Infrastructure Development in the post crisis period- Role of SAI. Government Audit on Investment in Infrastructure of the Country. Paper by SAI India

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1 Infrastructure Development in the post crisis period- Role of SAI Government Audit on Investment in Infrastructure of the Country Paper by SAI India The link between infrastructure and economic development is not a once and for all affair. It is a continuous process; and progress in development has to be preceded, accompanied, and followed by progress in infrastructure, if we are to fulfill our declared objectives of generating a self-accelerating process of economic development. - Dr. V. K. R. V. Rao (Noted Indian Economist) Government of India has been encouraging Public-Private Partnerships (PPP) for bringing in the much needed investment into infrastructure, like roads, airports, ports, railways, power etc. PPP projects are projects between the private and public sector based on legally enforceable contracts or concession agreements for delivering services, historically provided by the public sector. Audit of such PPP ventures would have to go beyond the current forms of auditing in order to address issues like revenue and risk sharing, choice of the PPP model, scope for innovation, tariff setting, accounting treatment and project/ contract management. Introduction 1. Extensive and efficient infrastructure network is necessary for sustainable and inclusive economic growth, which is critical for effective functioning of the economy and industry. Key to global competitiveness of Indian economy lies in building a high class infrastructure. To accelerate the pace of infrastructure development and reduce infrastructure deficit, Government of India has initiated a host of measures, reforms and schemes to upgrade physical infrastructure in all crucial sectors. Despite several challenges, positive results of Government s initiatives are visible in a large number of sectors. 2. This paper is divided in four sections. First section deals with growth of infrastructure and financing of the sector, second section discusses PPPs as a 1 P a g e

2 preferred mode of financing the infrastructure, third section refers to auditing methodology for PPP projects and the last one discusses case studies relating to audit of infrastructure sector namely, ports and roads. Growth and Financing of Infrastructure Sector 3. Infrastructure includes electricity, roads and bridges, ports, airports, telecommunications, railways, irrigation, water supply and sanitation, storage and oil and gas pipelines 1. However, the World Bank includes Housing and Urban Services (street lighting, solid waste management) in addition to above mentioned sectors in its definition of infrastructure. 4. Growth in core industries and infrastructure services in some of the major sectors has been shown below: Table 1: Growth rate in the infrastructure sectors (in percentage) Sl. No. Sector (April-Nov) 1. Power Coal Railway Revenue Earning Freight Traffic 4. Cargo Handled at Major Ports 5. Roads: Upgradation of Highways (NHAI) Source: Economic Survey, Government of India, The Eleventh Plan ( ) has set an ambitious target of investment requirement of $ 514 billion for infrastructure. The projected investment requirement for infrastructure during the Twelfth Plan ( ) would be of the order about US $ 1025 billion. It is projected that at least 50 percent of this investment would have to come from the private sector. Financing infrastructure would be a big challenge in the coming years, as infrastructure development is 1 Definition as per Economic Survey , Government of India 2 P a g e

3 capital intensive and requires huge resources. However, public resources available for investment in physical infrastructure are limited, as social sectors have a priority in allocation of budgetary resources. Moreover, bulk of investment in infrastructure sectors such as irrigation and water resource management, inland waterways, dredging at ports and in the economically or situationally disadvantaged regions would have to come from the public sector. The ability to finance infrastructure through the budget is therefore, limited given the many other demands on budgetary resources. To meet the challenge some innovative ideas and new models of financing would be required. 6. Given the enormity of the investment requirements and limited availability of public resources for investment in physical infrastructure, it is imperative to explore avenues for increasing investment in infrastructure through a combination of public investment, PPPs and occasionally, exclusive private investment wherever feasible. Such private participation would not only provide much needed capital, it would also help to lower costs and improve efficiencies in a competitive environment. 7. With the objective of stimulating and mobilizing increased private sector participation either from domestic sources or foreign avenues the Government of India has offered various incentives for infrastructure development for sustained economic growth. These include: allowing 100 percent Foreign Direct Investment (FDI) in all infrastructure sectors including the roads, power, ports, and airport sectors etc.; extend tax holiday period up to ten years to enterprises engaged in the business of development, operation, and maintenance of infrastructure facilities. 8. Apart from the need for substantial financial outlays for infrastructure, there are several non-financing constraints that need to be addressed for example: (i) tendering of unviable projects; (ii) poor planning at Detailed Project Report (DPR) stage; (iii) lack of standardized contracts; (iv)land acquisition delays and slow approval process; (v) inadequate availability of skilled and semi-skilled manpower. Public Private Partnership 3 P a g e

4 9. PPP in India has been defined 2 as follows: PPP means an arrangement between a government or statutory entity or government owned entity on one side and a private sector entity on the other, for the provision of public assets and/ or related services for public benefit, through investments being made by and/or management undertaken by the private sector entity for a specified time period, where there is a substantial risk sharing with the private sector and the private sector receives performance linked payments that conform (or are benchmarked) to specified, pre-determined and measurable performance standards. 10. In most cases PPPs combine the best of both worlds: the private sector with its resources, management skills and technology and the public sector with its regulatory actions and protection of the public interest. In fact different PPP models may have overlapping features. What, however, distinguishes each type of PPP model from one another is the degree of risk and responsibility borne by the private sector partner as shown in the chart 3 below: Chart 1: Degree and Involvement of Private Sector in Service Concession Agreements Degree of Private Sector Risks And Responsibility 10. Privatization 9. Build, Own, Operate 8. Build, Own, Operate, Transfer 7. Design, Build, Finance, Operate 6. Design, Build, Operate, Maintain 5. Operations, Concessions 4. Design, Build 3. Management Contracts 2. Service Contracts 1. Government Directly Providing the Public Service Degree of Private Sector Involvement 11. The Government of India is actively encouraging PPPs through several initiatives. The appraisal mechanism for PPP projects has been streamlined to ensure speed, eliminate delays, adopt international best practices and have 2 Public Auditing Guidelines in respect of Public Private Partnerships in Infrastructure Projects, published by Comptroller and Auditor General of India, International Federation of Accountants (IFAC): Accounting and Financial Reporting for Service Concession Agreements; P a g e

5 uniformity in appraisal mechanism and guidelines. The Public Private Partnership Appraisal Committee is responsible for the appraisal of PPP projects in the Central sector. PPP cells have been established in states. As part of a wide ranging effort to create an enabling environment for PPPs, the Department of Economic Affairs (DEA) has developed the national PPP Capacity Building Program in collaboration with the World Bank. Many State Governments have institutionalized measures to encourage private sector engagement in creation of infrastructure and delivery of services. Infrastructure Development and Enabling Acts have been passed by some states. Details of sector-wise PPP projects are given below: Sector Table 2: Sector wise PPP projects Total Upto 100 More than Number Million US 100 of Dollar Million US Projects Dollar Value of Contracts (Million US Dollar) Airports Education Energy Health Care Ports Railways Roads Tourism Urban Development Total Source: Economic Survey of Government of India, Private Sector participation in infrastructure development is not, however, a simple matter. It requires a framework that can enable the private sector to secure a reasonable return at manageable risk, assure the user of adequate service quality at an affordable cost, and facilitate the Government in procuring value for public money. These conditions are more difficult to fulfill than is 5 P a g e

6 commonly realized. It is primarily due to multiple stakeholders pursuing conflicting interests, risk mitigation arrangements are usually complex. Inadequate preparatory work in relation to the framework for PPP projects, identification of projects, selection of private participants, preparation of strategic plan and project reports, drafting of contracts and other associated activities will only lead to excessive transaction costs, years of delay in project implementation, inadequate quality, and large contingent liabilities of the Government 4. A project beset with such problems even after completion can get enmeshed in a high cost low demand syndrome. 13. A significant feature of the policy framework is the adoption of model documents such as concession agreements and other bid documents for award of PPP projects. Since PPP projects typically involve transfer or lease of public assets, delegation of governmental authority for recovery of user charges, operation and/or control of public utilities/ services in a monopolistic environment and sharing of risk and contingent liabilities by the Government, they should be regarded as public projects where accountability would continue to rest with the Government. The PPP modality is only a device for getting private investment into public projects with the objective of enhancing public welfare. As such, the reliance on standard documents and processes is expected to facilitate decision-making and project award in a manner that is fair, transparent and competitive. 14. Besides this the Government has introduced regulatory reforms in almost all sectors. Concerns in the regulatory framework for private sector participation (PSP) in national highways, aviation sector, electricity etc. were addressed. These reforms are expected to improve the investment climate for PSP and thus attract greater private capital. 15. A flow chart indicating the stages through which a PPP project passes from the feasibility stage is given below: 4 Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, Foreword to PPP in National Highways, Model Concession Agreement, November, P a g e

7 Chart 2: Flow Chart for Establishment of a Public Private Partnership Project (PPPP) Strategic Plan Feasibility Study In principle approval of PPPAC Detailed Project Report/ MCA/ Shareholders Agreement/ State Support Agreement/ OMD Agreement Request for Approval Approval of PPPAC Bid Document Shortlist of Bidders RFQ/ Bidding Process Identify Private Participants Concession Agreement/ Share holders Agreement Financial Closure Independent Engineers Independent Auditor Project Construction Operation Maintenance & Development Monitoring of Service to customers Termination at end of concession period ROI, Revenue Sharing etc. 7 P a g e

8 Source: Public Auditing Guidelines in respect of Public Private Partnerships in Infrastructure Projects, published by Comptroller and Auditor General of India, Public Private Partnerships may be formed by different Government agencies and bodies usually to promote and develop infrastructure facilities by inviting private sector participation. As per the Constitution of India and under the Comptroller and Auditor General s (DPC) Act, 1971, the audit mandate of the CAG of India will extend to all types of public institutions, namely Government Departments, Government Business Enterprises and parastatls. Under these circumstances, the Government Auditor is required to confine his audit to the data, records and documents available with the public sector partner of the PPP arrangement. Auditing Methodology for PPP Projects 17. Audit of PPP projects requires a combination of skills and expertise; the audit methodology has also to be innovative. Since there are different types and categories of PPPs, the approach to audit should be dovetailed to target such divergent PPP arrangements. For instance, a Joint Venture Company (JVC) constituted for the purpose of an airport development will have a totally different composition and contracts arrangements than another partnership set up for a highway development, with a consortium of contracting companies carrying out the activity as an enterprise of their own. Similarly, BOT 5 projects will differ from BOOT 6 categories and so on. The focus of social sector PPPs (running schools, hospitals) will vary in their content and form to a significant measure from the PPPs set up for, say, road or port development. The methodology for PPP audit will therefore have to be devised to suit the requirements of the individual projects under scrutiny. 18. However, basic features will be common for all PPP arrangements, which will help public auditors to converge their approach to audit. Therefore, the following common approach to audit will form the basis of all PPP audits :- a) Detailed scrutiny of project documents starting from the conceptual stage to the formulation and approval stage. b) Verifying the legal and contractual obligations arising from the several 5 Build, Operate, Transfer 6 Build, Own, Operate, Transfer 8 P a g e

9 contracts and agreements entered into between the parties. c) Review of financial modeling to test the feasibility and justifications for the grant of concessions, testing revenue generation using quantitative techniques. d) Assessment of the transparency and integrity of the bidding process. A chart indicating the process of audit of PPP projects is given below: Chart 3: Process of Audit of PPP projects Source: Public Auditing Guidelines in respect of Public Private Partnerships in Infrastructure Projects, published by Comptroller and Auditor General of India, P a g e

10 20. It is true that the major entity involved in the PPP is a private participant who is outside the audit control of the SAI 7. However, at the same time, the entire operations carried out by it will impact the public sector partner which has sanctioned the grant to build the facility, manage the operations and collect userfee, tariff or toll by transferring the assets and the responsibility to do so and share revenue (or receive viability gap funding or annual payments, as may be). It will also impact the user community i.e. the public at large. Moreover, the accountability of the public participant for the provision of service at affordable cost continues as before in the PPP arrangement. Hence, it is important for the public auditors to assess the efficiency, economy and effectiveness of the operations of the PPP from the public accountability angle, and to that extent, the principles of Performance Audit 8 would materially apply to PPP audit as well. Case Studies Roads Sector Case Study 1 National Highway Development Program Sector Profile 21. For a country of India's size, an efficient road network is necessary both for national integration as well as for socio-economic development. The National Highways (NH), with a total length of 66,590 km, serve as the arterial network across the country. Structure 22. National Highways Authority of India (NHAI) is the apex Government body for implementing the National Highway Development Program (NHDP). All contracts whether for construction or BOT are awarded through competitive bidding. Private sector participation is increasing, and is through: - Construction contracts - BOT for some stretches - based on either the lowest annuity or the lowest lumpsum payment from the Government. 7 Supreme Audit Institution 8 Performance audit is an independent assessment or examination of the extent to which an entity, program or organization operates efficiently and effectively, with due regard for economy. 10 P a g e

11 Policy per cent FDI under the automatic route is permitted for all road development projects. Other incentives include: per cent income tax exemption for a period of 10 years - NHAI agreeable to provide grants/viability gap funding for marginal projects - IIFCL to provide funding upto 20 per cent of project cost - Model Concession Agreement has also been formulated Results of Audit (2008) 24. On 12 December 2000 Government of India approved Phase-I of National Highways Development Program (NHDP) upgrading 6359 Km. of roads which included a number of ongoing projects along the Golden Quadrilateral, North- South and East- West corridors. Between March 1998 and April 2003, 930 km. of these road stretches representing 15 per cent were sought to be executed through a new mode of delivery plan known as Public Private Partnership (PPP). These road projects to be developed under PPP were split into 17 individual projects; nine of which were meant to be delivered through Build Operate and Transfer (BOT)-Toll mode and eight projects via BOT-Annuity mode. 25. An overriding consideration for the Government in deciding PPP as an alternative financing and service delivery model was to secure timely and costeffective service delivery besides leveraging scarce budgetary resources. 26. This report examined various aspects of project implementation and assesses whether these PPP deals have effectively delivered a good value for money, taking into account the Government s objectives. It concluded that: Planning 27. At the start of NHDP Phase-I, the Authority did not prepare a corporate/strategic plan which indicated the project priorities and scheduling and could be used as a monitoring mechanism. Their informal system of concurrent review could not provide adequate assurance for project monitoring. Even the internal guidelines from the Government to determine the mode of execution could not be issued until March Consequently, the Authority failed to 11 P a g e

12 systematically evaluate the relative merits and its financial implications in executing a project through BOT-Toll or BOT-Annuity. 28. Detailed Project Report (DPR) forms the basis of any project implementation. There were no DPRs in two BOT projects and the DPRs in respect of two other projects suffered from deficiencies in design, cost estimates and traffic projections. There was no benchmark IRR 9 in the financial models. As a result, the concession periods in Jaipur-Kishangarh and Delhi-Gurgaon projects were unduly stretched over long periods benefiting the Concessionaires by an estimated Rs.1.21 billion and Rs.1.87 billion, respectively. 29. Though the target date for completion of NHDP Phase-I projects was June 2004, the Authority was able to complete only five of the 17 PPP projects. There were inordinate delays in remaining projects ranging between two and 42 months. Project management 30. The concession agreements provided for acceptable and desirable levels of roughness measure of the roads to be constructed. The levels of roughness prescribed under the acceptable and desirable levels were uniform only in four of the six projects test-checked. In Jaipur-Kishangarh project, the standards of acceptable and desirable levels were relaxed as compared with the other five projects. As explained by the Authority, two levels were indicated in the concession agreement in order to make an attempt to achieve desirable results. However in all locations test checked, though the acceptable levels had been achieved, only in 37 per cent locations, the levels of roughness met the desirable parameters. 31. There were deficiencies in fulfilling technical parameters. For instance, deflection studies carried out in 82 locations on six road projects indicated the need for overlay of bituminous concrete in 28 locations. There was noncompliance of combined thickness of wet mix macadam (WMM) and granular sub-base (GSB) requirement in all the test-pits of one project and a significant non-compliance in other five projects. Inadequacies in the degree of compaction of granular layers were noticed in five projects. 9 Internal Rate of Return 12 P a g e

13 Contract and Revenue management 32. Escrow account arrangement is an effective tool available with the Authority to monitor funds utilisation meant for a particular project. It establishes a link between the sources and utilisation of funds. Concession agreements also stipulate that the Concessionaires furnish copies of escrow accounts for periodical scrutiny by the Authority. By failing to review this account in three BOT-toll projects and by not appointing an independent auditor in any of the four BOT-toll projects, the Authority has denied itself the benefits of these important control tools. 33. Although concession agreements provide for levy of penalties for deficient/ nonperformance, it failed to impose penalty of Rs million due in three out of eight projects test-checked. Also, the Authority did not incorporate the clause for recovery of penalty towards non-achievement of financial closure and target dates for individual milestones in BOT-Annuity projects. 34. In BOT-annuity projects, the Authority was entitled to collect toll immediately after project completion. There were delays in commencement of toll collection in all the four projects test-checked resulting in revenue loss of Rs million. The Authority did not index base toll rates with the latest wholesale price index available at the time of sending draft toll notification to the Ministry which resulted in fixation of lower toll rates and consequential loss of revenue of Rs million in three BOT annuity projects. Case Study 2 Port Trusts Sector Profile Ports Sector 35. India has 12 major ports and 187 minor ports along 7,517 km long Indian coastline. Major ports handle nearly 75% of the total traffic. Of the 12 major ports, 11 are run by Port Trusts while the port at Ennore is a corporation under the Central Government major Government projects are: 13 P a g e

14 (a) Project Sethusamundram : Dredging of the Palk Strait, in Southern India to facilitate maritime trade through it. (b) National Maritime Development Program for modernisation and expansion of port capacities. Results of Audit( ) 37. There are 11 major ports in India governed by the Major Port Trusts Act, 1963, which serve as the primary conduit for India s international trade, by handling three-fourths of the nation s maritime cargo. These ports function as autonomous bodies under the Ministry of Shipping. They follow a traditional business model where ports take upon themselves, the task of creation of common infrastructure and the responsibility of commercial operations like marine and cargo handling services. However, with the rapid increase in cargo traffic over the last decade, massive investments in capacity augmentation had become necessary. To address the need, the Ministry formulated the National Maritime Development Program in , which envisaged an investment of Rs 558 billion for the major ports by The program also indicated a paradigm shift in policy towards the landlord model, whereby the ports would act as trade facilitators by investing in common user facilities like deepening of channels, improvements in connectivity, etc, leaving commercial services to private entities under revenue sharing arrangements. 38. The performance audit revealed that the depths available at the major ports were unable to cater to all types of vessels that plied international waters. Moreover, dredging undertaken by these ports had not been effective as significant variations were noticed between the drafts at the access channels and the berths. The depths reported by the ports did not provide adequate assurance to the visiting vessels. Limited berthing options available to ships, resulted in their queuing up for a few berths, leading to high pre-berthing detentions. It was estimated that maritime trade in India lost more than Rs 14 billion per annum on account of such detentions. It was also found that important marine services like providing of tugs and pilots for safe navigability, in which ports enjoyed a monopoly, were not being carried out efficiently. Lack of provision of night navigation facilities also restricted round -the -clock access of vessels to the ports. 14 P a g e

15 39. It was found that the cargo handling services of the ports were inefficient, as a predominant number of berths still did not have the dedicated facilities that were necessary for quick handling of the main forms of cargo like liquid bulk, dry bulk and containers. Liquid bulk which primarily consisted of petroleum, oil and lubricants, constituting 33 per cent of the total cargo, faced handling inefficiencies due to slow rates of discharge at specialized berths, leading to high turn-round time of vessels. It was found that dry bulk cargo, viz. coal, iron ore, fertilizers, etc, comprising around 40 per cent of the total cargo, was mostly handled at nonmechanized berths as only eight per cent of all the dry bulk berths at the ports had specialized equipment for the same. For faster handling, the users of the ports were hiring private labour at additional costs, over and above the mandatory engagement of port labour. Thus, the inefficient rendering of marine and cargo handling services made the ports less attractive to trans-shipment cargo and bigger vessels, as compared to neighbouring ports of Colombo and Singapore. 40. In the case of containers, which saw the fastest growth in traffic during the period covered, around 65 per cent were being handled at privately operated terminals in Chennai, Jawaharlal Nehru Port and Tuticorin. The handling efficiency in these terminals touched international benchmarks. 41. The performance audit revealed that storage space and connectivity at the ports, necessary for smooth accumulation and dispersal of cargo, was inadequate. Dispersal of cargo by rail was affected due to lack of double- line connectivity, low mechanization at sidings, restrictions in lengths of sidings causing part-rake handling and the absence of exclusive freight corridors. Efficient dispersal of cargo by road was hindered by narrow last-mile linkages, city traffic restrictions on movement of trucks during daytime and lack of exclusive port roads connecting to highways. 42. Procedures for assessment, monitoring and reporting of performance by ports were fraught with several deficiencies. The assessment of berth occupancy, a prime indicator for congestion at ports, was distorted. As occupancy was shown in terms of days, a berth occupied for even an hour was being shown to have been occupied for a whole day. Thus, high occupancy was being reported for relatively idle berths. The calculation of handling capacities at berths did not represent the optimum handling possible, based on equipment support, size of vessels, nature of cargo etc., but was based on the actual handling done in 15 P a g e

16 previous years. Existing inefficiencies were, therefore, factored into the calculation, resulting in understatement of the capacities of the ports. It was also noticed that critical performance parameters such as pre-berthing detention and turn-round time were not being recorded and reported correctly by most of the ports, leading to the risk of real problems remaining unidentified and unaddressed. Moreover, the targets set by the Ministry through Memoranda of Understanding with the ports, remained mere upgrades of their previous years performances and were neither based on any norms nor were always mutually consistent. 43. Audit observed that only 31 out of 170 schemes planned for the first phase of National Maritime Development Program (March 2009) could be completed at the 11 major ports, resulting in an investment lag of 80 per cent. Implementation of critical deepening and connectivity projects, which was the primary responsibility of the ports under the landlord model, was poor. Private participation in commercial operations at ports, as envisaged under the model, was slow due to delays in handing over of sites and grant of security clearances. An analysis by Audit showed that 18 out of 26 ongoing schemes were delayed by over a year due to delays in approvals at various stages. Build Operate Transfer agreements for the terminals included clauses containing ambiguities regarding the nature of the services to be provided to the ports. Details are given below: 44. Even before the formulation of NMDP, the policy direction of the Government had been towards facilitating privatisation of commercial operations at ports. The Major Port Trust Act, 1963 was also amended in 2000 for the purpose, and the BOT option, was adopted for operation of terminals. 45. A number of private terminals were in operation on 30-year lease (except at Cochin and Mumbai) even before the commencement of NMDP. These included container terminals, liquid bulk berths and dry bulk berths. NMDP, in line with the landlord model, had targeted private investment of Rs billion amounting to 54 per cent of the total investment, during Phase-I of NMDP. The projects were in the nature of leasing out of existing terminals, construction of new terminals on BOT basis, leasing of land for aggregation of cargo or other port related activities etc. Eighty five per cent of the private investment of Rs billion anticipated in Phase-I related to projects envisaged in four ports, viz. Cochin, JNPT, Kandla and New Mangalore. 16 P a g e

17 46. Although the operation of private terminals had resulted in higher efficiency, only one BOT project among the ones planned in the first phase of NMDP, viz. the second BOT container terminal at JNPT, could be commissioned, although two years behind schedule. Among the BOT projects that were already in operation, Audit noted a number of issues as listed below: Standards for minimum performance 47. The contract agreements with BOT operators provided for an MGT clause prescribing minimum expected levels of achievement. To ensure significant longterm revenue flow for the lessor and incentivise high volumes of handling by the lessee, it was imperative that the MGT was to be fixed at an optimal level. 48. It could not be ascertained in audit whether the actual MGT fixed in BOT agreements were based on accepted standards of performance or upon rough projections. 49. The BOT operators achieved outputs much higher than the MGT fixed by the ports. This indicated that the ports had fixed very low targets. Shortcomings in BOT agreements 50. It was found that the concession agreements that the ports entered into varied widely, leaving scope for interpretation. An illustrative case study is given below: Case study on standardization of clauses in BOT agreements: 51. Chennai port signed a BOT agreement for operation of a container terminal with M/s CCTL in Cochin port entered into a similar agreement with M/s Dubai Ports International in January 2005, following the commencement of NMDP. It was found that the agreements were very different and the Chennai agreement ensured much higher commitments from the operator than the Cochin agreement. Chennai CCTL agreement Huge investment by licensee Clear performance parameters and MGT Cochin IGTPL agreement No such clause No clear performance clause, MGT 17 P a g e

18 No liability of port on account of power commitments Clear Royalty payment clause Licensee to pay the licensor per cent of all revenue earned from operation, storage recovered/ charged from users. No deferment in payment of royalty. For delays 2 per cent month from the due date till the date of payment or realization, to be paid. Performance Security Power commitments underwritten by the port Conservative clause for payment of royalty Royalty per month to be equivalent of percent of the gross revenue. Gross revenue not to include income from interest, sale of assets, penalties or charges for delay not notified in the SOR, expenses incurred by licensee for providing services etc. Twenty five percent of the royalty payable for each year to be deferred Low interest on delayed payment. No Performance Security 52. The Ministry agreed (June 2009) to the observation on shortcomings in BOT agreements, leaving scope for interpretation. It was pointed out that a model concession agreement (MCA) had been framed and circulated among ports and its effectiveness would have to be monitored. Bibliography 1. Economic Survey, Government of India, Public Private Partnership in Infrastructure Projects, Public Auditing Guidelines, Comptroller and Auditor General of India, Performance Audit of the Functioning of Major Port Trusts in India, Report of the Comptroller and Auditor General of India for the year ended March P a g e

19 4. Report of the Comptroller and Auditor General of India, No.PA 16 of 2008, Union Government (Commercial) 5. India infrastructure Report 19 P a g e