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Audit: Discrepancies in Selection of Private Partner for Puducherry Port

MHA report terms project economically “unattractive”

No analysis made in selecting private partner: report

Interest of Puducherry government compromised

Rajesh B. Nair, of the Hindu, reports on a recent audit report issued by the Ministry of Home Affairs (MHA) on the selection of a private partner for the Puducherry port project.  The full article is given below.  An online version can be seen here.  A PDF version of the MHA audit report can be found here.

Thursday, Jul 29, 2010

Rajesh B. Nair

PUDUCHERRY: Besides finding fault in the process of selecting the private
player for the development of the port here, a team appointed by the Union
Ministry of Home Affairs has found the project economically “unattractive.”

The team, in its special audit report on the port project, has found several
discrepancies in the process followed for selecting the developer and also
in the contract agreement entered into by the developer with the Government
of Puducherry. The full audit report which runs into 200-odd pages had been
posted on the Ministry website.

The report pointed out that “no pre-qualification” criteria such as
financial status and work experience was analyzed before selecting the
developer. The criterion of selection of M/S Subash Projects and Marketing
Limited (SPML), New Delhi, the developer, was based on the
first-come-first-serve basis.

Due diligence and justification in considering the financial status of SPML
“was not” taken care of. In fact “no” analysis was made in selecting of the
firm for the development of the Pondicherry Port, the report said.

In the selection process,, the consultant who had prepared the detailed
project report was given the task to develop the port, thereby violating an
internationally accepted practice of not allowing the agency that prepared
the project report to participate in the bidding process, the report added.

The report also faulted the government for not conducting the mandatory
Environment Impact Assessment before undertaking major projects. Questioning
the government for selecting the developer without verifying the antecedents
of the firm, the report said the credentials of the developer were
“doubtful.”

Looking into the concession agreement signed between the territorial
administration and developer, the report said the agreement does not provide
the government any control over the port management and inspection during
the development stage. Also, the agreement does not have provision for
appointment of an independent engineer and development standards for the
project, which was contradictory to the guidelines issued by the Ministry of
Finance in this regard.

“Low” viability

Further, the lease rent was for “a meagre amount” and has got a direct
“revenue loss of Rs 14. 50 crore per annum.” The financial viability of the
project was also “low” and the internal rate of return with full cooperation
from all stakeholders and assuming favourable situation was “quite low.”

“Therefore it can be clearly seen that the interest of Government of
Pondicherry has been clearly compromised and the developer has been favoured
unduly by the agreement,” the report went on to add.

Adherence to all prescribed norms in allocating the work with adequate
guidance from the Ministry of Finance would have made this project a model
for other initiatives. Due to non-adherence to the guidelines of the
Government of India, the project has become economically unattractive, the
report said.

The Supreme Court after reading regulation 6 (b) of the Pondicherry Act 1962
and the relevant portion of the Indian Ports Act had come to a conclusion
that the power in respect of Pondicherry port necessarily vests in the
government of Pondicherry and not in the Central Government.

The report said, in this regard, it can be stated that “the plane reading of
regulation 6 (b) of the Pondicherry Act 1962, clearly means that any
reference to the State Government shall be construed as reference to the
Central Government. This is the correct interpretation of the regulation,”

It added, “because of this interpretation of the above mentioned regulation
a considerable damage to the powers and the responsibilities of the Central
Government has been caused. The above situation maybe because of the reason
that the correct facts in this regard were not brought before the Honourable
Supreme Court by the Government of Puducherry.”

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