Last week, the Supreme Court refused to stay an order from the Allahabad High Court that prevented the builder of the toll bridge connecting Delhi and Noida from collecting user fees from commuters. The operator of the “flyway”, the Noida Toll Bridge Company, had argued that the Allahabad High Court had not taken into account the sanctity of the contract signed in 1993 between the Noida authorities and the builder. According to the contract, the company could continue to collect toll until it had recovered a 20 per cent internal rate of return — but the company claimed it had not even recovered its costs as yet. The Noida Residents Association, which is the plaintiff in the case, argued that the company had already collected Rs 2,300 crore in toll and that the auditing of its costs was in any case disputed.
Certainly, many questions should be asked about the structure of the contract signed with the bridge operator, as well as about whether the accounts have been properly and independently audited. The courts’ intervention in this case has demonstrated once again the problems with the public-private partnership (PPP) model in practice. Nor is this the first toll road, even in the National Capital Region, where such a problem has arisen. The court’s cancellation of tolling on the Gurgaon-Delhi expressway is another such case. It is easy to appreciate the logic behind many such decisions as well as the anger of the plaintiffs. Fees charged to the users of facilities built under PPP contracts tend to escalate when costs escalate. In addition, if the initial assumptions for usage are flawed – with grossly inflated traffic projections, for example – then the eventual fee structure can bear little resemblance to the original promises. The users of infrastructure can thus feel justifiably angry.
However, it is important also to remember that every such revocation of agreed-upon terms has an unfortunate impact on the sanctity of contracts in India. Fortunately, in this case, the court has sought more information and assured the bridge operator that it will not lose any months in which it should collect toll. Yet even then, for private companies and for those that they employ, time lost is capital destroyed and livelihoods lost. Indian governments’ continuing inability to negotiate or monitor complicated contracts has put the entire PPP model in jeopardy. Alternatives are thus being actively sought. However, in any case, the building of infrastructure is not an easy process. After all, these projects have years-long gestation periods and pay off decades later. Given these time-scales, it is vitally necessary for governments to be able to commit that they will honour their agreements over time — whether with private operators under the PPP model or with bondholders or contractors under many other alternative set-ups. There will always be incentives to revisit contractual terms; but each time it is done, for whoever’s benefit, it decreases the solidity of the overall economy and the government’s ability to raise future funding for more infrastructure. These matters should be carefully kept in mind when designing alternative forms of infrastructure finance.
