Highways Sector on Overdrive

The Indian highways sector forms the world’s second largest road network aggregating over 3.34 million km. But its national highways until recently constituted only about 2 percent at 74,000km. But things started changing dramatically for the better during the last fiscal when government decided to spend about Rs 1,20,000 crore per annum on building new highways and very recently fixed a staggering investment target of $60 billion to build 35,000km of roads in the next five years. About $40 billion of the targeted investment is expected to flow from the private sector investors, claims Union Road Transport and Highways Minister, Kamal Nath.

Highways Sector on Overdrive
"The ministry has recently initiated the process of site selection for the mega road projects with minimum length of 500kms and entailing an investment of Rs. 5,000 crore each. The estimated cost of building one km of road under the category varies from Rs. 6 crore to Rs. 16 crore", says Road Transport and Highways Minister, Kamal Nath.

Funding Strategies

To achieve the target, National Highways Authority of India (NHAI) has decided to raise Rs 20,000 crore annually just to implement road projects worth Rs. 9,00,000 crore during the next two decades of which it will pay Rs. 1,91,948 crore to finance the viability gap and annuity payments to contractors. Of the targeted fund Rs. 52,629 crore is being raised through tax free bonds and the balance will be mobilized from other financial institutions. The nodal agency is currently busy in mobilizing finances from internal and external sources and has recently approached World Bank seeking $ 2 billion loans over and above $2.97 billion, which the multilateral lending body has already sanctioned.

Currently, plans are afoot to raise funds for building 4,680km of roads during the current financial year. To achieve the target, NHAI has decided to arrange Rs. 7,000 crore in the current fiscal, while the task of raising Rs. 11,000 crore and Rs. 15,000 crore will be accomplished in the next two consecutive fiscals. In the ongoing fund raising drive bonds are going to be the mainstay of resources. Even meeting the laid down target of building 12 km roads per day NHAI needs to award construction of 36,000 km of roads in the next three years.

The nodal agency is also keen to raise funds through external commercial borrowings (ECBs). In addition to this, it is currently seeking finance ministry’s approval to rope in insurance companies to invest in the highway sector and has already been authorized by finance ministry to extend its fund raising ambit beyond toll and cess collections. Currently, the road building agency is busy evolving strategies to raise Rs. 33,000 crore by March 2013 through pension and insurance bonds, external commercial borrowings and domestic and multilateral lending institutions, says Member Finance, NHAI, J N Singh.

In his quest to meet targets, the Transport Minister during his whirlwind tour to US, UK, Japan and Malaysia extended invitation to offshore investors to invest in Indian road sector in a big way and simultaneously claimed that there is no difficulty in raising resources meeting the funding requirement as almost two third of which would flow from toll and roads will generate funds for their own upkeep. The transport ministry is going all out to secure funds to the tune of $2 billion from Singapore based investment firm Temasek Holdings. In a recent statement he said that the Temasek, which is a heavyweight global investor, is considering $2 billion Indian infrastructure fund largely due to Singapore India strong trade and business ties and the lion share of the fund will be invested in the highways sector. In Singapore, the minister held repeated meetings with investors from Japan and Europe telling them that his ministry has decided to award over 12,000 km of road contracts within the next fiscal and has already awarded 7,478 km of contracts in the past 12 months. India has already received $ 2 to 3 billion funds in the past 12 months and secured $5billion investment from Canada’s SNC Lavalin engineering and construction group recently. He informed that India has set a target of having more than 24,000 km of road under construction by the end of 2011 and there is strong demand for roads with the projected 20 to 30% annual growth in the volume of vehicular traffic.

Current Status

Statistics trickling in from the transport ministry suggested that NHAI has awarded 118 projects with a combined length of 7,478 km in the past one year under various road development programs. With the awarding of these projects the total work currently in progress stands at 12,348 km. It is all set to award about 92 more road projects and will complete awarding of 1,600 km of roads very shortly. The current road contracting trend shows that by the turn of the year the ministry will have work in progress on another 12,000 km of roads and hence NHAI would be working on building 24,000 km of highways, which is double than what it did last year. The ministry has completed building of 5,187 km of highways during the past one year.

Highways Sector on Overdrive

In order to build 12 km of roads per day, NHAI is required to award at least 12,000kms of roads over the next three years to achieve the objective of constructing 4,320 kms per year. To achieve the targeted objective the NHDP committee examined the modified financing and work plan presented by NHAI. Currently, the approved NHDP programs comprises about 54,000kms of which about 11,000 kms have already been built 4 lined and another 6000 kms are under different stages of implementations and 37,000 kms are yet to be awarded. In the Finance Plan, it is envisaged that the construction of 37,000kms would be completed by 2017 for which awarding the projected length needs to be completed in 5 years time commencing from the Financing Plan 2009-10.

Projects in Full Swing

Apart from clearing road projects worth Rs. 2,600 crore this month, there are hundreds of small, medium and mega road projects where road building work is currently in full swing. Prominent among them include the Rs. 9,793 crore Yamuna Expressway connecting Noida with Agra. The 165km long six lanes projects undertaken by Jaypee Infratech is all set to go on stream in 2011. Apart from building the expressway the company will also undertake the development of five stretches along the expressway where it is building commercial, industrial, institutional, residential and amusement facilities. It has already invested Rs. 6,250 crore in the project, apart from the promoters' contribution of Rs. 1,250 crore. Currently, it is in the process of initiating work for the 1,047km Noida-Balia stretch of the expressway.

Highways Sector on Overdrive
“The Transport Minister Kamal Nath deserves accolades for having pushed the pace of road building to new high, but he needs to accelerate the speed further not just in contract delivering mechanism but also their implementations”, comments Planning Commission, Deputy Chairman, Montek Singh Ahluwalia.

Similarly, the IVRCL Group has recently taken up the building of 122km long road stretch of NH-17 at an investment of Rs. 3,100 crore. While the Reliance Infrastructure of Anil Dhirubhai Ambani group is very busy in building 180km long Delhi-Agra road project at a whopping investment of Rs. 2,960 crore. Similarly, the Ramky Infrastructure Limited is all set to start building work of two road projects in Haryana and Andhra Pradesh at an investment of Rs. 1,507 crore. The construction giant, the Larsen and Toubro is also going all out to initiate the construction work on Rs. 1,450 crore project with a length of 148 km on NH-46 in Tamil Nadu.

In the process of highways building, the Rs. 3,314 million National Highways Development Program (NHDP) scheme is raining opportunities in the Indian road and highway sector in the form of building bridges, flyovers and elevated road structures. The program stretching in seven phases includes the upgradation of over 50,000 km of national highways. As per available reports major bridge building opportunities have opened up in Phases V and VI whereas the phase VII is a standalone phase involving construction of bypasses, ring roads and flyovers. Similarly, phases V and VI involve six lanes of 5,600 km of highways and also include the construction of expressways. Under the phase V of the program a total length of expressways is 1,000 km at an estimated investment of Rs. 166.8 billion. Currently four expressways including Vadodara-Mumbai (400 km), Delhi-Meerut (66km), Bangalore-Chennai (334km) and Kolkata-Dhanbad (277km) are ready for contract as an alignment study for all these projects has already been completed.

Highways Sector on Overdrive

Likewise, out of the total targeted length of building highways under the Phase VII program of the NHDP, 41 km is currently under implementation while another stretch of 659 km is being awarded very shortly. The feasibility studies for ring roads in Patna, Dhanbad, Madurai, Kanpur, Aligarh, Meerut, Lucknow, Jaipur and Varanasi have already been awarded while for Hyderabad and Viskhapatnam it is being awarded in the next few days. The feasibility study for setting up a ring road in Thuruvanathapuram is currently in progress.

Projects in Pipeline

Currently, there are over 40 projects at various stages of approval and some of them are on public private partnership and NHAI is all set to award over 50 highways projects in the current fiscal. A total number of 13 projects had been awarded in one go in the just concluded meeting of empowered committee of NHAI board. The authority aims to award contracts for the construction of about 34,000km of roads in the next four to five years to achieve the targeted 12 kms road building per day. About its past record a senior official in the agency revealed that during the last fiscal the authority awarded 38 projects covering 3,361 km of road construction. Not just this, the ministry in a recent move has also started the process of site selection for mega road projects involving an investment of about Rs. 5,000 crore each with a minimum length of about 500km. The cost of constr- ucting for one kilometer of road under the category varies from Rs. 6 crore to Rs. 16 crore depending on the condition of the roads.

Battling Bottlenecks

For pushing the pace of awarding road contracts, the transport ministry has drawn accolades from various quarters especially for intelligibly streamlining the road contract delivery mechanism. Issues like land acquisition, departmental delays, procedural and environmental clearances are being tackled on priority. "Right from the day one Kamal Nath took over the reins of transport ministry, he has been able to push the pace of road contracting and he needs to accelerate it further in 2010-11. For this, it is not just the improved pace of contracting he also needs to push the pace of implementations" says Planning Commission Deputy Chairman Montek Singh Ahluwalia.

In its attempt to speed the project delivery mechanism the ministry rooted out the killer and callous clauses including exit clause and another pertaining to the practice of short-listing top six players for awarding contracts. In addition, it has also done away with the practice of seeking prior approval of the Planning Commission for every PPP project. These clauses were creating innumerable impediments to achieve the set targets in the highway sector. Similarly, by setting up about 170 land acquisition units (LAUs) across the country, the ministry has also resolved the contentious issue, which in innumerable instances had virtually derailed the road building process.

Similarly, eliminating rampant corruption in the current toll collection mechanism, the ministry is currently working out strategies and implementing measures to plug holes in the current toll collecting system. In this connection, it has constituted a committee under the UIDAI Chairman, Nandan Nilekani, to install electronic toll collecting machines and the move would push the toll collection by about 20%. As per the calculations the estimated toll collection will touch Rs. 10,000 crore per annum in the next three to four years.

The objective will be achieved by bringing an estimated 35,000 km of roads under operate, maintain and toll model (OMT) for private investors. The ministry is completely overhauling the toll collection policy by evolving a system to collect toll by adopting OMT system. The new formula is aimed at bringing the Indian toll collection system at par with the international tolling standards. Achieving the target is a challenge but at the same time it will completely transform the Indian road sector apart from making over the infrastructure deficit, which stares on our faces because in infrastructure the road deficit is profound, he claimed.

New Business Vistas

Not just this, the transport ministry in a recent move has lengthened the list of highways, and has in principle approved to convert 10,000km of state roads into national highways. After the decision the total stretch of national highways in the country will reach 80,648km and an additional highways building business worth Rs. 150 billion has been created thereby opening up umpteen opportunities for the next five consecutive years for builders in the road sector. The transport ministry in its wish list has asked the government that it will require 63,211.72 hectares of land for the road expansion projects to be implemented by NHAI. The top six states where major portion of land is required include Tamil Nadu, Madhya Pradesh, Uttar Pradesh, Haryana, Bihar and Rajasthan. In addition to this, the World Bank in a recent decision has cleared a whopping Rs. 21 billion loan for Phase II of the Punjab State Road Sector Project (PSRSP). The stretches identified for upgradation under the plans include 600 km Amritsar-Gurdaspur and 155 km long road length running between Anandpur Sahib and Gurdaspur. Under the $403.23 million Phase 1 of the PSRSP project, the Bank had already sanctioned $250 million to improve 400 km of roads and pavements rehabilitation strengthening of 800 km of roads in the state.
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