The Akhilesh Yadav government is agonising over signing state support agreements (SSAs) for highway projects in Uttar Pradesh, driving as many as seven ongoing projects to a funding crisis and pushing another 16 to the back burner. The state feels that a certain clause in the SSAs — that no competing roads be allowed to come up near NHAI highways —takes away its right to plan and execute its own projects. In the absence of SSAs, banks have refused to finance the projects further, commissioned between 2009 and 2011 and currently in various stages of execution.SSAs bind the state government to providing land, environment and mining-related clearances, help in providing utility services and enforcing law and order, besides agreeing to the no-competing roads clause.

In the absence of SSAs, the NHAI is also going slow on as many as 16 new projects in UP. A senior NHAI official said the agency was trying to persuade UP to sign the agreement in its talks with state government officials.

“The matter is being tracked at the highest level. Next week, we are meeting UP chief secretary Jawed Usmani and hope for a positive outcome,” the official said.

NHAI has also informed the government that without the SSA in place, 16 new projects in the state currently in the detailed project report and bidding stages, will not be launched.

“The state has expressed its reservation on the clause barring any competing roads in the vicinity. We are trying to resolve the issue,” the NHA official said.

“The delay on part of the state has led to delays in the completion of the projects and cost overruns. Our concessionaires are being unduly hit. We need to ensure their interests are not harmed,” the official added.

The seven projects include the Moradabad-Bareilly road (IL&FS, 121 km, Rs 1,267 crore,) Etawah-Chakeri section of NH-2 (Oriental Structural Engineers, 160 km, Rs 1,698.50 crore) Bareilly-Sitapur road (Era Infra, 151 km, Rs 1,951.50 crore), Muzafarnagar-Haridwar stretch (Era Sibmost Infra, 80 km, Rs 1,007 crore), Delhi-Agra road (Reliance Infrastructure, 180 km, Rs 2,960 crore), Lucknow-Rae Bareli (Essel Group, 70 km, Rs 800 crore) and Bareli-Allahabad Road (119 km, Rs 290 crore).

An official with the state PWD department which oversees road projects said signing the SSA means giving up the right to plan and build roads. “The NHAI is pushing an umbrella SSA agreement for all of its projects in the state, which, we think, is an infringement on the rights of the state government. We are trying to work out a way where we can sign project-based agreements, as was done earlier, instead on a blanket agreement,” said an official of the PWD department.

Earlier, the state used to give project-specific approvals, but in the last three years, no NHAI project has been approved. The Mayawati government had, in fact, refused to approve even specific projects. While the Akhilesh Yadav government is reviewing the decision, it is yet to come on board regarding the SSA.

Source-http://www.financialexpress.com

Unless a major portion of the land is handed over, financial institutions could shy away from funding the project

 The government has identified 13 road projects of over 1,800 km length that would be build on the operate-maintain-transfer basis during the 12th Plan period (2012-17).

Under OMT (operate-maintain-transfer) concept, six projects or packages measuring 963 km have been awarded and four measuring 720 km are in the bidding stage, an official in the Road Ministry said.

“We have identified 13 more such packages about 1,839 km to be developed under the same (OMT) model,” he said.

The government has identified 60 new locations for development as wayside amenities on highways.

These amenities include parking lots, restaurants, toilets, first-aid centres, telephone booths, petrol pumps, kiosks for sale of miscellaneous items and landscaping.

At present amenities at six locations have functional and work is on at other locations, he said.

Approximately, 3800 km of completed 4-laned highways constructed under various NHDP (National Highway Development Programme) are under maintenance.

Ministry of Road Transport and Highways has set a target of covering a length of 8800 km under NHDP next year (2012-13).

The allocation of the Ministry has been enhanced by 14% to Rs 25,360 crore in 2012-13.

Source-http://www.business-standard.com

In a bid to revive the road sector and also insulate the National Highways Authority of India from heavy financial claims and disputes, the government will now allow harmonious substitution of the concessionaire in ongoing and completed national highway projects awarded under Public Private Partnership on Build-Operate-Transfer mode.

The measure has been initiated taking into account the subdued investment climate in which there is lack of interest on the part of highway developers to bid for projects under Public Private Partnership and also the difficulties being faced by concessionaires in achieving financial closure for many of the projects awarded in the recent past.

The proposal for substitution of the concessionaire in ongoing and completed national highway projects was approved by the Cabinet Committee on Economic Affairs last month.

The decision permitting substitution of the existing concessionaire is applicable to ongoing two-laning and four-laning national highway projects where financial closure has been achieved by the concessionaire but Commercial Operation Date not yet declared by NHAI, Six-laning national highway projects where financial closure has been achieved by the concessionaire but project completion certificate not yet issued by NHAI, completed two-laning/four-laning/six-laning national highway projects awarded under Public Private Partnership on BOT mode and all new national highway projects under Public Private Partnership on BOT mode that are yet to be bid out.

A concessionaire seeking substitution has to make a written representation to the lender’s representative with a copy to NHAI. The lender’s representative, in turn, would ask for approval from NHAI for substitution.

Upon receiving the request from the concessionaire, the lender’s representative would assess as to whether substitution by a nominated company is in the interest of the project. If satisfied, the lender’s representative in consultation with the concessionaire would invite, negotiate and procure offers either by private negotiations or public auctions or tenders for takeover and transfer of the project including the concession to the nominated company.

Selection of the nominated company and valuation of equity is to be done by mutual consent of the lender’s representative and the concessionaire.

The NHAI, upon receiving the proposal of the lender’s representative, would satisfy itself about the credentials of the substituting entity and give its decision regarding the substitution. It may levy a penalty, subject to a maximum of 1 percent of the Total Project Cost, on the concessionaire seeking substitution for any default. No penalty, however, would be levied if the concessionaire had been unable to fulfill his obligations because of delays on NHAI’s part in land acquisition and obtaining statutory and regulatory approvals.

The nominated company would have to form a special purpose vehicle for taking over the project along with the rights and obligations of the concessionaire.

Subsequent to the substitution, in case of completed projects, the leading substituting entity is required to maintain at least 51 percent holding in the project SPV.

Substitution would be permitted only once during the construction period.

Highway developers are opposed to the provision that allows NHAI to levy a penalty on the concessionaire in case of any default.

“It won’t be appropriate to penalize the concessionaire,” said M. Murali, Director General, National Highways Builders Federation.

“In case of completed projects where toll collection has already commenced, it is obvious that the concessionaire fulfilled his obligations. Therefore, there is no cause for levying penalty. Even for projects at the execution stage, a penalty would place additional financial burden on the outgoing concessionaire. It must be kept in mind that many projects under execution have been impacted because of lack of equity. With the penalty clause, it is going to be very difficult to attract investors,” he added.

Source –http://www.projectsmonitor.com

In February this year, while presenting the Union Budget for the year 2013-14, Finance Minister P. Chidambaram had announced the Centre’s decision of constituting an independent regulatory authority for the road sector.

“The road construction sector has reached a certain level of maturity. But it faces challenges not envisaged earlier, including financial stress, enhanced construction risk and contract management issues that are best addressed by an independent authority. Hence, government has decided to constitute a regulatory authority for the road sector,” Chidambaram said in the Budget speech.

At present, the National Highways Authority of India, responsible for development, management and maintenance of national highways, functions as an executing agency as well as regulator. The dual role is perceived by many as contradictory.

The Ministry of Road Transport and Highways created a task force in April to expedite the setting up of the regulatory authority for the road sector. The task force released its draft report on the constitution and structuring of the proposed regulator last month.

The draft report suggests setting up the proposed regulator through an ordinance/executive order and then subsequently converting the same into an Act of Parliament for adequate enforceability and acceptance.

The regulatory authority, in addition to facilitating the expeditious implementation of the National Highways Development Project, would address the concerns of all stakeholders including road users.

A source associated with the road sector told Projectmonitor that in the current scenario, with general elections due in less than a year, setting up the regulatory authority could be an uphill task.

“The process of setting up the regulatory authority, which includes seeking the Parliament’s nod and selection of members, would take more than a year after the Cabinet’s approval. The question is whether the government has enough time in its hand,” the source said.

Interestingly, the Planning Commission is opposed to the proposal for setting up an independent regulatory authority for the road sector.

“An independent regulatory authority would dilute the powers of the Planning Commission. Currently, the Model Concession Agreement as well as rules and regulations concerning the sector are drafted by the Planning Commission. Once a regulator is in place, these could very well get challenged,” the source said, adding that the proposal for setting up an independent regulatory authority might not find favor with the NHAI for the same reason.

Source-http://www.projectsmonitor.com

India, at present, faces a grave economic crisis due to low growth, high inflation, high fiscal deficit and highest ever trade and current account deficit. No doubt the slowing down of the global economy has had a significant impact on the country but the present economic adversity is largely attributable to domestic factors such as excessive monetary tightening, delays and uncertainty over key economic legislations, project delays on account of stalled environmental clearances and land acquisition hurdles, pause in reforms and lack of willingness to take decisions in the government.

“The decision of the MoRTH to adopt the EPC mode raises the question as to where the funds are going to come from in the prevailing economic scenario,” a source associated with the road sector told Projectmonitor.

“On one hand, the government is trying to cut costs by imposing various restrictive measures, and on the other, it adopts the EPC mode for construction of national highways. In case of PPP projects, even when viability gap funding is sought, the concessionaire meets minimum 60 percent of the cost. At present, the MoRTH is relying heavily on just EPC mode for meeting its targets but this may not be feasible in the long run because of various constraints. The focus, instead, should be on both modes, PPP as well as EPC, for boosting the highway sector,” he added.

The EPC mode is different from the conventional item rate contract. Unlike in item rate contract, which is prone to excessive time and cost over runs, the EPC mode assigns the responsibility of investigation, design and construction to contractors for a lump sum price awarded through competitive bidding with provision for index-based price variation.

In a bid to ensure smooth implementation of national highway projects under the EPC mode, the MoRTH, of late, has initiated a number of measures. Included among them is the decision to conduct review meetings for national highway works in respective states. Earlier, the review meetings with officials of state Public Works Departments were held in New Delhi. Under the new initiative, a month-wise schedule for holding the review meetings, starting from June 12th, 2013, has been worked out for the current year. The concerned Chief Engineers are required to convene review meetings for national highways and Central Road Fund works in states under their jurisdiction in accordance with the schedule.

Plans have also been drawn to organize training programmes covering the EPC mode of construction for state PWD officials, concerned officials in National Highways Authority of India and the MoRTH, consultants and contractors.

Source-http://www.projectsmonitor.com