New Delhi: Under pressure for poor results and with the government seeking an overhaul of its management team, the National Highways Authority of India, or NHAI, the country’s road regulator, has begun axing contracts for non-performance, including those awarded to companies with powerful political connections.
These troubled contracts are partially to blame for holding up completion of the so-called Golden Quadrilateral that would connect four regions of India through 5,846km of four-laned highways. Within the last month, NHAI has cancelled two contracts and encashed their bank guarantees.
The more high profile of the two was the termination of a contract awarded to a company run by the family of a Congress party member of Parliament, Kavuru Samba Siva Rao.
“These contracts had to be terminated because they had defaulted,” said NHAI chairman N. Gokulram, refusing to discuss the matter further.
As many as eight contracts under the Golden Quadrilateral have already been terminated between 2006 and 2007. Of the 5,846km of highways that were to be four-laned under the project, NHAI is yet to complete 206km.
Hyderabad-based Progressive Constructions Ltd, which was set up by Rao, a four-term MP, and is managed by his son Bhaskar Rao, was not able to complete the 55km stretch even four years after the initial deadline expired. Consequently, NHAI terminated the contract and encashed a bank guarantee of around Rs50 crore submitted by the company when it was awarded the Sunakhala–Ganjam highway project.
NHAI officials, who did not wish to be identified, insist that this is just the beginning and it “would spare no one regardless of their political connections”.
A dozen contracts, whose performance is holding up completion of the Golden Quadrilateral project which was started by the National Democratic Alliance government in 1998, but is yet to be completed, are being scrutinized by NHAI.
According to officials in the ministry, Progressive was awarded the contract in 2001. The highway work was to be completed by 2004. When the contract was terminated last month, the company was only half-way done, with the project valued at Rs163 crore.
“I am not looking after these things (management). My son Bhaskar Rao runs the company,” said Rao, adding that there was also a feeling among contractors that “all was not well with NHAI.”
While the MP declined to elaborate the reasons for not being able to proceed with the project, he maintained that problems faced by the contractors, such as land acquisition, threat from Naxalites and law and order issues, have not been addressed.
“NHAI could not hand over the land within the time frame and in the sequence as was stipulated in the contract. This has affected the project,” insisted a senior executive with Progressive.
NHAI has also terminated the contract of Prakash-Atlanta, a joint venture between Prakash Building Associates Ltd and Atlanta Infrastructure Ltd, for failing to complete the Lucknow bypass on time. An NHAI officer said the regulator had also encashed the bank guarantee of Rs28 crore from the company.
However, the company says that it was its contractor who had initiated the termination proceedings. In a 14 March letter addressed to the NHAI chairman and the consulting engineer for the project, a copy of which was viewed by Mint, the contractor requested that the contract be terminated and NHAI provide compensation.
The letter said the contract was supposed to be completed in 30 months by August 2004. The contractor, however, alleged that a number of problems, including land acquisition and variance in scope of work, dogged the project.
“Another problem is the quality of the detailed project reports,” said an official with the company, who did not wish to be quoted. The project went to an arbitration tribunal following disputes over variation in costs of the project.
“Now it has become crystal clear to us that the policy of NHAI is to use the contractor as a resource and exhaust him completely before termination of the contract wrongfully and illegally, and further crippling the contractor by making demands on securities and bank guarantees,” the letter stated.
The letter also said the contractor filed two separate termination notices to NHAI. Each time, the contractor was persuaded to continue work on the project.
“On the one side, the government is insisting on completion. On the other side, bankers and shareholders are asking for results. So, any delay in finalizing the bills or making payments from government side may have lot of impact on the promoters credibility with the bankers and also with the government and of course the investors,” said Murali M., director general of the National Highways Builders Federation.