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Monday, 08 Jul 2013
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Indian Highway construction to be regulated


Indian highways sector may soon get a regulator, as stated by the Finance Minister in his budget speech for 2013-14. Though private developers have welcomed the move, they are still guarded in their opinions about the ability of such a functionary in providing quick solutions to the number of hurdles they face in executing roadways projects in India.


Indian Highways Construction_ProjectsToday


The Planning Commission of India in its 12th Plan document had favoured setting up a special regulator to guide the highway building process. Interestingly, the Commission now seems to be against such independent authority. However, the Ministry of Road Transport and Highways (MORTH), which has failed to meet the highway-contract-awarding targets in the recent past, is seriously considering such a specialized regulatory authority.


In 2012-13, only nine PPP projects offered by the National Highways Authority of India (NHAI), received bids, whereas as many as 13 projects saw no takers. Overall, contracts were awarded to build just 1,115 km of roads compared with a target of 7,700 km. In 2011-12 NHAI awarded an all time high of 48 PPP projects for a length of 6,380 km. However, many of these projects are yet to take off. Similarly, several projects awarded during 2010-11 and 2011-12 have been stalled due to financial stress faced by the developers, contract management issues and enhanced construction risk while disputes over the toll, project cost and cost escalation owing to delayed clearances, have led to pullouts.


For example, in the first half of 2013, GMR and GVK backed out of mega highways projects, earlier awarded to them by NHAI. Delay in getting the necessary approvals was cited as one of the main reasons for their exit from the highway projects.


The declining private sector interest in PPP projects can be attributed to the difficulties faced by bidders in achieving financial closure for awarded contracts in an already subdued investment climate. Developers are facing a severe shortage of equity and, consequently, are unable to raise the required debt.


To address the above issues, the Cabinet Committee on Economic Affairs (CCEA) recently approved a mechanism through which cash starved concessionaries will be given an option to fully exit the projects and make way for substitute developers. The move would facilitate faster completion of highway projects. Developers can now exit these projects in between by diluting equity in favour of an interested company, provided NHAI and lenders to the project agree, and the substituting company takes at least 51 per cent of the equity.


However, this does not undermine the need for an independent regulator in the road and highways sector. The need is being felt considering more highway projects are being executed on PPP basis and both, MORTH and NHAI, apart from being signatories to the PPP agreements, also manage policy frameworks and guidelines for PPP projects. This results in a clash of interest. Further, the delays caused by the prevailing dispute redressal system force the concessionaries to move the matter to courts, which in turn, prolongs the matter.


MORTH has proposed that the road regulator can deal with issues including tariff setting, toll policy and modifications, monitoring market conditions and bidding patterns, compliance of service levels, addressing public concerns, renegotiation of contracts and monitoring financial health of projects and companies.


To begin with, MORTH has decided to keep national highways under the ambit of the proposed road regulator and extend its scope to regulate state highways and other roads later.

Road Projects Investment Trend_ProjectsToday

The government wants to attract investment to the tune of Rs 2.6 lakh crore in the road sector over the next five years. Under such circumstances, an independent regulator could be the turning point for the roadways sector as it will provide enhanced reliability to private sector entities in the overall framework and reduce the burden on implementation agencies so that they can focus on award of projects and contract management. However, whether the road regulator will be a game-changer, will purely depend on its execution no matter how good it looks on paper.



Manufacturing Sector Developments


  • JSW Steel is likely to commission the 2.3 million tpa auto-grade steel plant at Toranagallu in Bellary district of Karnataka by December 2013
  • Oil India will invest in the North East on various projects, including expansion of exploration work and diversification of business by 2017
  • Mercedes Benz is planning to double its production capacity at its manufacturing facility in Maharashtra
  • Madras Cements will invest Rs 360 crore for its business expansion programme
  • L&T Hydrocarbon has secured an order for construction of a paraxylene plant in India


Infrastructure Sector Developments


  • Kochi Metro Rail has appointed RITES to carry out a detailed feasibility study for the Kochi Metro Rail Project, Phase-II
  • 24 global companies, in a JV with Indian construction companies, have evinced interest in the implementation of Phase-II of the Eastern Dedicated Freight Corridor project
  • Mumbai Port Trust has invited RfQs for development of harbour wall berths in Mumbai Port
  • DMRC has invited global EoIs for all systems required for operation and maintenance of monorail services in Thiruvananthapuram and Kozhikode
  • The Government of Malaysia has evinced interest in the proposed Agra-Lucknow Expressway project in U.P


Power Sector Developments


  • The Project Monitoring Group of the Prime Minister, has cleared 11 power plant projects
  • NHPC chalks out investment strategy for the 12th five year plan period
  • Tata Power Solar Systems bagged a contract from NTPC for setting up a 50 MW solar PV project in Madhya Pradesh
  • The Andhra Pradesh government has received bids from 35 companies for setting up solar power projects
  • The government is pushing as many as 23 mega power projects which were stalled due to a shortage of fuel supply linkages and environmental clearances


FDI Developments


  • The Union Government has cleared seven FDI proposals of pharmaceutical companies
  • FIPB has given its approval to eight FDI proposals


Quote of the week:


Chidambaram_Finance Minister_ProjectsToday

"The highway sector has reached a certain level of maturity and hence is faced with newer issues like financial stress, enhanced construction risk and contract management issues, which would be best addressed by an independent authority. Thus, setting up a highway regulator is the need of the hour."


P. Chidambaram
Minister of Finance

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