Government retraces route, to grant roads under EPC, not BOT

Written by Timsy Jaipuria | New Delhi | Updated: Sep 12 2014, 06:24am hrs
NhaiNHAI just needs the approval of a committee under the Cabinet secretary.
The government has decided to switch to the conventional engineering, procurement and construction (EPC) model to award contracts in the case of eight projects totalling R4,000 crore, which were earlier to be constructed under the build, operate and transfer route. The projects are a mix between ones that did not elicit any bids from private parties as their cost was too high and thus seen as unviable and a few that were terminated by the government due to lack of interest shown by the developers concerned.

Though the National Highways Authority of India (NHAI) has officially adopted the stance of late that more projects would be awarded through the EPC mode largely due to investor apathy, these eight projects would be the first where the mode would be switched after the Cabinet recently allowed the road ministry to change the mode without its approval. NHAI just needs the approval of a committee under the Cabinet secretary.

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. The EPC mode takes three to four months for a project to be awarded, while BOT contracts take 18-20 months, which NHAI thinks is another major advantage.

Projects of 3,055 km were awarded through the EPC mode in 2005-06 but it rapidly lost its sheen. The following year, only 345 km were awarded, slipping to 89 km a year later, around when BOT projects were on the ascendant, peaking at 6,491 km in 2011-12. Not even a single EPC project was awarded in the sector between 2008-09 and 2011-12.

However, in recent times EPC has once again made a comeback because of lukewarm response shown by private developers. For instance, this fiscal so far NHAI has awarded seven projects of 798 km, all under the EPC contract. In the last two years, of the 13 projects for 1,115 km for which bids were invited, a larger share of 841 km was awarded under the EPC route.

Additionally, 11 proposals are currently being evaluated by the inter-ministerial public-private partnership (PPP) appraisal panel involving construction of 1,098 km of highways, of which 1,010 km will be awarded under the EPC mode.

Feedback Infra chairman Vinayak Chatterjee said that 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 the EPC mode.