Unlocking the Development Potential of the National Highways and Roads Sector

Sandeep Upadhyay
Sandeep Upadhyay, MD & CEO, Centrum Infrastructure Advisory Ltd
On a global level, India boasts of the second-largest road networks in the world, with around 50 lakh kms of national highways, state highways and rural & urban roads connecting the villages and towns of the country. The transportation landscape, especially in road sector, has undergone rapid transformation, with the government giving a massive push to infrastructure growth and development. Over the last seven decades since Independence, the length of the surface road network in the country has gone up from 0.8 million sq.km to 4.8 million sq.km. There exists a huge scope for expansion with several projects in the pipeline to modernize the country’s road infrastructure. The value of the national roads and bridges infrastructure, pegged at $6.9 billion in 2009, is estimated to rise to $19.2 billion by 2017. With the government reiterating its commitment to strengthening the highway network in the country, the National Highways Authority of India (NHAI) appraised an investment of `71,911 crore for flagging off various highway projects in 2016-17. The budget allocation for the National Highways went up from `57,676 crore in the BE of 2016-17 to `64,000 crore in 2017-18. The government has also approved the roll-out of the ambitious Bharat Mala project at an estimated investment of `56,000 crore for the development of 5,600 km of new roads in border regions. An investment of `44,000 crore has also been planned to build 4,700 km of roads to increase connectivity between religious and tourism centres and connect lesser developed areas in the country. The project has also proposed to build highways adhering to global construction standards for connecting 100 of the 676 district headquarters in the country.

Routes to award projects

The Build-Operate-Transfer (BOT) model in its toll and annuity formats, has been the preferred route of the government to award road contract projects. Under the BOT (annuity) format, a highway is built by a developer and operated for a specific period of time. It is then transferred to the government for which an annuity is paid to the developer. In the BOT (toll) model, the developer constructs a road and recoups his investment by collecting toll on a long-term basis of about 15-20 years. However, in the last 5-6 years, the efficacies of the BOT model have been bogged down by factors like reckless bidding, rise in borrowing costs, restricted access to credit, stressed balance sheets, and delays by various departments to award timely clearances and approvals. There has been a tangential shift in the manner in which road projects are awarded with the government exploring the viability of other models like the Engineering-Procurement-Commissioning (EPC) model in order to revive the interest of private road developers. Under the EPC model, the capital expenditure on road development projects is incurred entirely by the government through agencies like the NHAI, the sole agency responsible for development of national highways at the Central level, and various State Road Development Corporations at the state level.


In order to fast-pace the construction of highways and galvanize stranded projects, the Cabinet Committee on Economic Affairs (CCEA) gave the go-ahead to the Hybrid Annuity Model, touted as a mix of BOT (Toll) and EPC models. Under the hybrid annuity model, 40% of the project cost is borne by the government and rest by the developer in the course of project execution. The model provides for a division of risks between the government and the developer who is responsible for the construction and maintenance of the project and remains protected from inflation vagaries and revenue risks. Revenue collection is the sole domain of NHAI and developers receive their dues in annual instalments in specified time-frames. The NHAI has awarded more than 40 projects under the hybrid annuity model till date

The government has approved the Toll-Operate-Transfer (TOT) model for monetizing operational road assets, which have been generating toll revenues for a minimum period of two years. Under this model, toll highways operated by the NHAI shall be leased to firms which are responsible for operating a project and collecting a toll in return for paying an upfront fee to the government. Since this model does not require the investor to bear construction risks, pension funds and sovereign funds with a long-term investment outlook could become potential investors by bidding through an international competitive bidding model. The TOT model is widely expected to release unutilized capital in completed projects, which could be diverted to developing brownfield road infrastructure projects.

Risks & Challenges

In the context of the current subdued financial environment, I find HAM as a relevant and sustainable model, and one which could stand the stress test on viability matrix for stakeholders across the value chain. Though there were initial glitches and some apprehension around the complexity of bidding parameters, the model is all set to pick up pace in the next couple of months.

Currently, more than 45 projects have been awarded on HAM as on date, out of which, only about one-third have achieved financial closure with some projects called for re-bid due to inability of promoters to achieve financial closure. The primary risks perception from the potential stakeholders for HAM road projects revolves around termination related payment clauses in the concession agreement, ability of the promoters to bring in their portion of equity, and also, to an extent, around NHAI’s bandwidth to fund the VGF and future Annuity payments.

Given this skeptic approach, I see the banks to continue being the weakest link, and hence, it is imperative that the Authority proactively addresses the above risks and reassures the potential stakeholders about the largely de-risked roll-out (Hybrid) model. Sharing comprehensive details about the means of financing for the mega development plan may also go a long way to instill confidence amongst potential stakeholders including the fact, that once commissioned, the operational HAM projects could be monetized on Toll Operate Transfer (TOT) scheme, primarily accounting for a significant source of annuity payouts on behalf of NHAI.

Initiatives to Accelerate Pace of Investments

The government has formulated key initiatives to mobilize resources and accelerate the pace of domestic and overseas investments in various road infrastructure development projects. The CCEA has given approval to an exit policy wherein developers have been allowed to leave highway projects two years after construction has been completed. This is seen as a key measure to release locked equity capital as potential investment for planned and under-development projects. The NHAI has been empowered by the CCEA to disburse loans to activate projects which have been stalled on account of limited equity or inability of the developer to raise capital. There is a proposal to permit government-to-government funding for raising funds and fast-tracking road development projects. A corpus of `8,500 crore has been raised by NHAI from state insurer Life Insurance Corporation of India (LIC)at an interest rate of 7.22% per year for 30 years. The funds are planned to be expended for expansion of road projects and building bypasses on national highways. NHAI bonds worth `10,000 crore have been subscribed by the Employees’ Provident Fund Organization (EPFO) at 8.03 percent interest per annum for 25 years. The Highways Regulator has also been permitted by the finance ministry to borrow `50,000 crore through bonds in the present financial year. A supportive macro environment in the form of key policy initiatives like government backed loans, completion of land acquisition process and issuing of permits in a timely manner, exemption from tax during construction of large-scale highway projects, and extending fiscal incentives like elimination of MAT during tax holidays can go a long way in unlocking the latent development potential of the roads and highways sector.

I see the Road Sector well poised to recover over the next year or so. However, the biggest resistance as of now continues to surface from the lending community. The recent success of innovative financing structures like the Infrastructure Investment Trusts (InVIT), and encouraging participation from Pension and Sovereign Funds, are positive steps towards achieving the aspirational targets MoRTH has set for itself.

Given the expeditious pace at which the Indian economy is growing, and the consequent rapid rise in passenger and freight traffic movement across India, demand for roads and highways is fast outpacing the supply. The glaring demand-supply gap in the roads and highways sector presents a far-reaching potential for its growth and development. A well-connected and efficiently maintained road network can have a ripple effect on industries like logistics, vastly improving its last mile delivery capabilities and boosting its outreach in the under-penetrated corners of the country. This is a high priority sector for the Government of India, and its inclusive growth and development with an emphasis on maintenance and modernization, is the key to placing India on a higher economic growth trajectory.

NBM&CW July 2017

Click Here
To Know More / Contact The Manufacturer
Please provide your details we will contact you as soon as possible
Please let us know your name.
Invalid Input
Please let us know your Designation.
Invalid Input
Please let us know your City.
Please let us know your State.
Please let us know your Country.
Please let us know your Contact Number.
Please let us know your email address.
Please brief your query.

Ammann ARS 121 Soil Compactors deployed at 354-km Purvanchal Expressway

Ammann ARS 121 Soil Compactors are bringing efficiency to an enormous, high-profile roadbuilding project in India. The compactors are handling soil work for a key section of the 354-km Purvanchal Expressway, the longest current Read More ...

Ashoka Buildcon constructs Package 4 of landmark Eastern Peripheral Expressway project

Ashoka Buildcon, which was awarded package 4 of the EPE project, constructed 22km of the 135 km EPE, at a cost of ₹789 crores. It built three grade separators, one ROB, 12 VUPs, 22 PUPs, four minor bridges and 20 Read More ...

Wirtgen: Cold milling machines have a decisive impact on quality of road rehabilitation

Wirtgen offers the widest range of cold milling machines in the industry. Customers can choose from more than 30 different types of machines, with each also available with a variety of milling widths. The lower Read More ...

Smart Pavement Materials and Emerging Technologies

Smartness describes self-adaptability, self-sensing, and multiple functionalities of the materials. These characteristics provide numerous possible applications of such materials in manufacturing and civil Read More ...

Repair of Scaled Surface Areas of Newly Constructed Cement Concrete Pavement Slabs

After 2014, the speed of the construction of cement concrete road for national highways and expressways, in cities and even at village level has significantly increased due to the policy adopted by the Government of India Read More ...

ArcelorMittal Long Products - Benefits of steel solutions in bridge design

Today's modern bridge construction projects face totally new challenges. The public, the regulators and the authorities demand structures that are cost effective during their planning, execution, lifetime and dismantling. Read More ...

From Yarn to Bridges – Strata Takes Another Giant Leap in Technical Textiles

Strata Geosystems, a global leader in the soil reinforcement industry, has opened its new state-of-the-art manufacturing facility, which will meet the growing demand for geosynthetic products in India and around the Read More ...

Bogibeel Rail-cum-Road Bridge

There are a lot of legends and prophesies floating with the current of the mighty Brahmaputra River as it tracks its course from Tibet to Bangladesh, roaring down through narrow chasms and gobbling up land in its pursuit Read More ...

Advantages of Precast Concrete in Constructing Highways & Bridges

Prefabrication of any structure component off-site during highway construction (or reconstruction) offers major time and user cost savings in comparison with the traditional cast-in-place methods of construction. Read More ...

Long-life Pavements - European & American Perspectives

Long-life Pavements European & American Perspectives Road infrastructure investment has increased less in many countries than road traffic. If these trends continue, the outcome will be increasing intensity of Read More ...

Performance Management for Durable Pavements

Satisfactory pavement performance can be assured only with an appropriate design with a well-calibrated algorithm, material selection based on the appropriate mix design, proper processing of the materials for Read More ...

Experimental Study on Tunnel Excavation Muck for Road Construction

Substantial parts of India are covered by hills and Himalayas stand foremost among them. The border areas in the North and North-East of our country are mountainous with steep topography, difficult and hazardous Read More ...

Geocells For Pavement Reinforcement

Roads are essential for the economic growth of the country, and unlike the railway network, various classes of roads-from expressways to rural road, assure last mile connectivity. India’s growing economy requires Read More ...

Pervious Concrete Technology for Urban Roads and Pavements

Pervious Concrete Technology for Urban Roads and Pavements In recent years, the rise in employment and higher standard of living, amongst numerous other factors, has led to a gradual shift of people from rural to urban Read More ...

Durable and Economical Technology for Bituminous Surfacing of Rural Roads

The Pradhan Mantri Grameen Sadak Yojna (PMGSY) has been one of the most successful flagship programmes launched by former Prime Minister Atal Bihari Vajpayee in 2000 for constructing a wide network of rural roads Read More ...

Precast Concrete - Smart Pavement - The future of road building

The term “information superhighway” was introduced in the 1990s. Back then, it was used to describe a worldwide communications network. Today, Kansas City, Mo.-based Integrated Roadways is putting a different Read More ...

New Building Material & Construction World

New Building Material & Construction World
MGS Architecture

Modern Green Structures & Architecture

Modern Green Structures & Architecture

Lifting & Specialized Transport

Lifting & Specialized Transport

Indian Infrastructure & Tenders Week

Indian Infrastructure & Tenders Week