Stop PPP projects, shift to cash contracts: NHAI to govt

September 25, 2013

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Dipak Kumar Dash, TNN |

NEW DELHI: With few takers for road projects, the National Highways Authority of India (NHAI) wants the government to stop bidding out road projects through the public-private-partnership (PPP) route. Instead, the authority in a recent communication to the highways ministry has recommended that projects should be awarded in the form of cash contracts when the government finances the construction and maintenance for two years.

Citing that even the recent move of allowing developers to exit from already operational projects to release their equity has not solved the problem, NHAI chairman R P Singh has said in a letter, “We feel that there is no sense on going on bidding projects under PPP mode until market sentiment improves. Even if we get a bid, the same will be sub-optimal on account of lack of equity with the developers.”NHAI chief has said a large number of PPP projects both under toll and annuity — where government pays back the private players’ investment in installments — have not received any response recently. Singh said once highways are built on EPC (engineering, procurement, construction) mode, NHAI can take over tolling for the next two years since for that brief period the contractor is responsible to fix any defects on the road stretch. Subsequently, these can be bid out on operation and maintenance (OMT) contract where operators are allowed to charge lower toll for road upkeep and to earn marginal profit.

Pushing the EPC mode, Singh has said NHAI has been receiving bids for EPC projects and substantially below the total project cost (TPC). In case of PPP contracts both bidders and bankers have been alleging that TPC fixed by NHAI is underestimated.

To meet the fund requirement for EPC contracts, NHAI chief has said the ministry can allow it to raise higher amount through tax-free bonds and other instruments, besides restoration of the held back cess from fuel sale, which is at least Rs 7,000 crore.

There is, however, no decision on the proposal. On Monday, highways secretary Vijay Chhibber told a conference organized by Ficci that the issue is a matter of discussion between NHAI and the ministry. In his address he said that this year about 6,500 km is targeted for awarding through cash contracts.

The finance ministry said gloom for PPP projects was overdone. Economic affairs secretary Arvind Mayaram said about 50% of such projects are doing well. “Traditionally, we (were) used to paying the private sector to do a job in two-three years after which the relationship ends. Now, the issue is how to manage relationships in post award framework,” he said.

Source – http://timesofindia.indiatimes.com