Flexible model to pull private sector; 5k km projects target
The public private partnership (PPP) model for building highways, which has been hit hard by a severe equity squeeze, lenders’ apathy and aggressive bidding in the past based on unrealistic tariff projections, is being revived in a hybrid form.
As per official sources, the National Highways Authority of India (NHAI) has set a target to award 5,000 km of highway projects in the current fiscal year, up 63% over last year, with a third of them planned under the innovative hybrid model. This implies that reliance on the conventional engineering, procurement and construction (EPC) model during the intervening period before the PPP sector turns viable again will be significantly less than projected earlier.
The hybrid model, official sources say, could attract private investors, as they are somewhat insulated from project risk — the government will bear 40% of the project cost and assume most part of the revenue risk in case of projects facing a viability problem. While some analysts are sceptical of the model, which, they feel, is tilted unduly in favour of private developers, the Modi government believes that its ambitious target to add 30 km of new roads to the country’s transport network daily (the figure was a dismal 2 km a day when it took over), can be met only if considerable additional flexibilities are build into the failed PPP model.
The NHAI, sources said, would acquire 90% of the land and secure all clearances, including environment-related ones, before a project is awarded in the PPP/hybrid model.
An NHAI official said since the focus is on assured execution of the projects, EPC and hybrid models would be preferred routes for awarding the projects, while some of the foreclosed projects would be developed through the BOT (PPP) route.
NHAI had awarded 3,067 km of highway (PPP) projects in 2014-15 and 1,465 km in 2013-14. There was huge slippage in the award and construction of projects since 2012-13. Although the UPA government relaxed the exit route and brought in a premium rescheduling policy for troubled projects, even as it was leaving office, investor enthusiasm was at a low. Premium payments to the NHAI have since been rescheduled in the case of over a dozen projects,
In 2011-12, NHAI had awarded 6,400 kms of highway projects, but most of them could not not be executed for want of funds and delay in getting environment and other clearances.
India has 92,815 km of national highways that comprise only 1.7% of the total road network. National highways carry 40% of the road traffic.
The government had in the Budget for the current fiscal raised the outlay for the road sector by 48% to R42,913 crore to correct the ‘slippage’ in the country’s infrastructure arena. Transport and highways minister Nitin Gadkari has recently said the pace of road construction has already risen from 2 km a day when the NDA government took over 10 months ago to 12 km, adding that in another year the country would be adding 30 km of new roads to its transport network daily. The government will try and address a big equity constraint in the sector by wooing foreign pension and insurance funds, he said.