Reviving Road Infrastructure sector in India–Challenges & Concerns

Bad economics and Bad policy framework took a toll on the road sector in the past couple of years. The recent media reports indicate that the new minister is attempting to change the mindset of all the stake holders and ministries to speed up the revival of the road sector. He is also in favour of empowering the NHAI board to be able to tweak contract conditions wherever necessary and even drafting a new contract agreement. These are good steps to revive investments in the road sector. The ministry should also change the bid evaluation criteria to the Least Cost Method which is widely used the world over for bid evaluations. This entails selecting a bid which is not “ L1” but one which is closest to the median of all bidders. This approach will eradicate the bidders who are aggressive and bring in developers who are genuinely interested in creating an asset, as well as in maintaining and operating the road project.

IL&FS Transportation is amongst the largest BOT operators in the world. In all our projects we have attempted to incorporate the best technologies available in the market. Recently, we installed state-of-the-art tunnel controlling systems for the Chenani–Nashari 9km escape tunnel, the largest tunnel in India. In some of our projects in India we have used Highway Traffic Management Systems for effective highway management. RFID technology is in place in most of our toll plazas and ensures seamless travel, reduced travel time, fuel savings, and a reduction in traffic jams. These have helped the users to a large extent. However, when compared with the West, we are not on par with them in active traffic management; there is lot of scope for advanced vehicles / highway systems. The biggest challenge we face in implementing information technology on Indian highways is the cost factor as most of these latest technologies and equipment machinery need to be imported. This could add significantly to the total project cost. We need strong policy support from the government favouring the use of advanced technology in highway construction, then we will soon see smart highways in India.”

“The contracts created by Government and NHAI based on the Model Concession Agreement are not suitable for managing the projects in different environments and geographies. If a project is to survive, it requires a project-specific approach. Commercial Bank Financing can very easily kill a project if time overrun happens and interest during construction can swallow the finances available for the project. Therefore, a definite understanding is immediately required to be reached within a reasonable time and provide commercial operations viability.

The initiative of the Transport Ministry to allow officials to make modifications in the Model Concession Agreement or to draw up supplementary agreements to overcome specific deficiencies will be a very good forward step. This will help many projects to move forward and would provide Bankers to consider additional term loans to complete stalled projects.

Normally, full completion of a project becomes very complex in situations where the project is being financed on commercial terms by the Banks. In these conditions, it would be good if NHAI takes initiative in resolving the following problems:

a) It should take up the issues related to Land clearances and coordinate with the local administration and agencies such as the revenue departments, municipalities etc. The concessionaire is not suitable for this work.

b) NHAI should take up the permission with the appropriate authorities for cutting of trees, electrical poles, HT lines etc. and co-ordinate with State Governments/Departments. Often, after getting appointment dates for meeting After giving the appointment date, this is left to the concessionaire or contractor.

c) Projects should not be notified for construction without environmental clearances and approval of Forest Diversions.

d) NHAI should provide policy and co-ordination committees to deal with interdepartmental issues that arise during project execution. The concessionaire alone will not be able to solve these issues.

e) Disputes, change of scopes and variations in the Model Concession Agreement, will have to be dealt with, as and when they arise, and within a fixed time frame, so that the actual variations do not cause financial imbalances in the project. Project finances are structured based on the procurement and definite scope. Any extra demand for finances and accumulation of such extra funds will hamper the timely completion of the project. There should be empowered teams from both the parties to deal with such variations so that cost overruns and time overruns are notified near the appointed date itself.

The most important thing for better project management is an implementation of Web Enabled Geographic Information System with integration of digital video, audio and spatial photography. High resolution LIDAR camera based satellite imagery systems should be obtained and updated with the WEB enabled GIS system. Then the progress and activities in the project will be documented in most transparent manner.

The RFID enabling and personal identification of inspecting officers, auditors, engineers and consultants and integration of navigation features on the GIS would make the project monitoring and ownership accountable. India has the skill set required, the technologies are available and elsewhere in the world these technologies are utilized and business of such activities are out sourced but this a time we have to create the system to absorb such technologies within India.”

Summing Up

There have been encouraging signs that things may be finally looking up for the highway sector. Following the protests and widespread dissatisfaction with the concessionaire exit policy from several quarters, the Ministry held consultations with the different stakeholders – concessionaires, lenders, lobby groups, lawyers etc and drafted a new exit policy early this year which allows concessionaires to divest their stake in the road projects without necessarily forming new special purpose vehicles (SPVs). The removal of the requirement of forming a new SPV would free banks and lenders from the need to carry out fresh inspection of the projects and also eliminate the need for concessionaries to obtain fresh clearances such as those related to environment and forests.

Further, the new government has begun exploring ways to widen the network of coast effective, but durable roadwork across the country. The Ministry is planning to shift to concrete roads from bitumen-made roads since they last longer and are comparatively maintenance-free. Since concrete roads cost about 15% more than bitumen roads, the Ministry is planning to strike long-term contracts with cement producers across the country to obtain construction material at a lower cost. The big push to widen the highway and road network is expected to give the sluggish cement industry a big boost, besides a fillip to the entire economy.

Rajmohan Kurup