123 of the 676 district headquarters to be connected by developing world-class highways at an estimated cost of Rs 96,000 crore.
100 road projects to be awarded on public-private partnership basis in the coming financial year.
Rs 11,500 cr worth 7 road projects awarded on PPP mode so far this year. This is in sharp contrast to 733 km of projects valued at around Rs 6,300 crore awarded on BOT (toll) mode in the whole of last financial year.
18 tenders for roads projects to be developed under PPP that the government wants to float by December this year.
Investment in infrastructure development needs to pickup for better asset creation and delivery of projects, a senior government official said Tuesday.
According to R.P. Singh, chairman, National Highways Authority of India (NHAI): “The infrastructure situation in the country is dismal; the pace of investment is sub-optimal and unless we come out of the subsidy regime and inject substantially more funds into capital expenditure for asset creation, the situation will not look up.”
Singh who was speaking at the Federation of Indian Chambers of Commerce and Industry’s (FICCI) India Infrastructure Summit 2014, attributed the perceived failure of public private partnership (PPP) projects for developing infrastructure projects to the failure of the people who handle such projects rather than the concept.
Singh underlined the need for a rational tolling policy so that the user is not charged arbitrarily, especially where the charge is disproportionately higher in relation to the distance actually travelled.
“Much of the problem on PPP projects is caused by aggressive bidding for projects, and tendency to pass on the risk to the government when the project becomes unviable,” said Singh.
Singh’s views were corroborated by Shipping Secretary Vishwapti Trivedi who said that PPP by itself was not a bad concept.
“If you have the money go for engineering, procurement and construction (EPC) contracts or else build roads through the PPP mode”,” he said.
Recently, the government said that it will develop highways under the EPC (engineering, procurement and construction) rather than PPP mode.
The shift in policy is significant given the new government’s focus on developing infrastructure.
The EPC entails that the contractor build the project by designing, installing and procuring the necessary labour and land to construct the infrastructure, either directly or by subcontracting.
However unlike PPP, the financing is done by the government and not by banks or private equity funds through issuing of sovereign bonds or taking financial guarantees for the project.
The highway sector currently contributes around 4.5 percent to the GDP and is responsible for job creation and has a multiplier effect on the economy. However, delays due to land acquisition, forest clearances, defence land handovers have stalled progress in the sector.
This has caused build up of project non-performing assets (NPAs) worth crores of rupees where banks have participated or helped in financial closure.
Industry estimates the cost of these projects which are worth Rs.60,000 crore to have escalated further.
Unanimously welcoming the Smart City initiative of the Centre, states have demanded technical help to prepare project reports and higher financial assistance to execute the scheme.
Urban Development Minister Venkaiah Naidu today reviewed the suggestions and views from states and Union Territories expressed at the national conclave held yesterday and directed officials to examine the suggestions in detail.
He has also asked the concerned officials to prepare a proposal for discussion at an inter-ministerial meeting where Ministers of Finance and Defence, Highways and Surface Transport, Railways, Power, Environment and Forests are likely to attend.
Reiterating the importance of smart leadership in developing smart cities, Naidu said he would write to all the Chief Ministers on the need for proper decision making to enhance revenues of urban local bodies and improving urban governance.
States have made ten broad suggestions for developing Smart Cities including seeking flexibility in implementation, capacity building, higher central assistance in view of the resource constraints of urban local bodies and expeditious clearances by the Centre, said a senior Urban Development official.
Higher level of Viability Gap Funding with respect to solid waste management and water supply projects, capital expenditure to be borne by central government since private operators can only manage the operations and maintenance with utility charges and Special Purpose Vehicles to be created for executing the projects are some of the suggestions made by states at the conclave.
Some states referred to the difficulties associated with adoption of Public-Private Partnership model with respect to some urban projects in view of the complexities involved and levying of user charges.
Citing no interest of private players in highway sector to take projects under public-private-partnership (PPP) mode, the NDA government will now roll out projects on cash contract or engineering, procurement and construction (EPC) mode at least for 2-3 years.
Under this mode, government bears the construction cost and developer exits the project after building the stretches. So, the developers have no risk in executing such projects unlike the PPP ones.
Announcing this on Monday, road transport minister Nitin Gadkari said that his ministry is trying to arrange finances to take up projects on government funding or EPC mode. “Taking up more projects on public-private-partnership (PPP) is not feasible.
We have to go ahead with EPC projects for at least next two years,” he added while blaming the issues “created by the previous government”.
At present, while 160 highway projects are under imple
mentation on PPP mode entailing an investment of Rs 1.6 lakh crore, there is no progress in case of 65 projects.Out of these 65 projects, 28 have been terminated and fate of another big project is likely to be decided very soon.
The CEO of a major highway construction company told TOI, “As such we have not take any project on PPP mode in the past three years. At present, none is interested considering the risk and prevailing market condition. We are struggling to complete the already bagged projects.” Sensing that government has to create a huge corpus to pay for projects on cash contracts spanning over 2-3 years, Gadkari said that his ministry is going to set up a corporation that will deal with financing of such projects.
Gadkari on Monday said that he has already written to the Prime Minister and finance minister for getting portions of huge amount PF lying with the labour ministry as loan to the corporation.
The favoured PPP route ran like a common thread in Mr. Jaitley’s speech when he touched upon sectors such as urban renewal, urban transportation, real estate and gas pipelines.
To revive manufacturing and infrastructure to raise resources for developmental needs
Pointing out that public private partnership (PPP) has delivered iconic infrastructure like airports and highways, Union Finance Minister Arun Jaitley on Thursday maintained a steady focus on PPP in his maiden Budget for 2014-15, announcing a number of steps to fast-track such projects in several areas.
In his Budget speech, Mr. Jaitley proposed setting up of an institution, called 3P India, with a corpus of Rs. 500 crore to provide support to mainstreaming PPPs.
The stamp of ‘Modinomics’ could not be missed in favouring the PPP route for development as the BJP’s manifesto and Prime Minister Narendra Modi rooted for it to help create world-class infrastructure in the country.
However, Mr. Modi during his tenure as Gujarat Chief Minister had added another ‘P’ (People) to it to signify people’s involvement in such project and the 4P concept was successfully tried in the Vadodara Halot Toll Road project.
The favoured PPP route ran like a common thread in Mr. Jaitley’s speech when he touched upon sectors such as urban renewal, urban transportation, real estate and gas pipelines.
“The task before me today is very challenging because we need to revive growth, particularly in manufacturing and infrastructure to raise adequate resources for our developmental needs,” Mr. Jaitley said.
Largest PPP marketThe Finance Minister said India had emerged as the largest PPP market in the world with over 900 projects in various stages of development. Iconic infrastructure like airports, ports and highways, delivered through PPPs, are seen as models for development globally, he said.
Sounding a note of caution, Mr. Jaitley said: “But we have also seen the weaknesses of PPP framework, the rigidities in contractual arrangements, the need to develop more nuanced and sophisticated models of contracting and develop quick dispute redressal mechanism.”
He reiterated the government’s commitment towards improving infrastructure in all sectors including roads, port, airports, railways, urban, rural and industrial infrastructure besides ensuring adequate flow of funds and financing of projects.
Mr. Jaitley proposed to develop an additional 15,000 km of gas pipeline systems in the country using appropriate PPP models.
“This will help increase the usage of gas, domestic as well as imported, which in the long-term will be beneficial in reducing dependence on any one energy source,’’ Mr. Jaitley said.
New Delhi: The Ministry of Road Transport and Highways (MRTH) is to conduct road shows in foreign lands to entice companies abroad to take up road projects in India. The ‘road shows’ are to be conducted primarily in Australia and China over next few months, according to media reports.
‘One of the proposals (of a presentation to be made to PMO) is to do road shows abroad to ask investors to participate in PPP (public-private partnership) projects in India’, Business Standard quoted a MRTH official saying.
The situation to approach foreign developers has arrived due to Indian firms pulling away from domestic projects owing to various legal hurdles arriving every now and then.
The domestic developers — such as GMR and Larsen and Toubro — have disengaged from investing in road developing projects because of land acquisition difficulties, funding constraints, etc.
The idea to approach foreign developers has emerged in a time when general elections are round the corner. Road development is an issue not to be ignored ahead of the elections.
SUMMARY- EPC route was adopted for projects that received or were expected to receive poor response in PPP bid
The column “Toll time for UPA” (FE, September 25, goo.gl/3yr40K) highlighted a few issues and included a commentary on the reported reluctance on the part of NHAI to follow the government policy of building highways through PPP. Here, I aim to clarify the issues raised in the column (in bold).NHAI is not keen on following government policy of building projects through PPP but wants to go back to the bad old cash contracts wherein NHAI engineers decide whether a road has been built properly and then release payments.
NHAI has awarded more than 150 projects on PPP since FY10 under the model concession agreement (MCA) and most of these are in various stages of implementation. However, since FY13, a large number of projects under PPP mode did not receive any response from the bidders. Seventeen projects on BOT (toll) and three projects on BOT (annuity) did not receive any response even though these projects were put to bid at least once, and even five times in some cases. The reason for poor or no response to the bids for BOT (toll) road projects is acute shortage of equity and over-leveraged and deeply stressed balance sheets of the prospective developers. Private equity funds and other players are not willing to fund the equity requirements of new or under-construction PPP projects. For want of suitable empowerment, NHAI is not able to proactively manage the concession agreements even in situations where the underlying conditions have undergone a drastic change. Even if NHAI gets bids in few BOT (toll) projects, it is likely to be sub-optimal. In such a stark backdrop, NHAI had proposed that all projects, where there has either been or there is likely to be poor or no response, should be taken up under EPC mode. However, NHAI is not against PPP and is still inviting bids on BOT (toll) basis in appropriate cases.
The contention that NHAI is planning to go back to the old EPC contract on item rate basis is misplaced. NHAI has adopted the EPC mode whereby the design and construction responsibility is assigned to the contractor for a lump-sum price and the monitoring and supervision is to be undertaken through a qualified firm selected through a transparent process as per the new EPC guidelines. In fact, India’s PPP success story is almost entirely attributable to NHAI which carried out over 240 highway projects through PPP mode.
Instead of junking privatisation process, NHAI can moot for higher VGF.
As per the MCA, VGF is limited to 40% of the TPC which is roughly equal to 50% of civil cost. Any further increase in VGF will undermine the private partnership in the project. There is a need for a judicious mix of PPP and EPC projects on the basis of viability and optimally roll out of projects available on shelf.
NHAI engineers’ insistence on more over-bridges instead of underpasses raises the cost as it does not make sense to make a 4/6 lane road go over an existing 2-lane structure.
The myth that NHAI is insisting on sub-optimal solutions, providing overpasses (wherein the crossroad will go over the highway) instead of underpasses is not based on technical considerations but seems to be based on the experience of green-field motorways abroad without taking into account ground realities from an Indian perspective.
NHAI’s proposal for stopping toll collection during construction period of 4/6 lane projects shall increase financial stress to the developers.
Our proposal is based on experience, public perception and future perspective. During construction, many road diversions are created, resulting in a constraint of carriageway, hampering smooth flow of traffic. Taking advantage of the present MCA, the concessionaires, under the pretext of NHAI’s default on account of non-availability of land in isolated pockets, do not carry out the work with due diligence even on the available fronts. It was observed in most of the four- to six-lane projects that the concessionaire does not get any bonus from additional revenue for early completion of the project as toll collection commences from the date of commencement of construction.
NHAI need not counter-sign every loan refinancing, which is the crux of its dispute with IDFC on the Delhi-Gurgaon Expressway, as long as the amount it pays on termination of a project remains unchanged and the agreement to get a part of the upside toll once traffic on a road exceeds a certain target.
Breach of trust, hoodwinking concession agreements cannot be good business practice. However, the matter is sub-judice. As per the concession agreement, the concessionaire shall not make any modification to any of the project agreements without prior written consent of NHAI where the modification has or may have the effect of increasing or imposing any financial liability or obligation on NHAI in any manner. One cannot jump to any conclusion at this juncture.
(The ministry has asked NHAI to proceed according to earlier plan of building 3,000 km through PPP instead of junking the model at the first sign of trouble.)
NEW DELHI: The highway ministry has rebuffed the National Highway Authority of India’s (NHAI) suggestion to dump the public-private partnership (PPP) model in favour of the engineering, procurement and construction (EPC) mode.The ministry has asked NHAI to proceed according to earlier plan of building 3,000 km through PPP instead of junking the model at the first sign of trouble, an official of road, transport & highways ministry said.It has also asked NHAI to refer matters to its board before pitching any proposal to the government.According to sources, the ministry is unhappy with unilateral proposals sent by NHAI chairman RP Singh, including stopping toll in ongoing projects like the Gurgaon-Jaipur project or wanting deferral of premium to be extended across all premium projects, among others.”Just because PPP projects have not taken off in the recent past doesn’t mean we junk the model and switch over to cash-contracts. We need to innovate and try all options before taking such a step.
We’re considering options like combining annuity and toll, which would make it lucrative to investors and limit our pay-out burden,” said the official.
The highway sector, largely regarded as India’s PPP success story, took a hit in 2012-13 during which the ministry was able to award only 1,116 km of projects. Private investment too came down by 23.5% from the 2011-12 levels.
Overall, private investment has increased from Rs 1,462 crore in 2004-05 to Rs 25,999 crore in 2011-12. In terms of road length awarded, it has gone up from 1,304 km to 6,644 km during the same period.
It is these figures, the ministry says, which prove that a brief period of lull does not negate the success the sector has seen in terms of PPP.
NHAI has also pitching for suspension of toll in the six laning of Gurgaon-Jaipur project where the concessionaire has been missing deadlines repeatedly. The ministry sent a letter to NHAI on Tuesday expressing surprise and concern with ‘the manner in which references were being made to the government’.
“There is no effort at all to estimate the amount of ‘loss’ that would accrue if tolling is suspended. This would be a pre-requisite for any decision since at a later time the concessionaire is bound to raise claims against the decision to suspend toll operations,” said the letter which also suggested that “rather than having a public debate on such policy matter through the Press, your personal suggestions on these issues are placed before the board of NHAI for a considered view as the board has been constituted for this very purpose.”
Earlier this week, NHAI had written to the ministry asking the government to either take over the Delhi-Gurgaon expressway project or hand it over to the Haryana government.
The dispute between NHAI and the concessionaire is pending in Delhi High Court. The ministry has asked the authority to expedite the legal process.
After representations made by highway developers asking to be included in the premium deferral proposal, the NHAI asked the ministry to include 16 additional premium projects, apart from the 23 projects originally shortlisted, in the list.
However, road ministry officials pointed out that it was the NHAI board which had approved these 23 projects with premium amounting to Rs 1 lakh crore in the first place.
Traveling to different developed countries as a teenager, I would be impressed by the roads, airports and continuous power supply available always. Yet, one would long to return to the warmth of our motherland, India. But, the sorry state of the airports, roads and the impending electricity cuts would immediately meet and greet me. These would make one hope fervently that our India be better than the best when it came to physical infrastructure, too.
Over the years, except for some pockets and cities, our country is still far from even being as good as the rest. We are still grappling with the challenges of urbanisation and the related issues of roads, airports, electricity and water, among others.
Traditionally, world over, the public sector has dealt with infrastructure projects. Since 2000, however, these are increasingly implemented in the Public-Private Partnership (PPP) mode with debt and equity. A profit-seeking private sector is believed to be more efficient, cost conscious, customer-focused, delivers faster and brings better value for money and enhanced innovations.
This augments the often constrained state budget too and government can get things done without having to raise taxes or issue bonds.
Interestingly, history tells us that the first railway line in India, as also many other lines, was actually built in a PPP mode. The 30-km-long Bombay to Thane railway line was built in 1849 by the Great India Peninsula Railway Company!
Today, studies show that infra-investment leads to a one-for-one percentage increase in GDP.
Clearly, inadequate infrastructure hinders economic growth. India’s infrastructure forecasts an investment need of a trillion dollars from 2012 to 2017.
Way back in 2001, I remember zipping through the squeaky new Vadodara-Halol toll road, which really felt like a driver’s paradise! Over the years, toll roads have made travel easier and pleasant, saving precious time. Yet, some questions were doing the rounds in my mind. Would these tolls further alienate the ‘haves’ from the ‘have-nots’? Would world-class infrastructure ‘take a toll’ on the economically disadvantaged sections, further accentuating the gap?
Last week, I had participated in a case study session on the brown-field project of refurbishing the Mumbai airport. One understood the serious challenges & risks encountered and the many innovative ways in which the project was designed and built. A state-of-the-art airport, this has been ranked as the third top airport of the world. During the discussions, there was a ‘voila’ moment! I realized that the major revenue would be from the non-core or the non-aero sector.
This includes restaurants, hotels and shops in the airport.
Only about 30% of the revenue would be from user charges, which would be regulated. This win-win proposition answered my knotty concerns, ensuring low, regulated user charges yet providing excellent facilities for all!
More and more infra projects in the PPP mode would also mean greater awareness for sustainable, eco-friendly designs with sufficient concerns for the social dimensions.
Each time we pay a toll, turn on a switch or enter an airport, let us pause and reflect. Let us bridge the 1 trillion dollar infrastructure gap across the coming five years and empower the 1.2 billion aspiring Indians. Infrastructure that boosts the quality of life, productivity and economy of our nation would make India a special paradise on earth.
“There is a huge need and a huge opportunity to get everyone in the world connected, to give everyone a voice and to help transform society for the future. The scale of the technology and infrastructure that must be built is unprecedented, and we believe this is the most important problem we can focus on.” Mark Zuckerberg
The author is a Harvard educated civil servant and writer, now working in the education sector
NEW DELHI: A day after NHAI wrote to the highway ministry to either buy back the Gurgaon expressway project or hand it over to Haryana government, the ministry said it has always pushed the first option. It wants NHAI to resolve the “contractual dispute” rather than refer the matter to the government.In his letter to NHAI chief R P Singh, highway secretary Vijay Chhibber said Haryana government does not seem to be pursuing its earlier intention of buying out the project. “The only logical option, therefore, before NHAI is to buy back the concession as provided for in the agreement, at the earliest,” he said.
This observation comes after Haryana chief minister Bhupinder Singh Hooda had claimed on many occasions to acquire the project and remove toll plazas for public good. None from Haryana government could be reached for a comment. Highways minister Oscar Fernandes was out of city.
Chhibber has also written there is a “prima-facie evidence of criminal liability” in this project and the ministry has initiated the process to refer the case to central agencies – CVC, CBI and enforcement directorate.
In the past there have been several questions on reckless loan provided by public sector banks to project developer DGSCL without even getting NHAI approval. NHAI has also charged the developer of diverting a portion of the loan to its parent company.
Ministry sources said this is a fit case for investigation since there have been several controversies relating to the project and the manner in which stakeholders have go for negotiations in the first place to save country’s one of the first public-private-partnership (PPP) projects and then falling apart.
