THE 'SAVE KERALA' INITIATIVE

THE 'SAVE KERALA' INITIATIVE

Saturday, December 09, 2006

Exporting suicides

It is a sad fact that Kerala has the highest suicide rate in India. A friend of mine once speculated that the Malayalee is a unique creature prone to caving into peer pressure which forces people to resort to extreme measures in desperate times. Any doubts surrounding that idea should have been repudiated by Lee Ban Seen, a Malaysian contractor, who committed suicide this past November and attributed his death to delays in the Kerala State Transport Project (KSTP) in a note he left behind.

Ever since Lee Seen's suicide, the state machinery has shifted into a blame game. It began with the CM, Achuthanandan, blaming the previous UDF government for leaving "scope for corruption through a clause on payment of Rs. one lakh compensation per day for delay if the required land for the work is not handed over."[i] Following him, Finance Minister Isaac Thomas claimed that the state government was not responsible for the project delay, so there was no veracity to the allegations that Lee Ban Seen had "committed suicide due to a delay in the payments". He also singled out the PWD Minister M K Muneer from the previous UDF regime alleging that "Muneer cannot absolve himself of the charges as serious financial irregularities have taken place during his tenure like awarding tender at a much higher rate and realisation of liquidated damages",[ii] to which Muneer retorted that the project and procurement procedures was signed by the prior LDF government headed by E.K. Nayanar and accused Isaac of raking up the issue to create a distraction. Isaac then shifted his ire on the contractors "attribute[ing] the problem to "cash crunch" and "poor" management of the Malaysia-based Pati Bel Company that was given the contract for the work."[iii] In a reaction fit for Shakespearean irony, two of the three major contractors terminated their contracts three weeks after Lee Seen's suicide.[iv] Isaac now estimates that the project originally estimated to cost the exchequer $81 million or Rs. 388 crores, would now cost the exchequer more than 500% as much at $417 million or Rs. 2,000 crores. On the surface, it's hard to tell whom to blame and where the fault lies. Our collective experience with both contractors and politicians has taught us to trust neither. Yet, that is not the case here. A variety of direct and indirect sources point the finger quite clearly at long-standing flaws in the system and more directly at both the LDF and UDF governments.

The KSTP project was conceived in 2002 in the midst of a fiscal and infrastructure crisis in Kerala. Motor vehicle traffic on Kerala's roads had been rising annually by 13% since 1990. However, 70% of the State Highway roads remained single-lane (3.8 meters wide) roads and the rest were merely dual-lane roads (7.0m) with limited shoulder space. By itself, the limited space at worst contributes to traffic jams and inconvenience residents and businesses. To make things worse though, less than 70% of Kerala road network's annual maintenance needs, which are estimated at $50 million, are met by the PWD's slim budget. This gap contributed to a substantial backlog of at least $100 million in overdue maintenance expenditure. As a result, Kerala is also infamous for one of the highest accident rates of any state in India at 2,500 deaths annually. Loss of life and property cause an estimated loss of $100-200 million per year, or the equivalent of 1-2% of Kerala's annual GDP.[v] Ordinarily, such infrastructure needs would have remained unfunded. But, after years of unmanaged government expenditure and economic stagnation, Kerala's fiscal crisis forced it to look outward to make up for the gap in funding, lest it grew larger as the PWD's budget grew smaller.

When the World Bank was brought in, it was keenly aware of Kerala's fiscal crisis. For the past decade or so, Kerala's government expenditure had outstripped its revenue both in absolute size and growth. While total revenue grew annually during 1993 -2002 at 11%, total expenditure grew by 13%, taking Kerala's fiscal deficit from 1.4% of GDP in 1993 to 4.5% of GDP in 2002. Faced with an over-stretched revenue base, the government took on additional debt to finance this deficit. But, at a debt/GDSP ratio of 32%, Kerala's debt burden was considerably higher than all of the southern states (AP, TN and K) as well as the Indian average of 24%. On a per capita basis, Kerala carried Rs. 7,414 of debt, placing it in significantly more danger than the next worst southern state, AP, at Rs. 4,724 and the Indian average at Rs. 4,996.[vi] Needless to say, the WB was particularly concerned about the Kerala government's ability to pay its dues, which it termed "Fiscal Strain", and went so far as giving the government a prescient rating of "Substantial Risk".[vii] The only other risk that WB rated as worse was GOK's ability to pay them on time. The WB's answer to all these risks was to place its funds in a separate account "outside the treasury system", which were to be "available to the project in advance, on a quarterly basis from the State budget, on the basis of cash forecasts."[viii] In hindsight, the WB is probably kicking itself in the shin for not doing more.

After a thorough analysis of these and other factors, WB agreed to lend GOK a loan of $255 million with the tacit, and for some reason, inexplicit understanding that GOK would contribute around $81 million on its own. Interestingly, while the loan agreement expresses scope for GOK to put up its own money to the extent that it is "required" to complete KSTP, it never binds GOK to a specific amount. Although GOK presented a plan to put up additional funding to support the WB initiative, it never committed to this amount legally. So, in theory, the total project funding came out to $336 million while in reality, the actual funding could have been as low as $255 million. Moreover although the project was secured by the WB, in practice, the project was managed by the PWD. Understanding this gap between financing and management is the first part of understanding the KSTP fiasco.

The second part of disentangling this mess lies in understanding why the costs of the project ran up. Signs that the projects was running into delays were evident as early as November of 2005, when Muneer publicly admitted costs increases in the project of around Rs. 500 crore, bringing the state's share of the project to approximately Rs. 888 crore, or $185 million.[ix] However, he also stated that the project's costs overruns would not exceed Rs. 2,000 crores as rumoured. Five months later, however, Isaac announced that the project would end up costing the state "roughly" Rs. 3,000 crores to complete.[x] This proved to be an overestimate as he revised that down to Rs. 2,000 crores more recently. While Isaac claimed that the cost overruns were not due to the lack of payments, his views appeared not to be shared even within his own government when the PWD Minister T.U. Kuruvilla admitted a few days later that there had been delays in land acquisition. That the Kerala government's record on acquiring land is notorious is nothing new. However, no one foresaw that its ineptitude in this matter would drive the project to a halt. Upon examining his allegations, one is forced to conclude that Isaac was simply dodging the blame.

Isaac's first claim was that "irregularities" in the procurement procedure had resulted in expensive bids and contributed to the cost overruns. Even if we grant Isaac that logic, the fact is that the bids were no more or less expensive than typical road projects. As the table below shows, on a per kilometer basis the winning bids for KSTP were by no mean exorbitant or unusual, unlike what Isaac claims:



Isaac's second claim, that cost overruns were the result of PATI, the Malaysian contractor that hired Lee Seen, experiencing financial difficulties due to internal mismanagement is just as ludicrous. While PATI's public financial records show that its corporate parent, UEM Builders, incurred a loss of $76 million in 2005 in its Construction & Engineering division, the PATI-BEL is involved in at least one other project in India currently, which is reportedly proceeding without any delays. And if that is not enough to repudiate Isaac's allegation, it should also be noted that Road Builder, a financially-healthy contractor, also pulled out of the project citing lack of payments. So Isaac's claim that the cost overruns are due to financial mismanagement on the contractors' parts is not only incoherent, but also incorrect.

In the end, one still has to ask what compelled Lee See Been to the extreme measures he took? Some have speculated that it was the debt that Lee Been took out from domestic banks to pay his workers' monthly salaries when proceeds from the government were not forthcoming. But, I find this hard to believe because no reasonable manager takes out personal loans. In all likelihood, the loans were made out in the company's name. At worst, Lee Been could have lost his job for misplacing his trust in the government's financial solvency and desire to pay his firm. However, considering Lee Been’s flawless reputation at his workplace, that was also an unlikely possibility. So, if you rule out the financial reason, what remains?

I believe what drove Lee Been to the end of his wits was the political element, which is the third and final key to understanding the KSTP fiasco. A lot of evidence points to the fact that Lee Been was driven to the end of his wits by the political apathy and constant bureaucracy he had to face. But, it was Gouridasan Nair's piece in The Hindu that gave me the final clue. In his article, Nair concludes that the Finance Department, which was compelled to pay expenses owed by the PWD, "will be able to do so only if it is able to keep the PWD on its side, particularly given compulsions of coalition governance."[xi] Coalition governance - it's a word with different shades of meaning. In recent years, India has witnessed a massive change in its electoral dynamics from single-party governments to coalition-based fronts. So, most people are used to hearing about coalition politics, fractured policies and delayed implementation. It's the price one pays for participating in as diverse a democracy as consensus in a coalition government is fleeting and temperamental. However, there is a considerable difference in governance theory between day-to-day management and policy setting. The former is the business of running the state machinery and that includes infrastructure maintenance. The latter is the business of charting out its future and foreign policy. Maintaining roads requires no vision. It is a mundane job, best handled by technocrats and not politicians. So although we are used to hearing law bills and policy initiatives being delayed on account of politics, we remain optimistic that the daily affairs of governance remain untouched. And that's where reality bids goodbye and Kerala begins.

You see, regardless of GOK's financial duress, the KSTP was doomed from the start because it was handled by the PWD, an ill-equipped and poorly managed institution. Even the WB noted "problems with the [PWD’s] organization structure, administration, delegation of administration and financial powers, overstaffing, development and staff training." Although it's political blasphemy to compare a state department to a corporation, the reality is that infrastructure maintenance is a job that requires expertise in financial and management skills. And just as you let the inventory and capital expenditure guys in a company manage maintenance expenditures, so should the job of maintaining Kerala's roads be left to the experts. Which brings us to the question of what is the PWD if they are not experts at managing roads?

As part of its appraisal report, the WB conducted an evaluation of the PWD and came up with an alarming assessment. As it states, "a preliminary institutional audit of PWD highlighted gaps and deficiencies in several areas, including road development and maintenance planning, road safety, quality control, financial management planning (including delays in payments to contractors) and transport coordination." Need we a better indication of where the KSTP experiment would have ended? A department whose leadership structure changes with each outgoing political party cannot be trusted to act independently or accountably.

But as the WB saw it, there were several promising mitigations to the inherent risks. First, GOK had drawn up a Road policy to "rehabilitate roads…in a phased and timely manner". Second, GOK had created a State Road Fund that would "seek to generate user charges through road tolls and dedicated fuel levies." The third promising development was the establishment of a Road and Bridges Development Corporation of Kerala, "to raise funds through loans, shares and borrowings" in order to maintained selected parts of the road and railway network. Lastly, the PWD was drawing up an Institutional Strengthening Action Plan (ISAP) to develop its technical, managerial and financial capabilities with the help of an Australian engineering consultancy, SMEC. Were these measures enough to breed success?

Well, hindsight is always 20-20, but I believe too many concerns were swept under the rug by the WB in the beginning itself.




What the KSTP saga demonstrates is that Kerala currently does not have the management skills, capacities and efficiencies to handle large infrastructure projects. Therefore, financial institutions including the WB, who are best placed to effect change, must insist on reform prior to loan disbursement. As the events of the last year and more have shown, the Kerala PWD department is in dire and quick need of organizational reform to make it autonomous and independent of the political regime. Infrastructure maintenance after all is a public need, not a policy option.

In this regard, the WB could take a leaf out of the Asian Development Bank’s (ADB) book. In 2001, the ADB loaned $250 million to the Maharashtra government exclusively to pursue reform in its public sector undertakings including the state PWD. Among the initiatives to reform the PWD were several key elements aimed at enhancing the agency’s independence and efficacy: 1) separation of regulatory and operational functions 2) empowerment of implementing agencies and 3) social security net including VRS scheme for redundant PWD workers.[xii]

In the movie Sandesham, Satyan Anthikad has Thilakan tell his wayward children, "First fix your house, then fix society." It's advice that could have served the World Bank and the State Government well. Sooner or later though, there won't be any Lee Seens left around to pay for their mistakes. By then, no one will trust either organization in Kerala.


Notes:
In the interest of simplifying conversion rates, I used the USD-INR exchange rate of Rs. 48 per $1 used to assess the project cost in 2002, throughout this article.


Sources:
[i] “Kerala Govt not to withdraw corruption cases:CM”. newKerala.com News. November 22, 2006.
[ii] “Road project controversy; Kerala FM blames former PWD Minister.” The Hindu, November 28, 2006.
[iii] “Minister joins issue with opposition on KSTP issue”. PTI. November 23, 2006.
[iv] “Road Builder terminates RM112m Kerala project”. The Edge Financial Daily, November 24, 2006.
[v] World Bank appraisal report.
[vi] Kerala Economic Review 2003.
[vii] The appraisal report rates risk on a scale of High, Substantial, Modest and Negligible in order of declining risk.
[viii] World Bank appraisal report.
[ix] “Kerala: second phase of State transport project from January”. The Hindu. November 11, 2005.
[x] “Kerala's financial position grim, says Minister”. The Hindu Business Line. May 23, 2006.
[xi] “Finance Department's intervention a crucial turning point for KSTP”. The Hindu. November 25, 2006.
[xii] Technical Assistance to India for Preparing the Madhya Pradesh Road Sector Development Project. Asian Development Bank, October 2001.

24 comments:

Sachin R K said...

A very well researched post , Abhishek. Agree completely with your conclusions.Its always best to leave any job to the experts. However, in a heavily politicised system like India - where contracts are awarded more as rewards based on 'other' considerations - not sure this will happen soon.

Maveli Keralam said...

Abhisek, congratulations, your thorough analysis takes the reader to see what you wan them to see. It is the ridiculous Kerala phenomenon, that the politicians who administer changes in the changing world scenario do not deem it necessary that they should first of all be the agents of changes. The question is can we continnue like this? NO.
prasanna raghavan

Anonymous said...

A private victory over international capitalism was managed by patriotic Kerala bureaucracy when they eliminated an agent of international business by driving him to suicide. He had the audacity to demand waiver of bribes! The fate of the Malaysian would befall any international contractor that thinks he can get away simply because he has bribed the multi-lateral banks at the consultancy stage. I congratulate Kerala bureaucracy and salute their patriotism and socialist fervour. The Malaysian's suicide is a strong enough message from the officials to all future contractors.
Congrats to our Engineers and clerks once again.

sJ said...

Great post.
I dont remember any one highlighting the inefficiency of PWD in executing any project as the major problem in all these or our states bad bank balance as much as the mud slinging by politicians.
Thanks once again for making it clear.Iam no economic whiz.

So what can be done? Cannot vote out a new govt and there is no use of relecting the present oppostion any way.An economics prof as finance minister wont help? !!!!!!
Get a stint of presidential rule?that chap's sure to know things atleast when its put to him even if he is no economist.I heard he was good in administrating Vssc and Isro.

One reminder though.Land acqusitions in kerala can be really tough.I still remember a single building standing right in to the road, blocking widening at the Kadavanthra - south bridge section of kochi metro for years.Dont know what has happened now.

Sorry not to see any solutions proposed.Hoping to hear them soon.

abhishek said...

@sachin

Thanks. I don't believe it was the contractors to whom contracts were awarded that was the problem. In fact, there was very little scope for corruption in awarding tenders as the tender process was conducted under the IBRD's eyes and IBRD regulations, which are internationally recognized, in a secure website.

It was purely the nonsense that was carried on afterwards. I'll explain more in my reply to sj's comment.

@maveli
Thanks. Exactly. That was what I wanted to convey.

@sj
Thanks. Actually, I did outline a solution for the problem - organizational reform. This should insist on depoliticizing the PWD and corporatizing it. So, as a first step, the PWD should be made a corporate company with each Kerala voter having a share. Then, the agency should have the freedom to draw management from the private sector with more comprehensive management and financial skill sets. The post of the PWD minister should be removed completely. It is a useless post and actually detrimental in that it drags politics into the situation.

abhishek said...

@anonymous

Hope you are being sarcastic. Something in the tone of your comments tells me you are.

Jiby said...

abhishek, reading this post was like watching the malayalm film, vellanakalude naadu once again right before my eyes. it is so depressing that the men we have at our helm have absolutely no vision, planning and organisational acumen...like the movie sandesham you mentioned and what the adb advised maharashtra, the govt needs to start by revamping the pwd.

with our media and people so focussed on the wranglings in the state govt, important issues like these keep getting glossed over...how long can we continue like this. in the meanwhile the traffic and the reckless driving on NH47 is all leading to a total breakdown of the kerala economy.

abhishek, superb post...i really feel priviledged to be leaving a comment here to this peice from you...i wish the journalists, editors and proprietors of our famous papers like manorama, mathrubhumi and kaumudi read your article and realize how much their standards have fallen.

PCM said...

Excellent post. But, will we ever learn a lesson from whatever happens? Our pseudo-intellectuals who pose as the treasure house of all knowledge will not accept the truth. After decades of struggle in their political wing, some of them somehow become ministers, and then onwards, they pose as the encyclopedia of everything related to their ministry. No one else knows more than what they know. Then, how can they entrust any job to the ‘so-called experts’? Even MS Swaminathan will have to toe the line of the Minister for Agriculture or he will be taken to task.
The government policy is very clear. Suicides are an everyday affair now. The government sees nothing new in it. If farmers commit suicide, it is because of their inability to manage things. The relatives of the dead will be ‘promised’ some compensation conditionally. The best contractors are those who know how to manipulate things. The weak-minded and the truthful need not come into this field.
Abhishek, you may send a photocopy of your findings to all the ministers in Kerala and I am sure that no one will either understand it or send a reply.
@maveli keralam. Change? What do you mean by that? The politicians in Kerala are always opposed to all such things. They will resist anything that appears progressive.
@jibi. You have cracked the greatest joke of the year. Will any of the Papers in Kerala publish such a post? Never. They have their own unique agenda of appeasing those in the government. They make merry with half-truths and concocted stories. We could read this article only because it is a Blog. Thanks for Bloggers.

abhishek said...

@jiby

Thanks. That's the best compliment I've received. Sadly, most journalist take news reporting too literally and believe they are only supposed to "report" events. Where are the Bob Woodwards of Kerala?

Vellanakulade naad is one of my favourite movies. Isn't it ironic that issues were relevant in the 80s are just glossed over now? I think after the Gulf Rush, a few people came home to invest to their chagrin and those movies related those experiences. Nowadays, no investors except retail centers would turn an eye at Kerala. It is an uphill battle.

@PCM
In all honesty, the facts that I presented are not my findings. It is only the sum of those facts and conclusion it reveals that is my own. I think that our government doesn't need to be corrupt in order to mess up projects. It just needs to be inept and willfuly blind to the truth. Hopefully, the public has grown up and is able to discern the truth.

Revealed said...

Wow! And from this I think can be extrapolated a lot of information about Indian Govts in general and not just the Kerala one.

There's an old Chinese story about the young man who wanted to change the world, who subsequently became the old man who on his deathbed wished he'd thought of changing himself first. Food for thought, methinks.

sJ said...

@
Abishek- "the PWD should be made a corporate company"

Why?
Among its other functions its the one supposed to uphold the govt AKA people's well wishes in all the construction works funded by govt.So if u make it an independent corporation another one will be established to monitor pwD.PWD is an agency doing the road maintenance as well.

The lowest tender gets the contract for work.Its conceived and planned by the pWd engineers.Once the tender is given then pWD is the pure technical supervisor and it also unfortunately is involved in land aquisitions I believe. So Pwd becomes the orginator of the work and tech supervisor. How the work is done - management - is for the company who takes the contract. Time management and personnel management is their portfolio. Ofcourse PWD can be a pain in the contractors neck .It is supposed to be exactly so in a good sense when it was conceived.But things are taken to exreme and bribery is rampant.

Next problem is Money.This is given by govt.From PWD fund given each month or quarter by govt, which project gets their bills cleared is determined by PWD top Brass/ political involvement.As money is scarce, there is a big chance for palm greasing in all these. Had it been a rule that money is available at a particular rate thru out the project , part of this can be avoided.failure to complete a project never falls on PWD, its a tech body.
If PWD is made an independent corporation and If I have a share in it, I would advice them to stay away from any govt tenders as its going to be a real money loser.Only unscrupulous -that too cut throats can make any profit in a govt project.There are a number of govt contractors who have gone bust. There are some who have flourished - and big time.But still majority have been hit hard.I have no stats but u may get it from govt contractors associations.(same as in 'Vellanakulade naad")

Ernakulam - ALUVA 4 line highway was done by a big company and the rumor was that a private(TCS)consultancy was the overseer. Its was finished rather fast.

Work is progressing in MC road -Angamaly to muvattupuzha. 50% is over when I went last time. There will be frantic work going on for a few weeks were a few kmS will be completed and then work will stall for months.What was heard was that there is no money from the govt and hence work is being done at a "when available basis".You can see the ground marked for the road and machinery sitting on road side but no work going on.(there was no workers strike as well ).It was so frustrating to negotiate thru the pot holed unkept road when you are allowed to ride smoothly thru short segments of completed road. It was like "this is what its going to be but not yet, you have to wait a lot more ".
I dont think thats gonna change with making pwd acorporation.
There was a news in todays news paper.Govt taking 400 crore overdraft to pay off salary and pension and ofcourse debt dues for the month of december.Govt exchecquer will be wiped clean on dec 19 again despite these .
" Just dream on about super highways , better infrastructure and jobs at home- at least that does nt cost more than a valium at night"

Chacko (Kerala Geek) said...

Abhishek, it was a well written post with lot of facts. Thanks.

But I would like to point out something which I feel is missing from your post.

You pointed out many problems with PWD. But the biggest problem with PWD is corruption. The department and its employees are used to getting enormous amounts as bribe from local contractors. Now suddenly when things get professional like giving it to a good company, they want to fail the project.

The roads repaired or built by local contractors won't even last 1 month. Can you believe it?

Now the second problem is land acquisition. If you just see even the new roads completed in Trivandrum, you will be surprised to see that there are no footpaths in many places. This is simply because government lacks the willpower to acquire land.

Thirdly, there is the issue with enviornmentalists. I care for enviornment a lot. But I don't understand why the trees should not be cut when the roads need expansion? Is trees more important than people who die in accidents? Vellayambalam road in Trivandrum is a case which illustrates this problem.

In short, even if the project is completed smoothly, roads will not be developed as needed for the future!

MC said...

first of all, apologies for not being able to read and comment earlier.

this was absolutely fabulous and well-researched. just was amazed by the numbers.

this whole saga shows us the mess in which kerala is in deep within. there is no "ownership" or "responsibility" for ANY thing in the state. its just passing the buck and in the process ensure own gains. this is notable even when you go to a corporation office or the KSEB office. they just make you run around in circles even if its the most simplest procedure. and the PWD and KSEB are among the worst organizations in my personal opinion.

i think most projects in the state are in a similar state as the KSTP. the capital development project by PunjLloyd is another example where nonpayments have resulted in collapse of work.

so as much as the politicians are to blame, the bureaucracy also needs to be revamped. currently for every thing, however silly, the officials behave worse than politicians. and for most things we have to go through the local councillor or the mla or who not.

the solution lies in how we can delink our stinking politicians from these processes. its very obvious how deep the political tentacles have gone in when you look at the portfolio divisions in a minsitry. theres always a big fight for the portfolios that have big money in them. the current idea to unionize the IT sector is also purely monetary.

the change may only happen slowly..with a change in mentality in each one of us. when that happens our leaders will also be forced to think in the right direction.

PCM said...

@MC
Signs of the politicians in power biding the time without doing anything worthwhile are already visible. The KSTP is just one example. The news is that the DIC is being driven away from realizing the Smart City Project. One sponge iron factory near Malampuzha has been waiting for Govt. sanction for the past four months after completing the construction. It is a project worth 800 Crores, the Govt. & KSIDC have shares in it. The argument is that it will pollute the Malampuzha Dam. The Pollution Control came to know all about it only after the whole construction was completed!
The confusion that arose over the epidemic that was termed ‘Chikungunia or not’ was legendary. Now comes the ‘injection malady’. Nobody knows what happened, but the CM is prompt in announcing that all this is the result of what the UDF Govt. did six months back.
More than 40 University Exams were put off incessantly during the last one month, apparently for no reason other than the inconvenience of some student leaders. Refer:Exams Postponed at Thoughts on Kerala (vide: blog at keralavachas.blogspot.com)
How long can a Govt. go on blaming the previous Govt. for their own inefficiency?

PCM said...

here is the link to
my post

abhishek said...

@sj

"So if u make it an independent corporation another one will be established to monitor pwD."

There is already a ministerial committee to monitor KSTP on top of PWD and look what happened. Independent corporation don't need other agencies for effective accountability. Look at the Election Commission of India. It is a perfect example of an apolitical agency that is constitutionally empowered and its only accountability is to the people. So would be a corporate PWD. A corporate PWD would present quarterly fiscal reports to the public and be answerable to research institutions, universities, High Court and ultimately, the people themselves.

"Time management and personnel management is their portfolio. Ofcourse PWD can be a pain in the contractors neck .It is supposed to be exactly so in a good sense when it was conceived.But things are taken to exreme and bribery is rampant. "

Yes, you have to outsource contracting to private contractors and that's what the PWD currently does. But, due to a lack of accountability and appropriate management skills, it is inept. Corporatizing the PWD would involve setting management wages to performance metrics (success in acquiring land, repairing so much % of the road network etc). The PWD could also then compete for high quality managers who currently work in the private sector.

If you want an excellent example of a PWD that does work, take one look at Sreedharan's Delhi Metro Rail Corporation. It is also, by the way, a corporate agency.

The only reason why the current PWD and other government agencies can get away with what they have been able to get away with, is because they are not accountable to the public. Do you realize that the very corporations that people accuse of "bourgeosie" culture are at least accountable to their shareholders, in that they have to present ther financial condition, cash flows, income, expenses to the public regularly? On top of this, they are answerable, literally, to the public in earning call conferences. And if they answer vaguely, you can be sure that research analysts will pick on that and write about it in their reports. To be fair, corporate companies have had their share of scandals, but that has been because their shareholders have not been attentive enough.

With 20 million shareholders, the PWD has no chance in hell of running covert operations. You know what else you could do if these agencies were truly made public agencies and constitutionally empowered? You could take them to court in the interest of public litigation. Right now, you can only take individual public officials to court. In all honesty, I find it very hard to belief that only the PWD Chief Engineer (who has been the only casualty of this incident) was responsible for slowing down the project. If more are involved, how could the public take action against those concerned? Well, you take the whole agency to court...and the skeletons will find easier to fall out the cupboard.

"Had it been a rule that money is available at a particular rate thru out the project , part of this can be avoided.failure to complete a project never falls on PWD, its a tech body. If PWD is made an independent corporation and If I have a share in it, I would advice them to stay away from any govt tenders as its going to be a real money loser.Only unscrupulous -that too cut throats can make any profit in a govt project.There are a number of govt contractors who have gone bust."

Sj, you should read the World Bank disbursement procedures to understand that palm greasing is not an issue of money scarcity. Suppose I, the World Bank, were to put Mr. X at the head of an agency and hand him $y million at a time and tell him the following:

1. "You are going to get $y million each quarter for five years"
2. "You have the responsibility of disbursing these funds to the private contractors"
3. "We will check on your situation in two years to see where you stand."

Effectively, you are saying that the only people watching over their heads are themselves. The WB disbursed funds to the PWD directly, so if you say that the PWD is only a tech agency, what does that mean? That they are supposed to know how roads are built? No, because that's what you have private contractors do. All the PWD is supposed to do monitor the quantity and quality of the work done and pass out funds from the World Bank as and when work is done. But if you tell them, that they'll hardly be checked for how they do it, you leave scope for corruption.

Private contracting is not an inherently loss making business. You said that if you were a private shareholder, you would advise the company not to take up government contracts, because it is hard to make money off them. I disagree, because if that were the case, then private contractors all over the world would not touch government contracts. Yet, it is exactly in government contracts that private contractors stand to make the most money because they can take advantage of economies of scale. Anywhere you have a large road network (and in most countries, road networks are publicly managed), private contractors can make money off large contracts. Otherwise, they have to contend with smaller construction projects for the most part.

The biggest difference between our part of the world and other parts of the world as far as private contractors and private shareholders who would behave as rationally as you, is that there is no accountability in our part of the world. Why would a man like Sreedharan (who is a Malayalee for God's sake!) ever want to work for Kerala, even if he were invited to (which he wasn't)? He knows that currently, the PWD like so many other government agencies who should be unaffected by political processes, are running at the whim of politicians. And wherever that happens, there is the scope for corruption.

"What was heard was that there is no money from the govt and hence work is being done at a "when available basis"."

This is hearsay at best, and even it can be believed, what does that mean? That they burned through the World Bank funds? That's impossible considering that the World Bank has at least another $100 million to disburse. Or that they don't have anymore of their own money. That they've been recklessing their tax revenues on salaries of government employees, including and this is important to note, that of PWD employees.

"I dont think thats gonna change with making pwd acorporation.
There was a news in todays news paper.Govt taking 400 crore overdraft to pay off salary and pension and ofcourse debt dues for the month of december."

I disagree with that assessment. Do you realize that if the two contractors take the Kerala government to court, which they haven't ruled out, they could charge the exchequer for crores of losses they had to suffer? All because the PWD was not accountable. If corporatizing the PWD will make it accountable, what's the harm? Your argument is that, the situation is bad, and this solution doesn't solve it completely. My argument is that the situation is going from bad to worse and this solution prevents it from going there. It gives the government some breathing space to bring in some much-need tax reforms, employment reforms (we have too many people getting paid by the govt. for doing next to nothing) and other fiscal reforms.

When the first surgeons want to cut up human cadavers to learn more about the body, people squeled and thought it immoral. If it weren't for their initiatives, many of our current medical advances would be unknown. It was all because they could monitor the insides of the human body that they could solve its problems and prevent illness. Right now, there are illnesses all across Kerala government agencies and the only to correct them is to cut them open and reveal their inner workings to the responsible public.

Babin said...

Great Post Abhishek. Expecting similar well researched posts from you in the future..

Being an auditor myself,I wish there were multiple levels of Audit oversight on these projects.
PWD should have its own internal audit function (reporting to an independent audit committee or to the legislature). CAG should also conduct audit oversight over PWD as an external auditor. Additionally, World Bank's audit function should've been looking at the expenditure of their money. Together, if they were to conduct near real time audits on costly projects such as KSTP, it would serve as a strong deterrent for crooks. If the crooks are to know for sure that a project will be scrutinized by various parties in a timely manner, only really stupid crooks would want to put their hand in the pot . Since there will be multiple audit oversight layers, all odds are against them.
But unfortunately, the currant situation is very pathetic. Currently as far as I know, there is no internal audit function under PWD. Even if CAG were to audit this project, it will probably take 5-10 years for the final audit report to come out! and even if the report came out, it is upto the politicians to order a criminal investigation which may take another 5 years to wrap up. and I doubt if World Bank cares or have the resources to do audits in India.

Anyway,as you said it, Organizational reform/Institutional strengthening is the way to go. Making PWD a corporate entity is a bold Out of the Box approach. I don't know that if that notion will be practical in kerala for the foreseeable future. We could probably come up with a hybrid organization structure similar to cochin/trivandrum development authorities but little bit more financially independent..

abhishek said...

@Babin

Yes, auditing is the first and foremost priority.

Since you are an auditor, how much do you think it would cost PWD to hire an auditing/accounting agency?

Babin said...

@Abhishek, I take that back.. I was going through the PWD code today. It seems there IS an audit office within the department. I don't know how robust is its operations though.. Judging by the department's performance and reputation, obviously they are ineffective. My guess is that they are understaffed and may not have true independent authority.

It is hard to assess PWD's audit staff needs from where I am. General principal is as long benefit outways costs, go for as many controls. I think, if pwd handles $100 million contracts/year, it should spend one million on audit/quality assurance professionals. It make sense spending even higher considering the amount of corruption in the state/country.

sJ said...

Abishek,
I am sort of ignorant as far as economics and corporations are concerned -My expertise is altogether some where else.Hence,sorry if the comment was very constructive to the issue under discussion.The idea of share holder audit and holding officials to task is very heartening things.But is there a system like that already in existence for PWD? CAG and internal audit systems exist it seams.Again a hearsay but Iam sure of CAG.Why doesnt it work? Every 2 years BAlakrishna Pillai is produced before court in relation to some scam( Pipe for water authority) and karunakaran is planned to be brought there for palm oil issue. Things have nt changed.they both get reelected.Ofcourse - not guilty until proved hold good even for them.

Election commission:
No one ever heard of it till seshan came in.At least I never heard.Now people know whom to complain to in the event of election offences.Hence the effectiveness of the subcequent work of that office.

Corporatising PWD may end up like FACT,TELK and Keltron.I agree completely that its lack of accoutability that is the problem.But I was not sure its corporatising thats needed.As I read other responses I guess the answer would some thing like a chap of Seshans caliber heading the accouts and auditors office. CAG I believe is a very powerful office but the public hardly knows that officer and rarely hear his voice despite the hues and cries of so many corruption allegations.

Again about the PWD.
Like all other govt ofices its inefficient due to the inefficiency of its employees. No incentive for good job or timely job. If u will be paid inspite of actually having any work in your office who will be bothering to work let alone care about time.

Its eficiency of existing system thats to be achieved - as has been pointed out in the discussion here.

And it all boils down to the attitude of people - a vicious circle there.
Things are probably changing.With the new right fot information act, if used well would help the public to hold the erring ones responsible.Once the fear of being accountable gets route corruption will decline. Pace of change may not be good for our liking but is coming .I have to admit that despite being a pessimist.

sJ said...

Oops....quite a few spelling errors.Forgot to edit before hitting "publish" icon.Pardon me.

abhishek said...

@sj

"And it all boils down to the attitude of people - a vicious circle there."

While it is true that the attitude is indeed poor, we can't leave the problem at that. Because if we tell ourselves that it all boils down to the attitude, we won't find any solution. Because the truth is, as you put it correctly in the same breath, it's a vicious circle.

And the circle is that people are not accountable for their performance. So, they do not perform. Lack of performance creates a void for corruption. And corruption creates even less incentive for performance.

How do we break this circle up? We have to stop at the top. The Chief Engineer is currently politically appointed. That has to be stopped.

"But is there a system like that already in existence for PWD? CAG and internal audit systems exist it seams."

The issue with internal audit systems is that because the reports are issued internally and to the government, there is still scope for corruption and wide gaps in reporting.

For example, you can define the scope of internal auditing to be very vague and general so as to make it very easy for a very influential person to hide illicit transfers of funds.

But when the auditing is public, you can ensures that the scope of auditing and subsequent reporting specific is very detailed.

At the end of the day though, corruption is not the only thing that can waste money. Because the WB was able to note the delays in the PWD's track record of paying contractors, I believe those delays were more due to ineptness. And this may seem surprising because transferring funds wouldn't seem that difficult a skill to begin with. But, financial management skills are not that simple especially when it concerns combining funds from foreign sources that are periodical disbursements (World Bank funds) with ad-hoc payments from a debt-strapped government.

Are these signs of a financial crisis? While I have no direct evidence, I think there is enough indirect evidence to suggest a strong link there as well. I believe that that in the months and perhaps years to come, we will find the government playing a lot of financial engineering, euphamism for unsustainable ways to meet payments including taking high-interest bank loans, foreign aid etc. to pay its various obligations. This will push the government even further to the brink of insolvency.

I both fear and look forward to that day, because while insolvency is incredibly painful in the short term, it often provides the impetus to push through much needed financial reforms. I just hope that there is enough leadership to ensure the latter.

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Raju said...

not a good news for a highly literate state - already alcoholism is very high - added to that crimes now - deadly combination - Govt should tackle both by proper propoganda and counselling the youth -

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