Expressway project costs shoot up to Rs 45-50 cr a km

October 10, 2011

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The Union road transport ministry is finding it difficult to adopt a viable economic model for access-controlled expressways. The current cost estimates have shot up to Rs 45-50 crore per km against Rs 10 crore a km needed for six lane highways.

With such a huge investment requirement, the ministry is unsure if the build operate transfer (BOT) model for public private partnership projects (PPP) is viable. If the BOT model is adopted, the toll fees will have to be kept very high to recover the cost over a 30 year period. “State and national highways with lower toll would entice more people to use them,” a senior government official said.

The ministry has drafted a plan to construct 15,600 km of expressways by 2022 and has identified over 40 stretches for the same. The idea is to create an Indian National Expressway Network by the 13th Five Year Plan. The plan is to cover special economic zones (SEZs), industrial corridors, industrial towns and densely populated cities to raise the average distance travelled by a vehicle from 300 km per day to almost 600-800 km a day.

The BOT annuity model, where the government pays annually or bi-annually to compensate the private developers, also appears to be unviable, say officials. The reason is that such high cost of construction will entail huge public expenditure while there are other competing sectors in the economy which are vying for same allocations.

“The third model before us is the engineering procurement construction (EPC). Which is not an option here as that would again imply a huge burden on the government’s exchequer,” the official pointed out.

In developed countries, the first 50-100 km of expressways are built by the government to attract private developer. Once traffic picks up on the route, the developers build the remaining length of the expressway and is allowed to charge toll on the entire length (including the stretch constructed by the government).

The government allows this as an added incentive towards recovering the cost of construction and reaching the targeted internal rate of return.

Source: indianexpress.com