A visionary, energetic and result-oriented minister has breathed fresh life into the road sector
It is amazing what positive ministerial energy can do to revitalise a sector. From involving a wide spectrum of stakeholders in discussions, to announcing a target of 20 km per day of road construction, and examining new ideas — a Road Finance Corporation, an Expressway Authority — the sizzle is audible. But, along with the sizzle, the steak has to arrive on the table. And there is a long corridor between the kitchen and the partyhall. Here are the issues that need to be tackled, to get the party going.
Organisation-related: There is an acknowledged need to make National Highway Authority of India (NHAI) more robust. A set of potential measures may relate to appointing independent directors, creating specialised PPP cells, decentralising operations, developing a motivated internal cadre and providing a stability of tenure to and empowering the top leadership. At present, 95 per cent of the staff is on deputation! A detailed MoU of the type between the government and a Navratna PSU would indeed be welcome — an MoU that clearly lays down the authority of the NHAI and the sharing of power and responsibility with its parent ministry, the ministry of finance, the Planning Commission and the Prime Minister-chaired committee on infrastructure et al.
Disputes-settlement related: The biggest irritant as far as the private sector is concerned is the disputes-settlement experience. The minister, commenting on this matter, said in exasperation, “We need the contractors and the NHAI at construction sites — not in arbitration discussions and courtrooms!” Reproduced is an excerpt from an interview with Kamal Nath that appeared in Mint on July 9:
Question: I am told there are arbitration claims worth Rs 5,000 crore.
Answer: There is a large number in claims. More than Rs 5,000 crore.
Question: What is the number?
Answer: You want me to shock you? Rs 10,000 crore.
Land-related: According to a survey of major infrastructure projects facing delays, 70 per cent were due to land-acquisition problems. It is heartening to note that NHAI is now setting up 150 Special Land Acquisition Units (SLUs) across the length and breadth of the country. The minister’s thoughts on this matter are noteworthy: “The land acquisition process has not been efficient and has been one of the biggest challenges for completion and cost overruns. Bids will be invited only for those projects for which 80 per cent land has been acquired”. The minister has also warned states that projects stuck on continued land acquisition front could be abolished. There is also an increasing clamour for new schemes to capture land-appreciation gains along the corridors of announced highway projects. Concepts like ‘betterment charges’ and ‘auction of exits’ need serious consideration, rather than allowing such large upsides to be captured only by real-estate sharks.
Constraints identification and removal: The leap of faith to build 20 kms of roads per day from a low of 3 kms is a seven-fold jump in activity all around. It is also a big challenge to deal with six simultaneous constraints. These are organisation capacity (read NHAI), processing capacity (regulatory clearances, bidding systems, disputes settlement etc.), states-engagement capacity (land acquisition, R&R, utilities removal), design, engineering and project management capacity, construction capacity and financing capacity. This is one area where the Planning Commission can get pro-actively and positively involved to help in identifying, quantifying and removing these constraints and broad-base its involvement beyond model concession agreements (MCA).
MCA-related issues: There are nine major irritants here that require their rough-edges smoothed out. They are: (i) resolution of ‘conflict of interest’ among bidders, (ii) total project cost definition, (iii) lock-in of promoter shareholding, (iv) traffic growth — upside capping issues, (v) eligibility conditions for bidding, (vi) flexibility to use advanced construction materials and techniques, (vii) compensation amount to concessionaires for failures of NHAI being reflective of market-losses, (viii) repetitive process for submitting cumbersome pre-qualification applications, (ix) new formats like DBFO (Design-Build-Fund-Operate) that need adoption. All nine are amenable to a group of reasonable stakeholders sorting things out to mutual satisfaction.
Finance-related: The big issue here is that commercial banks treat loans to road developers against future toll collections as ‘unsecured loans’. This severely cramps the banks’ ability to take on greater exposure. Also, India Infrastructure Finance Committee Ltd (IIFCL) can currently finance only commercial banks. The NBFCs and other institutions lending to the infrastructure sector should also be included.
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The public-sector bank chiefs who met Pranab Mukherjee on June 10 have put forward two main issues. One, the creation of a new class of long-term deposits with tax exemptions. Two, relaxations of norms pertaining to non-performing assets (NPAs) of infrastructure projects. Group exposure limits also need to be relaxed.
Viability-related: The ‘economic return’ on a road project is many times higher than its ‘financial return’. There is a case for an extra effort to be made to ‘make projects viable’. And for this, a judicious mix of EPC, annuity, shadow-tolling, regular tolling and viability-gap funding should be used in a ‘bespoke’ combination to make projects happen. A cell specialising in optimising a buffet of such choices and related financing techniques is an urgent necessity. This should also address issues of regional equity, as the more prosperous regions tend to get favoured under standard BOT models.
OMT-related: India has a poor record in asset maintenance, and in squeezing delivery and services out of assets. While the current ‘emphasis’ is on asset creation, it is meaningless unless supported by a high-quality Operations-Maintenance-Tolling (OMT) push. Stringent enforcement of road quality across the life of the project, modern tolling and HTMS (Highway Traffic Management Systems), improvement in road safety, and issues like interoperability (using the same ‘smart-card’ across a long corridor) need focus and attention. Applicability of service tax on tolling operations needs clarity.
Regulatory-related: There exists a strong case for establishing an independent regulatory authority for roads, bridges, highways and expressways. There are six classes of stakeholders in any roads programme. They are the sovereign (represented by the government and its institutions), the developer/contractor, the OMT operator, the financiers, the users and PAPs (project affected persons — like those whose land is acquired, or those who are peripherally involved in neighbouring towns, right-of-way users, etc). An independent regulator is expected to maintain an impartial balance between conflicting claims of various stakeholders. A twinned appellate tribunal should be part of such an independent regulatory authority, as a one-stop solution to the vexed issue of dispute resolution.
As is evident, the expectations are huge. So are the challenges. We wish our new minister and his team the very best.
As is said, “There are no toll-gates on the highways of thought and action”!
The author is chairman of Feedback Ventures Views expressed are personal