Road transport and highways minister Kamal Nath has recently called the Planning Commission an armchair advisor, obviously stung by the commission?s policies that allegedly impede his efforts to enhance the rate of national highway construction to 20 km a day. In an exclusive interview with FE?s Praveen Kumar Singh and KG Narendranath, Nath says despite the odds, he would meet the target by November this year, and adds that removal of utilities poses greater challenge to national highway building in many areas of the country than anything else.
Of the target of awarding contracts for building close to 12,000 km of national highways in 2009-10, how much was achieved? How has been the performance this year?
The Work Plan I (2009-10) envisaged awarding of about 11,618 km. Towards this, between June 2009 and May, 2010, 118 projects having a combined length of 7,478 km have been awarded. This is equivalent to award of nearly 21 km a day. With the award of these projects, the total work in progress stands at 12,348 km. Of this, 4,870 km are of previous years, while 7,478 km have been added this year. During 2010-11, we have planned to award another 12,000 km. By next year, we will have work in progress of more than 24,000 km.
When it comes to meeting the target of building 20 km a day, what matters is the projects that are ?under construction?. Also, one must note that a road between two points cannot be considered ?built? until the connectivity is totally established. So, even while the work is on in full swing, the numbers might look below the target at times. I?m confident that with the amount of ?under-construction projects? in hand, the target of building 20 km of NHs a day can be met by November this year.
Between June 2009 and May 2010, the government has been able to complete 5,187 km of national highways under all programmes. Sixty-two projects for 5,617 km costing Rs 58,632 crore were awarded compared to only 8 projects awarded in 2008-09 under the National Highway Development Programme. This is the highest achievement in any year since the inception of NHDP.
As far as this year is concerned, 9187 km is in under implementation by NHAI as of May 31, 2010. We have some 18 projects for about 1508 km worth Rs 16,542 crore for which bids are under process or invited. Along with this about 42 other projects are in the pipeline.
While many projects are supported by viability gap funding (VGF), there are also quite a few being implemented with negative grant. Do you take any policy measures to enhance the commercial viability of projects?
One-fourth (15 in number) of the projects awarded in the last financial year yielded ?revenue profit? in the form of negative grant amounting to Rs 639 crore to the government. The average grant for all BOT (toll) projects awarded in the year was 19.26% only. While enforcement of user charges are the way to enhance viability, some projects along heavy traffic corridors do bring revenue to the government.
What are the major challenges being faced in highway development?
Land acquisition is one challenge, but with measures taken such as special land acquisition units in each state, the acquisition process has gathered a considerable momentum.
But removal of utilities is proving to be bigger problem than land acquisition. There are a number of utilities when you a approach a town. For example in case of the road from Andheria Mod to Gurgaon, there are telephone lines, electricity poles, sewerage lines etc, which have to be removed. It is a big task to remove the utilities because it does not depend on our ability or efficiency. Various agencies are involved in the process.
It is also important that planning of road projects recognises the diversity of the country. You cannot have the same policy for land acquisition in Kerala, which is land scarce and has high population density and Madhya Pradesh, where finding land for roads could be relatively easier.
The environment ministry has reservations when it comes to giving clearances for certain highway projects.
Projects of only 90 km are stuck for want of environment ministry?s clearance. Getting environment clearance involves a process. It takes two to three months.
Resources needed for road building is huge. Your ministry had spoken of some $70 billion needed over the next three years, which includes $45 billion form private sector. Although it is being said finding resources is not that difficult if you have good projects on hand, there is the issue of the demand-supply mismatch between bank funds and road sector needs.
The mismatch is a real challenge. We need to tap the pension and insurance funds in a big way which are the right type of long term funds suitable for road projects. Many global pension funds are looking at India for investing in the road sector. In roads, traffic is the main source of income, and in India we certainly are not short of traffic. The vehicle population is increasing exponentially.
The new debt fund for infrastructure being planned would be available not only for roads but also for power, airport, port projects. How much fund would be available to each sector would depend, apart from the fund size, on the ability to the sector to absorb. Availability of bankable projects is the key.
The private sector is critical of the recent changes in the qualification criteria for highway development projects. What do you have to say about the changes, particularly the strict net-worth criterion?
We had reasons to believe that some of the new entrants were not adequately resourced to take up road sector projects and were quoting at unrealistic levels. Specific complaints also were received by us that these new entrants were indulging in name-lending without actually intending to participate in project execution. Hence, it was considered necessary to have conditions prescribed to ensure that such entities actually bring in the required resources, both technical and financial. So, the net worth criteria was prescribed. This had an additional objective also. Many of the domestic firms with limited means were participating in the high-value projects though they cannot be said to have the required resources to do so and practically, they would be better-off in the lower end of the market. Similarly, domestic firms like L&T and Reliance could look at the mid and higher end of the market. This segmentation of market would in the long run enable the construction industry to have proper focus in their relative segments.
Some states like Uttar Pradesh, Gujarat, Tamil Nadu, Delhi and J&K have been reluctant to sign the state support agreement (SSA), which is an umbrella agreement to support all national highways projects of the Centre.
All states are hungry for roads. Uttar Pradesh has signed the SSA but it is not in the standard format vetted by the law ministry. Gujarat, Tamil Nadu and Jammu & Kashmir had raised some issues with regard to SSA. Those issues are being resolved in consultation with the representatives of ministries of law and finance. A detailed clarification has already been provided to Gujarat, requesting it to expedite signing SSA. Others remaining states (Delhi, Tamil Nadu, Kerala, Bihar) are also being pursued to expedite signing and execution of SSA.
Recent policy changes aimed at weeding out non-serious players and making the bidding terms more attractive have helped. Are you planning any more changes in the bid document or Model Concession Agreement?
Generally, changes in the RFP/RFQ & MCA are effected as a response to industry?s opinion. Further, where the government also feels the necessity of introducing any change, such changes are brought about. This is a continuous process of review. However, at the moment, we have no proposal to make any such changes.
How much investment has been made by the private sector since June 2009? Is the private participation up to your expectations?
The outflow of awards since June 2009 has been exceptionally good and many of these concessionaires have already tied up the required finance and also have brought in their required equity contributions. It is but a matter of time before these actually convert themselves into road construction in physical terms.
How much investment has flowed in from abroad, considering you have been scouting for higher FDI in the sector?
For the investment levels the highway sector requires, domestic sources would need to be supplemented with overseas funds. There are certain elements of doubt and wariness regarding the investment climate in India. Our efforts right now is focused to ensure that the positive policy initiatives in attracting FDI to India and to the road sectors are made known to foreign investors. It is necessary to convince investors that notwithstanding the structural challenges India posed, the profit pool remained large and attractive, with potential for players to enlarge exposures.
Investment benefits flowing as a result of the road shows we had held abroad have a longer gestation period and quantifying the benefits of the road shows within this limited time zone would be a bit premature. We have definite information that large inflows would continue to come from overseas sources. Mega projects have particularly elicited encouraging response from many major players abroad.
Given the fact that much interest is being shown by the private equity investors in Indian companies carrying out road projects and the overall interest shown by overseas investors, our efforts in this direction have been fairly fruitful. A case in point is the formation of a fund between Tata, Actis and Atlantia (Italian tolling company) to invest $2 billion in the next 5 years. SBI Macquarie Infrastructure Management is apparently setting up a Fund for investment in India?s infrastructure. The representatives of the firm met me the other day on this.
When is the Expressway Authority going to be established?
The Eleventh Five Year Plan document envisages setting up of an Expressway Authority of India to formulate and implement a Master Plan for more than 18,500 km of high density access-controlled expressways. Discussions are on with the various government agencies including Planning Commission. We will have better clarity on this soon.