Is Andhra government favouring contractors in Jalayagnam projects?

Ministers protest order relating to contracts for irrigation projects which they say will put additional financial burden of Rs 20,000 crore on state exchequer

By M Suchitra
Published: Wednesday 12 February 2014

Devadula lift irrigation scheme in Warangal is a part of the Jalayagnam which envisages 86 irrigation projects, mainly on the Krishna, Godavari and Pennar rivers and their tributaries. A CAG report of 2012 had said the state has neither funds nor water for the grand project

A recent order issued by the Andhra Pradesh government relating to irrigation projects has led to controversies and divide within the state's council of ministers. When the Cabinet met on February 10 to approve the vote on account budget, chief minister Kiran Kumar Reddy had to face the fury of a few of his Cabinet colleagues. The ministers accused him of keeping them in the dark regarding the decision to issue such an order that makes significant changes in the government’s policies related to making payments to private firms and contractors. The order, if implemented, will put an additional financial burden of about Rs 20,000 crore on the state exchequer, they alleged.
The controversial order, pertaining to irrigation projects under Jalayagnam, an ambitious programme of the state government, was issued on February 7 this year by the irrigation department. It provides a lot of cushions and facilities to private agencies and contractors, allege the ministers, who have gone public against the order. The move is to revise the cost of the projects on the grounds that they were getting delayed, leading to cost escalation. “The matter is of serious concern and significance which needed to be deliberated on thoroughly by the council of ministers before arriving at a decision. Surprisingly, this has not been done. The issue was not brought before the Cabinet,” said transport minister and Andhra Pradesh Congress Committee chief, Botcha Satyanarayana, in a letter (dated February 9) submitted to the chief minister. 

Additional benefits

The state government launched Jalayaganam in 2004. In the beginning there were only 26 irrigation projects. The total cost of the projects was estimated to be Rs 46,000 crore. Out of the total, eight projects were to be completed within two years and the rest in three years. Jalayagnam was to be completed by 2009. However, by 2008, the government brought in 60 more irrigation projects under this programme. Most of the projects are yet to be completed.  Due to various factors including delay in land acquisition and getting forest and environment clearances, many of the projects are delayed and have gone beyond the agreement period. The cost of the projects shot up to a whopping sum of R 1,86, 000 crore by 2010.
“Another reason for the delay in completing the projects is the incompetency of the private agencies which were awarded the works,” points out M L Narasimha Reddy, principal correspondent of Eenadu newspaper, who has written extensively on Jalayagnam.

All the Jalayagnam projects are being constructed by contractors under the engineering, procurement and construction (EPC) system. The agreements signed by the government with the contractors provide for cost adjustment only for steel, cement and fuel according to the cost escalation of these commodities.

However, as per the controversial order issued by Aditya Nath Das, principal secretary with irrigation department, the government has decided to include cost escalation of labour and other materials apart from steel, cement and fuel for price adjustment in the agreement. The decision was taken since a number of representations were received (from private agencies and contractors), says the order. The order provides many more clauses which will benefit contractors.

 New clauses regarding payments to the workers and material costs have been incorporated in the order to the advantage of contractors. For instance, contractors can claim market rates for labour and material cost for every package of work from April 1, 2013. If their first phase of agreement is over, the government will reimburse their commission on bank guarantee as well as insurance premium apart from the service tax.

Cabinet kept in the dark

“Delay in the execution of the project should not be a reason to pay extra money to the contractors. If there had been any delay in execution, the officer concerned should be punished. It was not proper to put the burden on the people,” said C Ramachandraiah, endowments minister, in the Cabinet meeting. The ministers pointed out that contractors had already taken huge advances without completing the works. They said the contractors were investing the money in real estate business. Deputy chief minister C Damodara Rajanarasimha questioned the motive of this decision in a letter to the chief minister.

The government order says the changes in the EPC code are in accordance with the recommendations made by the Board of Chief Engineers. A Group of Ministers (GoM) constituted in 2012 had carefully scrutinized all the recommendations made by the Board of Engineers. “After weighing all the options and having considered all the factors, including cost implications in order to complete all the ongoing works, the Group of Ministers made certain recommendations to the government,” observes the order. The present instructions are according to the recommendations of GoM. But the ministers who oppose the order allege the GoM recommendations were not placed before the Cabinet for discussion.

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