Copies of Agreement
5.14 Audit of Operation, Maintenance & Development and the Collection of Revenue
5.14.1 In PPP projects, the Operation, Maintenance and Development (OMD) risk is
transferred to the private partner since it would be best suited to manage the task efficiently. The Model Concession Agreement (MCA) includes the terms and conditions for the OMD which are binding on the concessionaire.
5.14.2 There could also be yet another type of PPP where the concessionaire is given
an OMD contract to maintain and operate an already built or existing infrastructure facility (highways constructed by the NHAI / State Government, or an existing air port constructed by the Air Port Authority of India) and collect toll or user charge etc. to meet the cost. Private sector participation in the operation and maintenance of infrastructure ‘would require a framework that enables the private operators to secure a reasonable
return at manageable levels of risk, assure the user of adequate service quality at an affordable cost, and facilitate the government in procuring value for public money’40.
5.14.3 According to the MCA, the guiding principle for determining the project-
specific concession period for an O&M contract should be the periodic maintenance cycle of the project highway and should ideally terminate at a point where the life of the previous maintenance work has expired so that fresh investments are left to the next concessionaire. The stipulated optimum concession period is ten years to synchronize with augmentation of capacity requirements, as required. The concession period will take into account the TPC, cost of O&M, taxes and levies, ROI, and the user charges. The public sector partner will have prepared a cash flow statement based on these factors, which must be subjected to close verification during the public audit. The scrutiny will enable the auditor to assess the reasonableness and the justification for the user charges, and the concession period arrived at for contracting.
5.14.4 The quarterly and annual statements of accounts and traffic / user charge
information and other data to be provided by the private sector partner should be verified during the audit for accuracy and faithfulness. The verifications provided by the IE and IA may be used as supporting documents for audit evidence. Public auditors could also seek clarifications and assurances from these functionaries in case of doubts.
5.14.5 The selection of the concessionaire has to be based on competitive bidding, with
all project parameters clearly stated upfront. The usual criteria for such concessions may be followed in the public audit, including the following:
a) Is the bidding process (if the PPP arrangement is for the O&M) transparent and as per established practice? Was the bidder who offered the maximum concession fee selected for the contract? Has the successful bidder provided the required performance security / guarantee in acceptable form?
b) In case the contract is awarded on upfront payment basis, was the reserve price fixed correctly and by including reliable data on traffic demands, likely increases in demand, associated income, cash flow analysis, etc.? Were these verified by independent consultants? Was the NPV of the realizable revenue worked out correctly?
Section V : Auditing Process and Criteria for PPP Audit
c) Is the concession fee subject to annual increase in proportion with the increasing traffic?
d) Was action taken to notify the toll / user charge promptly and without delay? If delays occurred with impact on revenue, analyze the reasons and make appropriate comments in the audit findings.
e) Are toll plazas / toll booths constructed at requisite entry and exit points to avoid leakage of revenue?
f) Have electronic and computerized vehicle counting machines (VCM) been installed at the toll plazas or at other places to monitor the traffic?
g) Is the categorization of vehicles and toll rates fixed correctly and as per rules? Are weigh bridges / platforms in working condition and put to effective use?
h) What is the formula for indexing the user charges in line with inflation? Is it appropriate41?
i) Are there free service lines or auxiliary facilities attached? In the absence of free service roads, are local users given exemption from toll / user charges and are records of such cases maintained for verification?
j) Has the concessionaire carried out annual or periodical traffic surveys and census to check the volume and increases in traffic and revenue? Do the IE / IA verify these surveys and ensure accuracy?
k) Has the public sector partner carried out sample traffic / user survey on its own and reconciled with the returns submitted by the concessionaire?
l) Has the concessionaire submitted the maintenance manual within the given period and are the preventive and regular maintenance carried out as per the manual and specifications?
m) Is the concessionaire remitting the concession fee to the public sector authority on regular basis? Is there a system to ensure the correct accounting and remittance of all revenues due as per the contract? Has the IA verified the Escrow Accounts and certified the accuracy?