Does it make sense for GBA to rent 46 mechanical sweepers at ₹613 crore for 7 years?

The Karnataka Cabinet recently approved a proposal to hire 46 self-propelling mechanical sweeping machines for a period of seven years at a cost of ₹613 crore. The decision has raised hackles, with many arguing that buying these machines would work out far cheaper.

JDS leader Nikhil Gowda has said, “Though the self-propelled sweeper machines are available in the market in the range of ₹1.13 crore to ₹3 crore, GBA inexplicably wants to rent their services for ₹1.9 crore per year for seven years. This is not bad math. This is math murdered, buried in broad daylight.”

Buying machines preferred

It has now come to light that a 3-member technical committee had recommended against renting sweeping machines. Renting could be considered only as a last option if the civic body is unable to invest capital on buying 46 vehicles at once. However, the Chief Engineer of GBA opted for renting the vehicles.

The Hindu has a copy of the technical committee’s report and minutes of the meeting involving the Chief Engineer, GBA.

The Terms of Reference (ToR) given to the technical committee had three options:

• Buy sweeper machines and maintain them

• Rent vehicles and operations for 7 years

• Buy vehicles and outsource operations for 7 years

The technical committee was of the opinion that buying sweeper machines and operating them, providing maximum flexibility in how they are used, was the best option. The second best option was buying these machines and outsourcing their operations. The committee was of the opinion that renting these machines can be considered as the last option if the civic body did not have funds for the capital expenditure for buying the required number of machines at once. It even said that if the vehicles are rented, the technical specifications of the vehicles and overseeing every machine would be difficult.

GBA decided to rent

However, minutes of a meeting chaired by Chief Engineer, GBA, notes that Boston Consulting Group raised several concerns regarding buying machines and operating them with in-house resources, like ‘high upfront capital expenditure and limited in-house human resources in GBA’. Moreover, introducing upgrades or new services would be challenging if the purchased machines require such modifications. The option would also likely result in long-term O&M issues, ultimately compromising service quality, BCG stated.

“A detailed analysis of various models revealed that purchasing mechanical sweeping machines and outsourcing operations and maintenance (O&M) would be the most economical option mathematically. However, practical experience suggests that government-purchased machines might not be well-maintained by O&M contractors, who may not be incentivized to perform optimally due to limited risk exposure for deviations from Key Performance Indicators. (KPIs). Additionally, the significant upfront capital expenditure in the first year would pose a financial burden on municipalities,” the MoM noted.

In the hire model, the government’s risk regarding enforcement of Key Performance Indicators (KPIs) is reduced, as these can be rigorously enforced. Additionally, this model eliminates the need for upfront capital expenditure, providing a more financially manageable solution for the government, the meeting concluded, though it noted that the ‘cumulative rental expenses could exceed the cost of ownership, and other alternatives’.

‘No significant difference’

However, the government order approving the proposal states that there is no significant difference in the Net Present Value when vehicles are bought by the GBA and O&M contracted out for 7 years, and renting these vehicles for 7 years, to justify renting them.

The document further shows that Patna, Pune, Mohali and Bhubaneswar had leased self-propelled sweeper machines in the range of ₹946/km to ₹1,432/km. The cost finalised for Bengaluru is ₹894/km.