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Monday, 19 November 2012 00:00
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Cost overruns don’t axiomatically mean corruption


One of the underlying points in most anti-graft movements is that we need to go back to the old days, where PSUs held sway, if we want to reduce corruption. So, for instance, if ONGC were to be drilling for gas in the KGD6 basin instead of Reliance, we wouldn’t have had the kind of gold-plating of costs charges that are being levelled today. If Coal India were to be mining the coal, we wouldn’t have had the Coalgate scam; if the Airports Authority of India were to be running the Delhi airport, we wouldn’t have had the kind of allegations we’ve seen against DIAL … Each of the allegations needs to be investigated in a thorough manner, but it’s important in all of this to put aside the myth that PSUs have delivered, and consistently. Private telcos have beaten BSNL in terms of rural penetration, and without the kind of generous grants BSNL gets; Reliance and Cairn have beaten ONGC in terms of their new oil/gas finds; and Air India ceased to carry the bulk of India’s flying public several years ago …

Data put out by the ministry of statistics and programme implementation, carried in FE last week, is even more damning. On the face of it, PSUs are doing a great job in terms of implementing projects at budget. For a sample of 198 projects, which entailed an initial investment of at least R1,000 crore, the cost overrun has averaged a mere 16%. This average, however, masks the fact that the escalation in costs for more than a third of the projects is closer to 60%. And even this doesn’t provide the full picture since, in far too many cases, the costs data is simply not updated. NTPC’s Barh power plant, for instance, is still estimated to cost R8,693 crore, although it was conceived way back in 2003 and is six years behind schedule already. The estimate for the Bongaigaon power plant too hasn’t been updated, although it is 40 months behind schedule. And since there could be further delays before a project is up and running, it’s possible the final cost could be even higher. Of course there are projects for which fresh estimates have been computed—the expansion of RINL’s steel plant, for example, will now cost R12, 291 crore and not R8,692 crore as envisaged earlier. But the ministry’s data shows that nearly half the projects being monitored are behind schedule with 45% late by over a year, some by as much as five years. With inflation running at 7%, a five-year delay would in itself push up the cost by a third.

The short point is that PSUs don’t always have a great track record when it comes to setting up projects or using capital efficiently. Equally important, the public sector by itself is not always able to cater to the needs of buyers, as is evident from the abysmal production levels at Coal India. On the other hand, there are enough examples of the private sector proving its mettle—the Delhi airport, which compares well with international standards, was set up in record time. To the extent the private sector player has got it very wrong, in the Delhi Gurgaon expressway, the government’s NHAI has to share an equally large share of the blame in terms of lax monitoring and poor design of the project. Rather than just pointing fingers, or imagining a glorious past, we need to get well thought-out and executed policies that don’t allow either the private or the public sector to get away with sloth or graft.



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