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One for the road! A practice discouraged

 

India’s ambitious highway development programme lies in a shambles. With major developers pulling out of projects and a few takers due to severe liquidity crunch, the lifeline for India’s economic development is on life support. By Parimal Peeyush
PARIMAL PEEYUSH | Issue Dated: April 14, 2013, New Delhi
Tags : India’s infrastructure | Highways sector | NHAI | GMR |
 

That highways is the lifeline of a developing country is common sense. These roads not only provide the most cost-effective mode of transport, but connect capitals, ports and places of strategic importance and are crucial for trade and commerce. Any government with the basic desire to fuel economic growth would put in place an efficient network of roads on its list of top priorities.

The India story under the ruling UPA II however reads different. Considered to be the most important sector of India’s infrastructure after power, the highways sector lies in absolute shambles. Against its ambitious target of awarding 9,500 km of road length of projects during FY2012-13, the government, through the National Highway Authority of India (NHAI), had managed only 837 km until January 2013.

Earlier this year, two major developers – GMR Highways (a subsidiary of GMR Infra), and GVK Power & Infrastructure pulled the plug on two high-profile road projects collectively worth more than Rs.100 billion. The two projects included GMR’s Rs.77 billion Kishangarh-Udaipur-Ahmedabad project and GVK’s Rs.30 billion Shivpuri-Dewas project in Madhya Pradesh. The exits, as per official statements released by the companies, was fuelled by delays in getting mandatory environmental and forest clearances and issues in land acquisitions. Several other firms who had won contracts with the NHAI for highway development too are either struggling for want of bank loans or are stuck in contractual disputes.
 
Last year, the NHAI had drawn some serious flak from the Comptroller & Auditor General (CAG) for a potential loss of Rs.8.74 billion on account of delays in completion of projects that were meant to connect major ports through highways. The authority also incurred a revenue loss of over Rs.1.27 billion on account of delays in setting up Special Purpose Vehicles (SPVs), the report said, adding that while five of the Rs.31.57 billion projects were incomplete, four saw delays of up to 53 months. “Potential loss of toll revenue, due to delay in completion of PRC projects, worked out to Rs.8.74 billion,” the CAG said in its report tabled in Parliament.

“Investment in road sector has collapsed in FY2012-13, with scant interest in new projects, large delays and poor execution in existing projects,” RBI too said in its macroeconomic review for Q4, 2012. As per the central bank, almost half of the 563 central government infrastructure projects of Rs.1.50 billion and above were facing delays, with a majority of the projects in power and roads sectors. As a result, banks have also become extremely wary and developers are finding it extremely difficult to secure bank loans, which are essential for financing such big-ticket projects.

NHAI Chairman R. P. Singh, however, contests the fact that delays in clearances and disputes have forced developers to quit. “Basically, in our view, as to why they are walking out of these two projects is the change in economic scenario and escalation of cost,” Singh said, while adding that arranging huge private equity is a major problem. As per RBI, the GVK project requires an equity of Rs.15 billion, while that of GMR requires Rs.20 billion. Clearly, the companies have found it impossible to raise the required funds. Singh added that NHAI sympathises with the two major players but was not ready to accept the reasons for termination of contracts as the same are “not tenable”. No stranger to being at the receiving end for project delays, Environment Minister Jayanthi Natarajan denied allegations that delays in getting a green nod is holding up road projects and said there was no delay “even for a day” in granting clearances. Sources, however, inform the magazine that about 20 highway projects are awaiting clearance from the Ministry of Environment & Forests.

“The road construction sector has reached a certain level of maturity. But it faces challenges... Hence, the government has decided to constitute a regulatory authority for the road sector,” said Finance Minister P. Chidambaram in his recent budget speech. The FM further stated that bottlenecks stalling road projects have been addressed and 3,000 km of road projects in Gujarat, MP, Maharashtra, Rajasthan and UP will be awarded in the first six months of FY2013-14. While the FM expects Rs.55,000 billion investment in infrastructure during the 12th Five-Year plan, and 47% of it from the private sector, companies are not as confident. Reason being that many infrastructure investments are stuck at various stages of approvals due to regulatory hurdles.

On its part, the Ministry of Road Transport and Highways (MoRTH) has finalised a proposal for awarding projects under a modified engineering procurement and construction (EPC) mode. “To overcome the economic slowdown in this sector, MoRTH has finalised a proposal for awarding projects under new modified turnkey EPC mode under 100% government funding in cases where there are no takers under BOT (toll) mode,” said the Economic Survey 2012-13, tabled in Parliament. This mode of delivery will also take care of cost and time overruns and the ministry has pinned all its hopes on the EPC mode. Under the EPC model, the government spends the entire money required to build roads so as to attract builders who are shying away from highways projects for want of funds. The Survey also suggests easing exit norms for developers. Detailing steps to boost the sector, it said the NHAI Board has approved formation of an expert settlement advisory committee for one-time settlement of old cases pending in courts.

While the EPC mode is the only hope for the government has at present, only an unlikely-to-occur wave of optimism can increase private investments. With no clear signals of a rebound in the economy, banks having put the brakes on lending to this sector, and no clear intent on behalf of the government to rescue projects, there is actually little hope to rescue the highways in India. [So the next time your car hits a rough patch, you know whom to bless.]

parimal.peeyush@planmanmedia.com

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Issue Dated: Feb 5, 2017