case study nh-8 v1

Draft under preparation. Do not citeSwapnil Garg [email protected]

24 lanes shut, Delhi to Gurgaon in 5 hours

“MCEPL, the firm that operates the expressway, chose a weekday morning to conducta trial without informing cops or the public, by blocking off 24 lanes at the toll plaza, leadingto what people called the "worst jam in Delhi's history".

Businessman Arun Gupta, who left Moti Bagh in Delhi at 9.45am, crawled along NH8 for over three hours to reach Dwarka at noon. Pawan Soni, a Gurgaon resident who had a meeting to attend in Delhi, said, "I covered one kilometre in one hour. I've never seen such traffic from Gurgaon to Delhi." On the Gurgaon-Delhi carriageway, cars queued up from Rajokri to Shankar Chowk.

Several commuters said it took them nearly five hours to reach Gurgaon from Delhi. Stranded in the unrelenting heat and gridlock, anger and scorn found a vent on Twitter. "Need to start keeping more snacks in my car," tweeted Vipul Garg. "The most #organised #traffic #jam #nh8 #gurgaon #trafficpolice," said a tweet from Shuchita.” Times of India News Network (23rd May'15)

It is for almost two decades that I have been occassionally (atleast half a dozen times a year) visiting Gurgaon from Delhi via the Nh-8 expressway. The first was when I went to the Gurgaon village to join the Executive MBA program at the Management Development Institute, wayback in 1998. I have seen the village swell to a city in the last two decades and have spent countless hours on the road getting to/from it. I have personally covered the 16 km stretch between IFFCO Chowk and Dhaula Kuan, in anything from 15 mins to 4 hours, and mostly behind the wheels. In this information age, will google maps ever be able to correctly estimate the time to/from Gurgaon! I just wonder.“(Authors Note)

BACKGROUND

In June 1997, RITES Ltd. (A Government of India undertaking) submitted a detailed

project report for upgrading the portion of the National Highway-8 connecting Delhi to

Gurgaon. Traffic projections on this stretch were estimated at 1.27 lakh Passenger Carrying

Units (PCUs) per day in 2000 and expected to almost double to 2.41 lakh PCUs per day in

2012. The National Highway Authority of India, which had recently been formed and

operationalized by the newly elected NDA government, took up the project as one of its first

attempts at upgrading the highway networks in India, a dream of none other than the Prime

Minister of India i.e., Sri Atal Behari Vajpayee.

Five leading Indian and Malaysian firms submitted bids for the project. The best bid

was provided by a consortium of Jaypee Industries (lead partner 51 per cent share) and DS

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Constructions. They offered a negative grant of Rs 61.06 cr (USD 10 million)1 anticipating

robust toll based revenue over the concession period. The positive outlook on the project was

shared by the other bidders too, with the second bidder offering a similar negative grant of

USD 9 million. This was the first time that government got money from someone offering to

rebuild and operate its poor public infrastructure, while the economy was witnessing a

balooning infrastructure gap.

The project involved construction of nine flyovers, four underpasses, two foot-over

bridges and three toll plazas. The construction was to be done over a period of 30 months,

with a 20-year concession of toll collection to pay for the six/eight laning of the road. By 31st

January 2002, when the letter of award was issued, the road traffic had already taken an

upward swing and had reached 1.4 lakh PCUs per day. Notably, the concession agreement

which was to be signed envisaged sharing of toll between the concessionaire and the

government when the traffic crossed 1.3 lakhs PCUs.

INITIAL PROBLEMS

At financial closure (9th May 2003), the project cost was envisaged to be USD 90

million, and was to be financed by an equity of USD 30 million and a debt of USD 60

million. The debt was financed by a consortium of banks, led by HUDCO, a government

owned infrastructure building arm. By mid-June 2004, even before the project had got

commissioned it started showing signs of distress. First Jaypee, the lead partner, reduced its

share in the project from 51 per cent to 1.2 per cent. Second, the project could not get

coordination and support from the 15 different government agencies involved. The land for

road right of way had also not been fully transferred to the concessionaire, 30 months into the

project. Third, to accommodate the current and future requirements, nine of the highway

structures had to undergo significant design change. Time delays were so extensive that by

1 All figures are in the Rupee prices for that date, converted to USD at Rs 50 per dollar, a figure that dollar almost touched in 2002 and has been hovering around it.

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the original date of commissioning (July 2005), the provisional change of scope had been

finalized, with minimal amount of work at site visible.

Despite all the constraints, the project got commissioned on 25thJanuary 2008 and the

concessionaire started collecting toll. With 100 per cent time over run, cost overruns should

also be expected. At commissioning the project costed USD 195 million, almost double of the

initial estimate. The extra funds required for the project were sourced by the concessionaire

by withholding the bills of the construction contractors, which was a group company. The

USD 26 million provided and accepted by NHAI for scope changes to the project also helped

cover the gap. With traffic on the highway growing substantially, traffic jams at the toll plaza

became a regular figure and the concessionaire started facing increasing difficulties in toll

collection. The concessionaire requested for police assistance in traffic regulation at the toll

booths and filed a petition with the Punjab and Haryana High Courts. However, while police

did not entertain the request, and the courts refused to intervene.

ESCALATION OF ISSUES

No contractual provision existed to cover the large cost overruns. Re-servicing of the

debt emerged as the only option. Accordingly, the concessionaire approached a consortium of

State Bank of India and eight other nationalised banks for a debt of USD 210 million in

January 2009. NHAI, was required to be kept in confidence about all changes in the financial

structure as it provided the collateral on the road and also the right for toll collection, to

service the debt. It issued a conditional no objection certificate, after a considerable delay of

almost a year. Meanwhile, the concessionaire had some ideas. It got a loan of USD 270

million sanctioned by a consortium led by Infrastructure Development and Finance

Corporation (IDFC) with four nationalised banks, and intimated the same to NHAI on 9th

October 2010, after having taken the initial disbursements.

In concession projects, the overall project assets and its revenues stand guarantee

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against the loan provided. Any changes in the debt liabilities incurred without the knowledge

of the owning public agency is highly irregular. NHAI argued further that disbursements by

IDFC have been siphoned off by the SPV to the parent firm as loans and as payment for the

construction work, even before the change in the lending institutions had been informed to

them. Considering it a breach of trust and a highly irregular contractual activity, a preliminary

notice for termination was issued by NHAI on 7th December 2011 and a final termination

notice on 18th February 2012.

The dispute reached litigation and three courts in the country got involved. First, the

concessionaire moved the Delhi High Court against the termination notice, on which the

court asked the parties to hold a mutual settlement discussion and submit an affidavit. After

23 hearings a Memorandum of Understanding (MOU) was arrived at by all the concerned

parties and signed in the court on 18th September 2012.

Second, IDFC filed a petition in the Delhi High Court pleading that NHAI and

concessionaire be directed to sign the necessary escrow and substitution agreements as its

debt was not being serviced from the toll collection revenues. It also made a proposal for an

amicable settlement.

Third, the Punjab and Haryana High Courts, which had been deliberating on a request

by the concessionaire for provision of police help at the toll plaza for a decade, took

cognizance of increasing instances of traffic jams at the toll booth and the ensuing nightmare

for the travelling public. It asked the concessionaire three times to take action to de-congest

the traffic at the toll booths, however their was no visible on the ground. The Courts viewed it

harshly, and ordered stoppage of tolling at the booths. The tolling was again started only after

all the agencies had met, prepared and filed an action plan (recorded as minutes of the

meeting – MOM) to de-congest the toll plaza.

Meanwhile, the Supreme Court of India was also approached, but it refused to

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intervene in the case.

With the original concessionaire not cooperating in carrying out maintenance of the

highway, IDFC proposed to acquire its shares 100 per cent. It was allowed to acquire only up

to 74 per cent due to the existing restraints in the policy, which did not allow full transfer to

another concessionaire during its lifetime. Despite the court orders, NHAI seeking feedback

on the MOUs and MOMs signed and submitted in courts, and deteriorating conditions at the

toll booths, no action to improve the road conditions was initiated by the concessionaire.

When IDFC also indicated lack of cooperation from the concessionaire, NHAI issued a show

cause for termination on 8th March 2013. The original concessionaire and IDFC went to Delhi

High Court.

Addressing the widespread public concerns about the concessionaire under-reporting

revenues NHAI decided to adopt a proactive role. It got an independent traffic survey

conducted in September 2013, which was interpreted as under-reporting of traffic by the

concessionaire by as much as USD 8 million per month. Also, press reports during September

2013 stated that NHAI was considering taking over the project and it would only compensate

the lenders to the extent of USD 30 million if such an event occurred. NHAI also filed

numerous claims against the concessionaire for not maintaining the road and for specifically

failing to maintain the road thickness to the contracted value.

FINAL RESOLUTION (or is it final)

On 22nd January 2014, the top bureaucratic authority on Indian highways, i.e.,

Secretary of the Ministry of Road Transport and Highways, held a meeting of the heads of all

the organizations involved. During this meeting it was agreed upon that,

the toll plaza with heavy traffic jams at the Delhi Gurgaon border would be closed

down,

the tolls for this stretch of expressway would be allowed to be collected at another toll

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plaza down the expressway,

IDFC was at fault for reckless lending to the project,

concessionaire's claims of USD 160 million are not admissable and need to be

withdrawn,

IDFC has to undertake the responsibility to complete all the tasks as per the previous

MOU'sand meetings,

NHAI should withdraw all its claims on the concessionaire.

To give the decisions taken duirng this meeting a legally binding status, IDFC

submitted an affidavit in the court stating that the agreements reached duirg the meeting. On

this affidavit, the court passed a consent order on 19th February 2014. As per the grapevine,

the secretary level meeting also passed numerous gaga orders on the participants. Most

importantly Mr B.D.Nirula the owner of DS Construction was asked to submit a written

assurance that he would not share his part of the story in press, in courts, or even share it

informally. And, further he and his firm would rescind themselves from the project

completely.

With these agreements, toll collections at the disputed plaza were formally stopped, and

the traffic movemnet became reasonably smooth. The project is now completely and firmly in

the hands of IDFC, with complete equity holding, debt obligations, and maintenance

responsbilities. After quite an effort, the susbtitution agreement was also signed with NHAI,

through which DS Constructions name was substituted with IDFC's name at all places in the

concession agreement. This agreement, in its new form, stands valid till end of 2023.

ONGOING ISSUES

The revenue collections from the two of the three operational toll plazas is not enough to

even cover the maintenance requirements of the expressway. It is envisaged that IDFC and its

lending partners will not only loose the equity component in the project, but they will also be

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required to set off a large part of the debt as bad debt, unless something is done soon. IDFC

has however registered a new company MCEPL (Millenium City Expressway Private

Limited) to look after the affairs of the project2 and has appointed Mr Raghuram, a veteran

PPP manager, as a dedicated CEO for the project. It has also approved repair and

maintenance works to the tune of Rs 100 crore to carry out the immediate repairs on the

highway, and has also carried out much of the overdue road resurfacing. However, a large

component of modification works, targeting smoothing of traffic at the toll plaza, remains

unattended to. This was to be attended on priority as agreed upon in the numerous earlier

meetings and understandings. These pending works consisted of removal of the toll collection

infrastructure and construction of a bypass flyover, for which land and partial fuding has been

promised by Ambience Mall, a Rs 500 crore mall which has come up in the vicinity.

The Delhi-Guragaon express-way is uniformly eight laned. At the toll plaza location the

road width increases to 32 lanes for the toll collection purposes. Despite the 32 lanes for

vehicular traffic at this location, this is the only bottleneck existing on the whole route. The

bottleneck is argued to exist for two possible reasons. Firstly, all vehicles have to slow down

as they pass through the narrow toll collection alleyway. These toll alleyways were orginally

designed for slower traffic and are by design narrow to ease exchange of toll money and

receipt between the driver and the toll agent. Secondly, the commercial traffic has to still pay

the state road entry tax and has to get seggregated out to the side lanes for the state entry tax

payments. Nothing much has moved on this front despite numerous high level meetings

between officials of the Delhi and Haryana Governments, leading to a highly ambigous

situation of who pays and who dosen't pay the entry tax for entering the almost porus state

borders, within the national capital region. There is no doubt that with the expressway being

eight lanes, both before and after the toll plaza, the removal of the toll collection structures

2 http://www.hindustantimes.com/gurgaon/gurgaon-e-way-to-get-new-name-millennium-city-expressway-new-operator/article1-1217713.aspx

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would serve to help ease the flow of traffic. Even the courts had ordered for the removal of

these structures, and the next court hearing was scheduled for 26th May' 2015 when the status

of work completed has to be submitted for courts scrutiny.

The toll collection structures are very large and they require traffic to be stopped

while they are dismanteled. There is also an underground tunnel connecting all the toll

booths, which needs to be blocked. This tunnel served to facilitate cross movement of the toll

plaza staff without affecting the flow of road traffic. Mr Raghuram decided that the sooner

the work gets attended to, it was better for the project. Ofcourse, as the CEO it is he who is

held accountable in the court of law for any failures. He assumed that as there would be no

change in the road width (for almost 2 kms on either side of the toll plaza location), and the

eight vehicular traffic lanes would remain full operational, they could start work on the

demolition of tollplaza on Friday and finish the same by Sunday night, a day before the date

of court hearing.

On the morning of 22nd of May 2015 his assumptions have fallen to pieces. He had failed

to predict the habits of the Indian drivers. In India, the concept of land driving is non-existent.

For a driver in India, every open piece of road space, no matter how small, provides an

opportunity for the car to get in and beat the traffic. Hence, as soon as the road opens out

from eight lanes to thirty two lanes lanes (funnelling out), a fight for the least congested lane

at the funnel exit starts. The streamlined smooth flow of traffic suddenly becomes turbulent,

and turbulent flows are known to reduce flow rates, waste energy, and even heat up the

medium. All of which happened here everyday, and the sudden change to turbulent flow from

a streamlined flow has been the order of the day not only at this toll plaza, but even at others

toll plazas in the country. The same had happened that day, but with a difference. Today,

instead of removing one big funnel of 32 lanes with continuous lanes, he had inadvertently

substituted it with two narrower funnels, of eight lanes each. One on the approach to the toll

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plaza and the other on exiting from it (Refer Figure 1). With a 25% reduction from 32 lanes

to 8 lanes, the traffic log jam happened as it did, with vehicles criss crossing each others way

and blocking each other.

By the evening of 22nd May 2015, Mr Raghuram was left wondering, “What to report in

the court on Monday?”, “How to address the media critism of, “Why had the gurgaon traffic

police not been involved?”” He was left asking himself, “How would the traffic police have

helped in this state? Does road discipline come with one day of traffic policing!”

He, however, had no time to wonder as to what the Delhi-Gurgaon commuters have got

after an almost two decade long highway upgradation program and routine toll

payments......... .

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Draft under preparation. Do not cite Swapnil Garg [email protected]

NH 8 Delhi GurgaonUnique aspect Negative grant Rs 61.06 cr (USD 10 million)

Revenue sharing above 1.3 lakh passenger carrying unitsParticulars 27 Km of 6/8 lanes and service lanesPreparation DPR by M/S Rites ltd in 1997

Rs 547.5 cr (USD 90 Million)Unanticipated growth in trafficHigh level of coordination required not envisagedDesign of nine major structures required to be revised.Lack of experience (early project)

Project Award 31stJan’02 20 year concession with 30 month construction period

Financial closure

Equity Rs 164.2 cr (USD 30 million) (originally 51% Jaypee, who reduce it to 1.2%)76% taken over by IDFC, awaiting govt. clearance for restDebt Rs 383.3 cr, (USD 60 million) (Originally with HUDCO lead consortium)SBI approves a debt of Rs 1275 Cr (Jan’09)IDFC approves a debt of Rs 1600 cr (9th Sept’10)

Concessionaire Jaypee DSC ventures (early)Delhi Gurgaon Super Connectivity Ltd

Construction Starts: 12thJan’03 Complete: 25thJan’08 Time delay 3 yearsMajor scope changesCost escalation to Rs 1170 cr (USD 195 million)Coordination issues with 15 government agenciesRs 155.5 cr(USD 26 million) agreed for major scope changes only

Dispute Public discomfort at Toll PlazaIrregular renegotiation of debtWrong toll reporting by concessionaireInadequate maintenance

Positive aspects Good traffic projections. 1.27 lakh PCU’s per day in 20002.41 lakh PCU’s per day in 2012

Challenges A brown field project

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Heavy coordination requirements between 15 different agenciesUnprecedented growth of Gurgaon, leading to an unprecedented growth in traffic beyond what was envisaged.Additional requirements, requiring major change of scopeLack of experienceIn media glare

Approach and Actions Government (NHAI)

Silent to public outcry and to banks negotiating behind its back.Issues termination notice on 7thDec’11.Final termination notice issued on 18th February’ 2012. Unable to get the concessionaire to respond and with IDFC also failing to get the concessionaire to respond, issues show cause notice for termination on 8th March’2013. Also raises claims against concessionaire for not failing to maintain road thickness, stealing toll revenue and not addressing public inconvenience at Toll Plaza.

Government (Ministry)

Sides with NHAI on protection of public interestFinally, calls everyone to sort out the matter

Concessionaire Refuses to address toll plaza congestion issuesUnder reports toll earnings, to be under the ceiling when toll sharing with Government would start. Renegotiates loan behind NHAI’s back.

Independent engineer

Allows and agrees to necessary payments for scope change.Quite about public discomfort The toll plaza was to cater to traffic of 2.2 lac PCU/day as per original traffic estimates, but it does not have this capacity. Initial design was inadequate.NHAI appoints an independent traffic survey agency which reports gross under reporting of toll collections in September’2013, to the tune of USD 8 million per month.

High Courts Concessionaire seeks intervention of Punjab and Haryana Courts for police help at toll plaza. Courts stop toll when it finds that its orders for initiating actions for reducing toll plaza congestion are not being complied with. Forces a minutes of meeting to be signed for resolution of issues relating to toll plaza congestion.Concessionaire approaches Delhi high court against the NHAI termination notice. After 23 hearings, the court forces a memorandum of understanding to be signed between all concerned. IDFC also approaches

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the same court seeking action and servicing of its debt, and proposes amicable settlement of issues. Supreme court Refuses to intervene as cases are in other courts.Equity owners Change in equity (Jaypee DSC IDFC)

Stand personal guarantee for IDFC loansPayments for construction with held. IDFC proposes to take over the project equity, but NHAI within its laws only allows 74% equity transfer.

Financiers SBI led banks approves debtIDFC(six other public banks) approve a very high debt and also disburse amounts of the order of USD 200 million without proper clearances from NHAI.

Pubic Heavy traffic jams at toll plazaLocal population suffers as it is being tolled even for short distances

Media Blames NHAI for the fault.Convicts concessionaire of collecting undue benefitsRaises concerns on PPP concept. With closure of operating toll plazas, the pay per use model is viewed asfalling apart.

FINAL RESOLUTION

Original concessionaire exits project.Taken over by IDFC as both equity and significant debt exposure.Joint meeting with heads of all institutions (Govt.) called by Secretary of Ministry on 22nd January’2014. Financial institutions threatened for reckless lending. Agreement reached on i) NHAI to drop its claims of USD 130 million concessionaire ii) Implementation of all conditions of MOU by financial institutions iii) right for force-majure will remain with NHAI. iv) liabilities of NHAI on termination remain unaltered. v) One toll plaza to be closed and increased toll on the other one allowed. vi) NHAI drops its various claims – for lack of maintenance, service road repair, and under reporting.

IDFC agrees in court with the above order, and toll plazas are closed. New toll rates at the other toll plazas to be announced, IDFC to still get necessary approvals and agreements for toll collection, as of July’2014.

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Figure 1

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case study nh-8 v1

Documents

gurgaondelhi carriageway

gurgaon village

gurgaon resident

time tofrom gurgaon

countless hours

hours mcepl

project involv

citeswapnil garg