Why are India's road projects in limbo?

The road transport and highways ministry, after failing to get an encouraging response from the private sector, has decided to shelve its plan to bid out highway projects on a ‘build, operate and transfer’ basis, at least for this financial year.

The ministry will now award 5,000 km of road projects under the ‘engineering procurement and construction’ model, signalling an end to the country’s ambitious plan to partner with private companies in the roads sector.

The ministry, looking to award 2,800 km of projects, worth Rs 27,000 crore (Rs 270 billion), through the BOT route during the first six months of the financial year, had also planned to conduct roadshows abroad to attract foreign investments in the sector.

. . .

But, in the wake of a slowdown in the economy and a lack of funding, private companies chose not to bid for these projects.

The government had embarked on a massive public-private partnership regime over the past decade and awarded to private companies a number of projects, some of which have now run into financial problems.

“We have no plans of awarding BOT projects this year and we hope the environment will be better next financial year.

“But that does not mean an end to BOT projects.

“As of now, we are looking to award 5,000 km of road projects through the EPC route,” Road Secretary Vijay Chhibber told Business Standard.

He, however, did not give details of the number of projects to be awarded.

. . .

According to industry estimates, the government will now have to spend about Rs 40,000 crore (Rs 400 billion) to develop roads through EPC.

Unlike the BOT model, the government funds the entire project under EPC and a developer undertakes the necessary construction work.

BOT requires a private-sector developer to raise and invest money for the construction of roads at its own risk, while the National Highways Authority of India acquires land for the project.

Given an economic slowdown, the government could not award close to 20 projects during the current financial year under BOT.

“We had set a target of 9,000 km for the year; we need to keep the projects moving.

. . .

“We decided to move on to the EPC route as the BOT projects were struggling.

“There is also a proposal to embark on roadshows abroad to attract investments; we will tap a number of countries,” another road ministry official said.

A number of road projects, including the Delhi-Gurgaon and Delhi-Jaipur expressways, that were awarded during a privatisation drive, have led to problems between the government and concessionaires, raising serious concerns over the BOT model.

In addition, the private companies have also been seeking the government’s intervention to get rescheduled the premium they owe NHAI.

Calculated on the basis of future flow of traffic, a premium is the amount a developer pays NHAI as it believes the returns through toll from the project would be higher.

. . .

The finance ministry is now awaiting recommendations of a C Rangarajan-headed committee, set up to decide on the quantum of premium to be rescheduled.

The government is also considering a proposal to set up by next year a road regulator to address a host of issues faced by private road developers.

Industry experts and officials say the absence of a single-window clearance is one of the main reasons for investors to stay away from the country’s BOT projects.

Often, projects take close to five years before work finally starts.

This is mainly because of land acquisition hurdles and delays in environmental clearances.

This year, the road ministry had to scrap seven projects, worth Rs 3,000 crore (Rs 30 billion), because of land acquisition issues in Kerala and Goa.

. . .

Experts also point out that the consultants appointed by NHAI are also to be blamed for a number of BOT projects being affected.

According to officials, while the Delhi-Jaipur expressway was being planned, the consultants engaged by NHAI proposed that 80 bypasses be constructed, though the actual need was of 124.

“Consultants should be made answerable to the government.

“They do not provide a complete picture and the concessionaire struggles because of that. As far as EPC projects are concerned, the government came up with the idea of PPP route since they could not fund all projects.

Now, they are going back to the EPC mode and, in the current economic scenario and the fiscal deficit facing the government, we are not sure how they will be able to fund the projects”, said M Murali, director-general, National Highway Builders Federation.

• 239: PPP projects awarded since 2001
• 316: EPC projects awarded since 2001
• 7,464 km: Target for award of projects via BOT in 2012-13
• 1,115.75 km: Projects actually awarded via BOT in 2012-13 (11 projects)
• 5,000 km: Target for award of projects via BOT in 2013-14
• 257 km*: Projects actually awarded via BOT in 2013-14 (3 projects)

* Last BOT award in 2013-14 was in April
Source: NHAI