NHAI Makes MCA More Market-Friendly
A White Paper released has succinctly outlined what went wrong with roads and highway sector in the country. What are its highlights, particularly those which have adversely impacted the performance of NHAI and its functional autonomy?
The White Paper basically identifies the failings of the Government Departments which literally led to virtual collapse of the sector in the year 2011-12. It also brings out the mistakes committed by the private sector by bidding aggressively. The White Paper also brings out the steps taken by the NHAI and also the sub-optimal and delayed response of the Government machinery on the proposals of the NHAI like exit policy and deferment of premium, etc., which would have put the sector back on rails if these had been implemented timely.
Over 60% of NHAI projects are embroiled in disputes, though NHAI has been able to resolve some of them. What are its plans to resolve the pending disputes to rekindle investors' spirit in the road and highway sector and the amount involved in such disputes?
Dispute resolution is the most difficult part of the contract management anywhere in the world. The ambiguities in the contract can create serious problems. The matter was compounded by the fact that the Model Concession Agreement (MCA) was not allowed to be evolved and no lessons were learnt from the past. The MCA was prepared by the Planning Commission which did not have the knowledge of ground realities in implementation of the same. The contract management under the MCA becomes very difficult in the existing governmental set up. The NHAI has already evolved a new MCA which is now pending for the Government approval.
Incidentally there is not much leeway available with the NHAI as far as settlement of disputes in the PPP projects are concerned as the NHAI is not able to deviate from the contract which has been specifically approved by the Cabinet. On the other hand as far as cash contracts are concerned, NHAI has been able to resolve nearly 3/4th of the pending claims amounting to more than `20,000 crores since inception. This has been done by evolving a mechanism of negotiation through a CGM Committee which is subsequently vetted by an Independent Settlement Advisory Committee headed by a retired Judge of the High Court. If the NHAI Board is given freedom to deviate from the original contract in the case of PPP Projects, in public interest, it should be possible to resolve the disputes even in the PPP contracts.
What are the strengths, weaknesses, threats and opportunities for NHAI? How are the threats proposed to be met and opportunity availed in response to important initiatives unveiled by the Road and Transport and Shipping Minister to impart momentum to the road and highway sector in the country?
NHAI was set up by an act of the Parliament, NHAI Act, 1988. NHAI has been entrusted with National Highways Development Project, which along with other minor projects, has entrusted with us 50329 kms of National Highways for development, maintenance and management. Our objective is to ensure that all contract awards and procurements conform to the best industry practices with regard to transparency of process, adoption of bid criteria to ensure that the best company gets to execute the contract, implementation of projects conform to best quality requirements and the highway system is maintained to ensure best user comfort and convenience. In ensuring these objectives, we strive to attain best value for money. That we have completed more than 23198 kms of NH's and have 12795 kms under implementation is an exceptional achievement, reflecting our strength. We are currently executing the largest PPP road programme in the world under NHDP and we have more than a decade of hands-on experience in managing PPP implementation format, which no one else can match.
The Central Government through budgetary allocation, funds NHAI's highway programs. The fuel cess allocated to National Highways has been promised to us through a Cabinet decision till at least 2030-31 which gives us the required financial muscle. These resources are supplemented through our own market borrowings so that project execution does not suffer.
The tendency to interfere with and dilute NHAI's autonomous character by the Government is a matter of concern as also the cutbacks which snip away the promised fund allocations to NHAI. Though NHAI has the mandate to advise Central Government in matters related to highway policy, the tendency to bypass such advice is another area of concern. Advice given by NHAI in various matters is yet to be acted upon, whether it is permitting complete equity divestment by developers of BOT projects, amendment to MCA provisions or freedom to NHAI in selection of mode execution of road projects.
The Finance Minister has announced for awarding of 8500 km of road projects in this fiscal? How will NHAI play its role in achieving this daunting task?
The target of 8500 kms fixed by the Ministry pertains to all the implementing agencies put together. NHAI share will be around 5000 kms which will consist both of PPP and EPC projects. While we will be in a position to award around 3000 kms under EPC, it may not be possible to award a significant number of projects under BOT. The BOT can be revived only when the Government comes out with a new exit policy to enable the existing contractor turned developers to churn their equity and bid for new projects.
To translate the Minister's vision into a reality, don't you think, it is time to empower NHAI to deal with all projects—PPP, BoT and EPC- itself instead of intermediate layers of approval mechanism seen at present which has weakened NHAI's functioning as a nodal agency for road and highway projects?
The independent regulatory authorities and autonomous executing agencies can play a meaningful role only when they are fully empowered and the Ministries vacate that much space for their independent functioning. Unfortunately, in India the bureaucracy in the Ministries has continued to interfere routinely in the functioning of the autonomous bodies, as a result of which autonomous bodies could not deliver as expected. This is equally true of NHAI also. The problem was further aggravated in the case of NHAI as the MoRTH itself allowed usurping of its power by the Planning Commission and the Finance Ministry.
Don't you think that mere EPC model can't be sustained for long in isolation and the government should reach at the right mix of EPC and PPP or the new model like Hybrid should be explored?
Executing projects on EPC mode entails government spending the entire project execution expenditure during the construction period. Hypothetically, quite unlike BOT which taps the private sector resources and permits leveraging of public resources, EPC will not permit leveraging if the Central government desires to scale up the award kms. But EPC reduces the post award project execution time by nearly 1 year vis-à-vis BOT and completed projects can be parcelled to the private sector on OOT/ OT arrangements. Hence a flexible mix of both EPC as well as BOT would be a better award option. Any mode which permits the government to quicken project execution and scale up and leverage its resources should be preferred.
Infrastructure companies dealing with road and highway projects find the present MCA too rigid in terms of its fundamental structure. Currently NHAI is at work to revise the present MCA adopted in 2009 after modifications. What is time frame for its revision to address the present concerns of infrastructure companies?
NHAI has already presented to the Central government the changes that can be made in the MCA to make it more market friendly. This was done after holding extensive discussions with various stakeholders such as banks, industry associations, developers, consultants etc. Broadly, suggestions made in this regard are with the intent of raising the comfort level of the lenders and concessionaires and also to give certainty to some of the MCA provisions which have been found to be ambiguous and liable to multiple interpretations. The process of reviewing the suggestions made by NHAI is on and certain interactions with the Ministry have already taken place.
A word about NHAI's plans to make available all information on PPP projects on its Website. How will this facilitate bidding, construction, operation and maintenance to be transparent for all stakeholders?
We have taken a decision to create an independent website for each project right from inception till the life of the project. All correspondence between parties to the contract, the various features of the contract, the project status from time to time has been made available on project specific website. The purpose of this is two fold. We intend to make the whole functioning of NHAI as transparent as possible and at the same time the project specific website is enabling us to do contract management electronically. We are in a position to see from the website whether the correspondence between the concessionaire or Independent Engineer is being replied by the Project Director or not, whether the Independent Engineer is bringing out all the non-compliances by the concessionaire on record or not. This will also give a clear idea about the project to the public including the alignment and other features of the project. If there is an attempt to change the alignment, the public will come to know as to who is behind and what are the reasons or justifications. The idea is to make the public participate fully in the process of implementation of the project and running of the same during the concession period. While the websites have been opened for all the projects, efforts are being made to make them more interactive and provide as much information as possible.
It is a well known fact that road and highway development contributes to GDP growth. Has any study been made by NHAI or any other agency to sensitize the impact of road and highway development in terms of promoting social, economic, trade and commerce and regional development across the country?
Roads improve connectivity and access. They act as force multipliers. It helps the public to access goods and services in more efficient ways and this brings down the cost. Bringing down the cost increases the purchasing power of the consumers and contributes to the general wellbeing of the society. No formal study of the type indicated has been carried out by NHAI.
NBM&CW March 2015
