Back to basics at road ministry with EPC model

Written by Timsy Jaipuria | New Delhi | Updated: Feb 14 2013, 08:18am hrs
Investor apathy to public-private partnership (PPP) projects in highways has forced the government to revisit the old engineering, procurement and construction (EPC) model after a four-year gap. While there had not been a single EPC project awarded in the sector between 2008-09 and 2011-12, the ministry of road transport and highways has set a target to award 4,000 km or nearly half of the highway projects it plans to award this fiscal through this conventional mode.

Highway projects of 3,055 km were awarded through the EPC mode in 2005-06 but it rapidly lost its sheen. The next year, only 345 km were awarded, slipping to 89 km in the following year. During these years, build-operate-transfer (BOT) projects have generally seen an increase, peaking at 6,491 km in 2011-12.

Under an EPC contract, the government funds the construction and the road developer only has to develop the project in a stipulated period of time. In the BOT mode, the developer invests in the project and recoups it either through tolling rights or annuity.

Feedback Infra chairman Vinayak Chatterjee said the lack of investor interest in PPP projects due to financial reasons and projects not making commercial sense to the developers are major reasons why the government is shifting back to EPC mode. The road ministry has set a target to award 8,800 km of highway projects this fiscal.

The shift from PPP (BOT) mode to EPC has been necessitated in the wake of a constant fall in the number of bidders on the BOT toll basis, according to official sources. Faced with huge slippages from targets, the ministry reckons that the less time-consuming EPC mode could be preferred. EPC mode takes only 3-4 months for award of a project while BOT takes 18-20 months.

Chatterjee said the government is unable to attract investors in PPP projects even with a higher ratio of viability gap funding. Sources, however, say the ministry is unlikely to meet the target to award 4,000 km of road projects on EPC this fiscal as the process has started only recently.

Interestingly, of the total around EPC projects covering 4,000 km that were slated to be awarded this year, only one project covering 130 km has received all approvals and the rest are awaiting approvals.