The public-private partnership (PPP) model in the highway sector has come out of its torpor with build-operate-transfer projects aggregating 1,000 km awarded recently, compared with just 700 km in all of last year and just 123 km in the year earlier, said Vijay Chhibber, secretary, ministry road transport and highways. Given the right-sizing of projects and the policy that four-fifths of the required land will be in the government’s possession before such projects are awarded, up to a fifth of the new awards will plausibly be pure PPP ventures with another 30-40% under the newly designed hybrid model, he told FE in an interview.
Considering that last year less than a tenth of the total awards were under PPP, this, he said, would be a big improvement and meant lesser reliance on the EPC model.
Saying financing was not really an issue in accelerating road construction and meeting the target of 30 km a day, he told FE that some Rs 82,000 crore was to be made available by the government alone this fiscal — R42,000 crore as budget outlay and about Rs 40,000 crore via tax-exempted bonds.
The official said the privates developers or lenders were not much to be blamed for the sharp decline in PPP projects since 2012-13 as there were problems with the designing of projects and concessions, besides issues of land acquisition and clearances getting unduly delayed. Ideally, PPP projects should be of smaller stretches, say 40-100 km, rather than the huge projects that have few models in the world that the previous government had tried to implement and failed, he said..
In the new hybrid model, 40% of the project cost will be borne by the government and the amount will be paid in four instalments during the concession period to the successful bidder. The advantage of this model, he said, was that it reduced the risk for the developer considerably, with the equity to be brought in to be much less than a pure PPP projects. Smaller projects being designed and the hybrid model projects were certain to enthuse the lenders, he said.
Stating that the FDI inflows into road building looked feasible in the completed or or about-to-be-completed projects, Chhibber said such projects with aggregate size of 5,000 km would be offered via auction to potential foreign investors like pension and insurance funds shortly for running them through almost the length of their life cycle. In these cases, the government set a reserve price factoring in its investments and the investor offering the highest revenue to it will secure the projects.
Among the PPP projects awarded this fiscal are the 98 km (Rs 831 crore) Shivpuri-Guna stretch in Madhya Pradesh, Hospet-Chitradurga in Karnataka (120 km, Rs 1,388 crore), Solapur-Bijapur in Maharashtra (101 km, Rs 1,377 crore) and Raipur-Bilaspur in Chhattisgarh (127 km, 1,549 crore). Of these, two were grabbed by the developers after promising premiums while the others included viability grants from the Centre. In order to revive investor interest in the road sector, the Narendra Modi government has taken a slew of measures, including streamlining of land acquisition, allowing complete exit for pre-2009 projects as well to unlock equity and securitisation of road sector loans. The government also ensures that all clearances for a project are in place before its award.