has also certified that the rates negotiated were final, bare minimum and could not be brought down further. With regard to high toll rates, he stated that comparison of toll rates of the proposed motorway with other road projects was not fair.