Towards Fast Trading Highway Sector
The last few months have witnessed a strong economic revival of road sector developers' interest in road and highway sector projects following government's enabling measures to restore their confidence in road sector business. Would you please like to recapitulate some of these measures initiated by the Government?
Major policy initiatives of the Ministry in recent past contributing to faster implementation of projects and start of revival of the highways sector include:
- Mode of delivery of projects- Ministry empowered to decide on mode of delivery of projects – PPP/EPC.
- Increased threshold for project approval- Ministry authorized to appraise projects up to Rs.1000 crores – both for PPP and EPC mode in place of earlier Rs.500 crores.
- Enhanced Inter-Ministerial coordination - an Infrastructure Group created under the chairmanship of Hon'ble Minister -RTH. Most issues on approvals and clearances related to Environment & Forests, Railways and Defence have been addressed.
- Fast track dispute resolution - effective three stage mechanism made operational at NHAI.
- Amendments to the Model Concession Agreement (MCA) – a Committee headed by the Cabinet Secretary empowered to make changes in the MCA.
- Current focus on EPC projects - immediate focus on implementation of publicly funded EPC projects bringing back confidence of developers/contractors through fund circulation.
- Electronic Toll collection (ETC) – being implemented across all operational toll plazas of the country. "Fast tag" program was launched on 31.10.14 for Delhi- Mumbai Highway.
- Use of innovative construction materials and technologies – technical and financial feasibility of flexible pavement using bitumen vis-a-vis rigid pavement using cement is currently under examination. Others are being encouraged.
As per the recent financing plan for NHAI, to implement 20,000 km of highway projects (comprising both PPP and public funded projects) an estimated Rs.1,80,000 crore. of market borrowings would be required for 2014-15 to 2018-19 in addition to existing sources like budgetary allocations, cess, toll collections etc.
In addition, the Ministry has requested for additional budgetary support from the Ministry of Finance for 12,500 km of identified priority projects.
Therefore, exploring fresh financing options has become imperative in the current context.
The Ministry is taking steps to address the above primarily through the following measures
- Promoting policy initiatives in close coordination with Ministry of Finance, RBI.
- Exploring options like use of long term sources of funds like IDFs, pension & insurance funds, encouraging long term debt re-structuring, and others.
- Proposed amendments in the Model Concession Agreement (MCA) for Highways in PPP mode to boost lender's confidence.
- Increase in cess on petrol/diesel to fund the increased requirement of the Roads Sector.
Award of projects for 2014-15
- Target – 8500 km
- Achievement till January 2015 – 5385 km
- Target – 6300 km
- Achievement till January 2015 – 3038 km
It is indeed interesting that there is a proposal at hand to build highway projects and auction them later to recover investment. Kindly elaborate on this concept. Also what are your views on a proposal under ministry consideration to exempt private vehicles from toll but hike fuel cess and impose fee on new vehicles to keep the loss minimum due to this exemption?
Auctioning of completed highway projects as a proposal is under examination at the ministry. Market sentiments are robust for taking up completed and operational projects which have a reduced risk perception.
As regards toll policy, various options are under examination, but no decision has been taken.
A word about the ministry's recent proposal for easy foreclosure of some of the languishing road projects to enable developers to walk out of the project. Will this scheme be applicable to both PPP and EPC projects?
The policy envisages that within the existing contractual framework, for languishing highway projects beyond a certain period, enabling provisions be included to facilitate amicable exit of the project developers, particularly where the Authority was unable to meet/fulfill its obligations in a timely manner.
The proposal under consideration is meant for PPP projects.
PPP road projects hold key to private sector participation in the road projects which are drying up. How to de-risk PPP model and make it a mainstream one to impart the much needed momentum to the road and highway sector?
A new Hybrid annuity model is under consideration at the Ministry wherein the private sector continues to take the construction and O&M risks as in BOT (Toll) projects but is not required to bear the traffic risk, which any way is not within the control of the private sector.
What are the latest developments with regard to ministry's proposal to go in for cemented roads, particularly ironing of developers' irritants on long-term cement supply and their pre-set price issues and developers insistence on use of cement on PPP and green field road projects?
The Ministry is encouraging use of rigid pavements wherever feasible in new projects. An IT framework has been launched to facilitate the contractors to source cement directly from the manufacturing units at reasonable prices.
Roads and highways sector is the biggest gainer from the recent land acquisition ordinance, making it easier for it to get Right of Way for executing road projects. While there is optimism about it in the road construction quarters, the road and transport ministry has sought exemptions from the rehabilitation component of the ordinance. What is the rationale behind seeking various exemptions?
Highway project being linear in nature, land acquisition is generally done in a linear pattern and requirement of rehabilitation for displaced population is generally low for the sector.
Rehabilitation requirements that may arise while developing highways are operationally difficult for the Ministry to fulfill as the Ministry does not have an existing land bank to provide the compensatory land or provisions for arranging livelihood for the displaced population.
NBM&CW March 2015
