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The current fiscal, FY14 has failed to bring any respite to the Indian roadways sector, with the Ministry of Road Transport and Highways (MORTH) set to miss the project awarding target even in FY14. Even after several efforts to make the highway projects attractive to private players, the ministry has failed to generate the required interest from private bidders.
At the beginning of FY14, MORTH had set an internal target of awarding 9,000 km in FY14 so as to ensure awarding at least 7,300 km. However, till October 2013, the ministry had managed to award only about 1,300 km highway projects. Notwithstanding its failure to find developers for its projects, the ministry hopes to award over 5,000 km of highway projects by March 2014.
Having failed to award a large portion of highway projects in the last fiscal, a major change in the current fiscal was moving away from PPP (Public Private Partnership) mode and giving emphasis to awarding projects on the Engineering Procurement Construction (EPC) mode.
In the past couple of years, the roadways sector garnered a lot of interest from the private sector under the PPP mode with NHAI awarding more than 150 projects since FY10 under the model concession agreement (MCA). However, since FY13, a large number of projects offered under the PPP mode failed to receive responses from the bidders. Two main reasons attributed to this are the on-going economic downturn and failure of the developers to find willing lenders.
Owing to this, in FY14, NHAI and MORTH decided to go back to the EPC mode to rejuvenate the road construction activities. NHAI, while keeping the BOT option open, proposed the EPC route to all those projects where there is likely to be poor or no response from bidders. Thus, for the initial target of awarding 9,000 km, the ministry had planned to take up more than 50 per cent of the projects on EPC mode. But this strategy failed to lure the developers.
EPC model is the one where the project is funded by the government, and the private firms design and build the road. In an EPC project, the contractor has to quote the cost of constructing or upgrading the road section which is completely funded by the government. Every project has an estimated project cost and the developer offering to complete the project at the lowest cost bags the contract.
However, unlike PPP, where land acquisition and shifting of utilities are not pre-requisite to winning contracts, in EPC mode, the contractor only designs the installation, procures material and builds the project, either directly or by subcontracting work for a decided price. The responsibility of land acquisition and getting the necessary clearances lies entirely with the government.
A pre-condition for EPC or budgetary supported projects is that 90 per cent length of the project land should be free of bottlenecks. The ministry has to acquire 90 per cent of the land required for the project before awarding it.
Thus, projects on EPC are also not coming up for bid, as they are in various stages of the project design process. The delay in award of highway projects on EPC mode has been mainly due to a delayed land acquisition process.
As for the PPP mode, having failed to attract bidders in the last fiscal, the road ministry has taken several initiatives to address the shortcomings in the sector and make highway projects attractive to private developers.
These initiatives include establishing a road regulator to solve problems in resolving contractual disputes and renegotiation of future contracts, delinking environmental clearance from forest clearance, allowing cash-starved concessionaries to fully exit a project.
The 12th five year plan has pegged an investment of Rs 62 trillion in the infrastructure sector, out of which the roadways sector alone will require an investment of Rs 5,890 billion for meeting the target of upgrading or strengthening of around 55,000 km of highways in several phases. The roadways ministry expects a larger portion of this expenditure to come from private players through PPP mode. However, with the current liquidity crunch it will be a while before PPP makes a comeback. And without private funding, the dream of building 55,000 km of highways will get stretched beyond the 12th Plan.
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