Monday, October 13, 2014

Roads infrastructure: Unclogging Logjams by new Government

Strap: Empowering States for Fast Tracking Clearances and Approvals locallyStrap: Focused approach towards EPC Mode for awarding contracts substituting PPP

A Journey of a Thousand Miles Begins with a Single Step. Roads infrastructure is at murky stage with the current backlogs and Logjams of Projects. The newly formed government has tough Roads ahead to put in place correct policies and reforms to overcome the situation. Road sector is crucial for the growth of the economy. Realising this development of Roads Transportation Tops the Priority list of the newly form government. Moreover, as per Business leader it was lack of political will which didn’t allow policies to take off in recent past.

The Indian road sector continued to face multiple challenges in this financial year in the form of high interest rates, sluggishness in award of road contracts, reduced availability of funds, execution slowdown, and increased competitive intensity. However, execution on many of the projects awarded over the last one year remained slow primarily because of delays in land acquisition, clearances, and financial closure.   

Rough Roads

  • 260 projects involving about 60,000 Crore rupees implemented on PPP model are currently delayed due to various reasons
  • From 2004 to 2014, the road making activity has declined from an average of about 20 km a day to 3 km per day
  • 189 projects worth INR 1,80,000 Crore are stuck because of difficulties in land acquisition and clearances
  • Road building cost has increased from INR 5 crore a kilometre in 2004 to INR 13 crore a kilometre in 2014
  • The PPP Model has proved  to be absolute failure  for the sector
  • Since 2009, only 350 odd kilometers have been added to India’s national and state highways

Aspirations are fairly high from the Narendra Modi government who won clear majority in elections. After few days of becoming Prime Minister, he said "A nation that gives impetus to infrastructure, be it roads, rail, airport, that is where chances of development increase. We have to take ownership to build a strong nationBusiness sentiments are improving and corrective actions are being taken to kick off the sector from the prolonged sluggishness.

PPP model of awarding road projects has proved to be complete failure in India leading to dipping down of road construction to merely 3 km per day.  Challenges are many- Overall economic downturn, Lack of equity in the market, Difficulty in arranging debt, Highly leveraged balance sheets for highway developers, Land acquisition & approval and clearance related issues. Blaming the UPA regime for the present situation, the Roads Minister said the previous government awarded projects with ought even acquiring 10 percent of land which resulted in delays and cost overruns. As a major policy shift, it is decided to implement projects on EPC model.

At present, there are 437 projects entailing an investment of around INR 21 Lakh Crore is delayed due to various issues across infrastructure sector. Around 260 Road Projects worth INR 60,000 crore are stuck owing to different issues like clearances and approvals. All efforts are being made to unite Roads and Railway ministries for faster implementation of projects. Also in an important decision, the process of clearance for Roads bridges has now been simplified with online application and NHAI would bear the construction and maintenance cost of the projects. Few of the decisions are:

   MoEF to allow state governments to give permission for sand mining up to 20 hectares as against        the existing norm of 5 hectares 
  State government and regional office MoEF will be allowed to clear linear projects involving forest   land up to 40 hectares 
  National Board of Wild Life approves number of projects falling within 5-10 kms radius of various     sanctuaries 
  Railways to do standardize ROB & RUB designs & to put the mechanism online

To take up the stalled and non commercial viable projects, the NHAI board has given in principle approval for creation of a body i.e. Asset Reconstruction Company which would try to make projects feasible. Indian Banker’s Association has already given their consent as most of the Roads assets are turning NPA’s.  The entity would have two options: - firstly, it could take over the entire project according to the clause of the concession agreement. Secondly, it can take small portion of the delayed work and then complete it. It is a welcome move as it would help in improving the situation of cash starved sector.

There is huge number of ongoing disputes, involving arbitration cases amounting to INR 26,556 crore investments between developers and NHAI. To resolve this NHAI has by now settled INR 10,550 Crore projects with concessionaires. As of now 49 pending claims involving 26 contractors has been cleared (See the Graph).

                                Source: Infraline Research

For ending corruption the Amendment in Motor Vehicle Act is proposed in next session of parliament. Few of the changes would be based out of the best practices of the world like E-Governance. The RTOs would be linked to e-governance to bring total transparency in the system as they are lots of malpractices prevailing which needs to correct.
The government would have to work on the policy framework to assure at least 16 percent Internal Rate of Return for infrastructure projects. This would safeguard the developers from Foreign Exchange fluctuations and boost investment in the sector.

India has to soon embark on next wave of economic growth which will encompass some fundamental shifts in growth model as well as larger and bigger social reach to benefit its vast population. Being one of the fastest growing economies of the world requires physical infrastructure facilities to continue the pace of development process. With the advent of the new Government, firstly, it has to build and expand its key infrastructure to global standards and Road sector has to play major role in this advancement.

         InfralineEnergy Roads Knowledgebase Team


The views expressed here are solely those of the author in his private capacity and do not in any way represent the views of the Infraline Technologies (India) Pvt. Ltd. (organization). The organization is not liable for any use that may be made of the information contained therein and any direct/indirect consequences resulting therefrom.

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