Code of conduct adds delay to the infra projects
The Election Commission’s model code of conduct has put several infrastructure projects in jeopardy.
In fact, some large PPP projects in the bidding stage are expected to get delayed. These are key infrastructure projects that include national highway projects, metro rail projects and the port projects. The total estimated value of these projects would be Rs one lakh crore plus.
“The model code of conduct would delay new projects but it is not likely to significantly affect progress in existing projects. However, given the current market environment, governments and project development agencies need to remain focussed on enabling investment in infrastructure. Any deterrent, including a moratorium of project award, is not welcome,” said Manish Agarwal, executive director, KPMG. “There is need for actions-immediately and quickly,” said Dr Ahmed Firoz, a Delhi based senior economist.
The delay is further adding to the worries of National Highways Authority of India (NHAI). NHAI was finding it hard to get enough bidders for its national highway projects. By the time they found some bidders, the industry was hit by the financial slowdown. Also changes in the bidding process caused further delay.
“Firstly, bidders were unhappy about a clause in the RFP document restricting the number of shortlisted bidders to a maximum of six and the matter went into litigation. Secondly, the revised RFP bidding guidelines issued in September restricted existing developers and bidders from bidding for new projects while the cap on number of shortlisted bidders was removed,” said Agarwal.
He added that out of the 35 national highways projects for which bids were invited last year, 16 received bids and six of them received only single bids. NHAI has sought the approval of the Cabinet Committee of Economic Affairs and from the EC for award of six projects to the sole bidders, which is still awaited.
“National highways projects have probably suffered the most, especially given their track record since 2004-05,” said Agarwal, adding that the model code of conduct cannot alone be faulted for this.
Economists think the government projects in India get delayed routinely for various well known reasons, not entirely because of model code of conduct.
“The decision making process in the governmental structure is complex especially when one has to ensure that the procedure has been followed in every respect and responsibility and the accountability are well defined. There is no easy way out of this as it is not purely inefficiency but a systemic hurdle. NHAI has faced some of these problems and possibly many other specific ones in implementing decisions,” said Dr Firoz.
The delays will certainly hit the developers and contractors. “But the fall in steel and other materials prices and equipment hiring costs in the last few months will also be a relief to all of them. The question is the delay and the uncertainty. Since the possibility of infrastructure, especially road projects, being dropped is nil, the contractors can wait in peace,” Dr Firoz added.
“The cost of production might go up due to the delay but the government will award contract according to the previously agreed old rates. This will affect the contractors who have to shell out more money,” said Sushanta Basu, director of Kolkata based Centex (India) Engineers (P) Ltd that constructs bridges.
But Builders’ Association of India’s Mumbai chapter chairman Mahesh Mudda says people know that they can’t start projects during election so they plan accordingly.
“I don’t think the code of conduct will make big impact on the projects. Some of the projects will be affected but not to the large extent. Also contractors can protect themselves under cost escalation clause,” he added. Economists think price escalation may not be a big issue but the time lost certainly is.