Crony Sarkar: Gadkari gave contracts worth Rs 8000 crore to old associate

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The link

• Under Gadkari, 2 firms linked to DP Mhaiskar -- IRB & MEP - got contracts worth over Rs 8000 crore
• Mhaiskar had earlier given a Rs 164 crore loan to Gadkari. Gadkari\'s son worked with an IRB subsidiary
• Ganesh Gadre, a full time director with an IRB subsidiary, is also a director in Gadkari\'s son\'s firm

More in the story

• What are the links between Gadkari & Mhaiskar?
• How a change in govt policy under Gadkari benefitted Mhaiskar

On 29 July, Nitin Gadkari's Ministry of Road Transport and Highways gave a contract worth Rs 2,100 crore to Ideal Road Builders (IRB) for a six laning project in Rajasthan and Gujarat.

The project was awarded by the National Highway Authority of India, that falls under Gadkari's ministry, and it involves six-laning of a 114 km stretch on NH-8 between Udaipur and the Rajasthan-Gujarat border.

Also Read: How Modi govt's policies are helping Nitin Gadkari's family business

"Subject to award, IRB's construction order book will stand to increase to approximately Rs.10,000 crore, to be executed in the next 4 years. This will boost the company's construction order-book visibility for next three to four year," IRB announced proudly after bagging the contract.

With this project, IRB reportedly has 21 Build-Operate-Transfer (BOT) projects, out of which 13 are under operation.

What is significant here is that IRB has close links to the very man whose ministry is awarding NHAI's contracts: Minister for Road Transport, Highways and Shipping, Nitin Gadkari.

Gadkari-IRB links: 3 facts

• First, Gadkari's son Nikhil was a director of an IRB subsidiary Ideal Energy Projects Limited between 2009 and 2011 and held shares in the company.

• Second, Gadkari's Purti Group, was given a Rs 164 crore loan by IRB founder Dattatray Pandurang Mhaiskar through a firm called Global Safety Vision.

• Third, according a Times of India report citing records from 2010-11, IRB and Mhaiskar held 68.4 lakh shares of Purti.

These facts are in the public domain and haven't been disputed either by Gadkari or IRB. In fact, Mhaiskar has admitted to giving a Rs 164 crore loan to Purti Group, and the latter has admitted receiving the loan.

But the explanation given by both sides is that this is in the past and happened when Gadkari wasn't holding a public position.

However, the truth is that the business links between the Mhaiskars and Gadkari's family continue to this date, even when Gadkari is a Union Minister.

Ganesh Madhav Gadre, a full-time director at IRB's Ideal Energy Projects Limited, is a nominee director in Purti Power and Sugar Limited (PPSL), the most important entity in the Purti Group. Gadkari's son Nikhil is presently the director of PPSL.

Is it proper for a the family of a minister, responsible for roads and highways, to have business links with one of the leading road construction firms in the country?

IRB fortunes rise under Gadkari

The six laning work in Rajasthan and Gujarat isn't the only major project that IRB has won under Gadkari.

In September 2014, it won the contract for operation and maintenance of the Yashwantrao Chavan Expressway between Mumbai and Pune and additional work on the old Mumbai-Pune highway. The total project cost is estimated to be Rs 2,187 crore.

Also Read: Poser for 'graft-free' NDA: did Gadkari give Rs 10,000 cr contract to an old friend?

In January this year, it won the contract for constructing the Zoji La Pass tunnel in Jammu and Kashmir. With an estimated cost of Rs 10,050 crore, this is said to be India's most expensive road construction project. The 14.08 km tunnel will be South Asia's largest.

According to reports, there were a few participants in the initial rounds such as IL&FS Transportation Ltd and HCC Ltd. But when the final round began, IRB was the sole bidder left.

As soon as the contract was awarded, the Congress accused Gadkari of favouring IRB. Congress general secretary Digvijaya Singh pointed out Gadkari's links with IRB and wrote to Prime Minister Narendra Modi and the Central Vigilance Commission seeking an probe.

Though Gadkari denied the Congress' charges, he was forced to cancel the contract to IRB two months later and order a process of rebidding. The decision was abrupt and no reason was given. Some say it was done to prevent allegations of favouritism by Gadkari in a project with immense strategic importance.

The cancellation of the Zoji La tunnel contract does show that Gadkari wants to prevent an impression that IRB is bagging the lion's share of big ticket projects under him. This is true, IRB isn't gaining as much as it did between 1995 and 1999 when Gadkari was Maharashtra's PWD minister (see below). But the Mhaiskars are raking it in anyway. Here's how.

How Gadkari's new road policy helped the Mhaiskars

Very few politicians understand the road construction sector as well as Nitin Gadkari. His stint as Maharashtra's PWD minister will be remembered for a BOT construction spree in the state. Also, as the head of the National Rural Roads Authority in the Atal Bihari Vajpayee government, he was the brain behind the Pradhan Mantri Gram Sadak Yojana.

In January this year, the Cabinet approved the Hybrid Annuity Model (HAM) for building roads. Even though the first version was developed by the erstwhile Planning Commission in 2006, the force behind the model and its implementation is Gadkari.

Under HAM, the government commits up to 40% of the project cost over a period of time and hands the project to the developer to start road work.

Introducing the model, Gadkari said "Private players weren't ready to participate in the PPP-based projects as they had lost faith (in the previous government). However, to encourage private participation, we have introduced a hybrid model, where we will share the risk with them".

Till now road construction projects have followed three formats

• Toll-based BOT: the developer builds and operates a highway and extracts a toll from vehicles using the road.

• BOT annuity: the developer builds the highway, operates it for a specified duration and transfers it to the government, which pays the developer annuity over the concession period.

• Engineering, Procurement and Construction (EPC): the developer builds with government money.

HAM was introduced to partly address high capital and risk involved with the two BOT models.

However, in the first few months, many firms weren't sure of HAM and stayed away from the bidding process for projects under this arrangement. In many of the initial bids, there were just 3-4 participants.

Even though competition under HAM is picking up now, large developers are staying away. For instance, Larsen & Toubro is focussing its energies on EPC contracts, ie projects that are completely government funded.

IRB, too stayed away from HAM projects, and focussed on its core area: BOT projects.

"Competition is intense and it is not making any sense (to bid)... This sector has perennial problem that whenever the government comes out with large number of projects we all contractors go into overkill and mess it up," Mint quotes Virendra Mhaiskar, chairman and managing director, IRB Infrastructure, as having said.

With the big players staying away, the companies which dared to venture into HAM projects, were rewarded. Perhaps the biggest beneficiary has been MEP Infrastructure Developers Ltd's joint venture with Spanish company Sanjose.

In its website, MEP proudly says that it bid for 8 projects under HAM and won 6 contracts. It has an order book of Rs 3836.99 crore and 1059.97 km to be executed in the next 3 years.

And guess who is behind MEP? Listed among its directors are: IRB founder Dattatray Pandurang Mhaiskar, his wife Sudha Dattatray Mhaiskar, his son Jayant Dattatray Mhaiskar and Jayant's wife Anuya Jayant Mhaiskar.

Jayant Mhaiskar is incidentally the director of IRB and managing director of Ideal Energy and Power Limited, where Gadkari's son was a shareholder and director.

It is interesting that when a company like MEP with four Mhaiskars as directors is consistently bagging projects under HAM, Virendra Mhaiskar is saying that it doesn't make sense to bid under the new policy. Could this be just a ploy to prevent the impression that Gadkari is favouring IRB?

The six HAM projects won by MEP are:

Arawali-Kante four laning project (Maharashtra)

Project cost: Rs 592.98 crore

Kante-Waked four laning project (Maharashtra)

Project cost: Rs 805.59 crore

Mahuva-Kagavadar four laning project (Gujarat)

Project cost: Rs 604.68 crore

Nagpur City Ring Road Package I

Project cost: Rs 531 crore

Nagpur City Ring Road Package II

Project cost: Rs 639 crore

Talaja-Mahuva four laning project (Gujarat)

Project cost: Rs 643.05 crore

This basically means that IRB might not be gaining out of Gadkari's new policy but the Mhaiskars surely are. If one adds up the the BOT projects given to IRB and HAM projects awarded to MEP, the total project cost would be in the excess of Rs 8000 crore.

Gadkari impact?

Dattatraya Mhaiskar, a government engineer, founded IRB in 1977. The company began with small projects in the Kalyan-Dombivali region and in the 1980s took up civil works on behalf of the Brihamumbai Municipal Corporation (BMC). The company hardly bagged any major projects. By most accounts, it's fortunes changed only after 1995, the year Gadkari became Maharashtra's PWD minister. According to IRB's website, some of the contracts it got in that period are:

• Improvement to Pune-Jalgaon Road (Rs 8.75 crore)

• Construction of two lane ring road around Nagpur city (Rs 4.14 crore)

• Improvement to Malegaon-Mehkar Road (Rs 21 crore)

• Improvement of Balapur-Patur Road (Rs 4.5 crore)

• Thane-Bhiwandi Bypass (Rs 104 crore)

• Khambatki Ghat BOT project (Rs 45 crore)

• Bhiwandi Wada BOT Project (Rs 9.45 crore)

• Kaman Paygon BOT project (Rs 14.4 crore)

Government-backed road construction projects for IRB dried up significantly after the Shiv Sena-BJP lost power in Maharashtra in 1999, though it continued to get BOT projects. However, it had already become a recognised company by then and began getting projects in BJP-ruled Gujarat as well as national projects.

The Zoji la loss notwithstanding, today the Mhaiskars are among the leading infrastructure magnates in the country. IRB is the top company as far as BOT projects are concerned. And now the Mhaiskars, through MEP, even have a collaboration with a group like Sanjose that is behind mega projects like the Louvre Abu Dhabi Museum, the Alain Hospital Abu Dhabi, the Kathmandu International Airport, the Stretch Contretas Reservoir in Valencia and the stations of metro line 1 of the Navi Mumbai Metro

Both Gadkari and the Mhaiskars have come a long way on this road.

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