As India builds its road network through private participation, laxity in the maintenance of these roads could prove a challenge, going forward.
As India builds its road network through private participation, laxity in the maintenance of these roads could prove a challenge, going forward. A World Bank note on transport says postponing road maintenance leads to high direct and indirect costs. Quoting the South African National Road Agency Ltd’s estimates, the note says the repair costs could rise to six times the maintenance costs after three years of neglect, and to 18 times after five years of neglect. India, which is still in the midst of developing its infrastructure, could address these issues from arising, if maintenance of the existing assets becomes a part of the overall infrastructure development plan. Navneet Pratap Singh, CEO, Skylark Group—which is into toll operations, incident management and maintenance services to BOT/annuity concessionaires and government—speaks to FE’s Shubhra Tandon on the need for dedicated operations and maintenance of road projects.
How frequently do roads need maintenance?
Primarily, there are two types of maintenance. Routine maintenance involves just 15% to 20% of the total maintenance cost of a project, but pavement and structural repairs and maintenance make up 80% of the cost. Maintenance demands a pro-active approach to prevent damage to road, reduce wastage of resources, and enhance the life of the project. Routine maintenance is an ongoing activity, however periodic maintenance depends on several factors. Ideally, a well-constructed and maintained flexible pavement highway should survive up to seven-nine years without any major pavement maintenance.
What are the key challenges a road developer faces in toll operations and road maintenance?
What we typically see is that developers focus on asset creation and not on asset maintenance. Also, lack of data often leads to developers bidding aggressively for projects. Policy differences—like local passes, concessional tickets to commercial vehicles, etc—between central and state governments make it difficult to run toll operations on BOT projects.
What is Skylark’s business model?
We primarily operate on three business models, service-based, percentage and auction-based. Under the service-based model, we charge a fixed monthly amount to the concessionaire for operations and maintenance (O&M) services. Under the percentage model, we charge a certain percentage of the tolling revenue as our O&M fees. Under the auction model, we pay a fixed amount on a daily/weekly basis to our concessionaire. The risks of declining toll revenue, major maintenance costs, etc. are taken by us. We are able to take such risks because, with the help our technical tools and data analysis, we can predict the performance level of a stretch and suggest correctives in advance. This, along with proactive maintenance, saves maintenance costs by as much as 40% in some cases.
Can you give an example of such action?
We took over the Delhi-Gurgaon Expressway on NH-8 on July 16, 2014 with a daily average revenue of R33-35 lakh. However, with a well defined strategy in place, we increased the daily average revenue to R43.5-45 lakh in seven months, without raising toll fees. We also decreased the O&M expenses of the concessionaire by over 35%. We have brought down the count of fatal accidents to the lowest ever. In another case, in a project in Madhya Pradesh we have managed to collect 40% of the total revenue through overloading charges.
What is the company’s current turnover and how do you plan to scale up the business from here?
The turnover for FY14 stood at R220 crore, while for FY15 it was R160 crore. Though the number of projects has increased in the last one year, the turnover has decreased owing to more projects from BOT concessionaires on the service-based model than government contracts on the auction model. As the Centre is looking to give out more projects on the EPC model, there will be enough opportunity to get tolling and maintenance rights for a sizable number of these.