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The roads ministry, which had set an ambitious target of awarding 9,000 km of road projects this year, managed to award just 500 km. The fact that the private sector decided against partnering the government in building roads, in the wake of the economic slowdown, added to woes.
The private sector's decision to stay away from road projects was due to multiple factors. Banks had stopped funding a number of projects and the lack of clarity on premium rescheduling held back investment decisions. Premium is the amount road developers agree to pay the National Highways Authority of India (NHAI) for a particular project; it is usually calculated on the basis of estimated traffic flow.
Due to the slow economic environment, developers have been seeking a rescheduling of the payment.
Meanwhile, the Centre has decided to award a number of projects on the government-funded mode from the next financial year. The roads ministry is targeting awarding 5,000 km under the engineering, procurement and construction mode, wherein it will fund a project and the contractor concerned will execute the project work, reducing the risk involved with private road developers.
"We will not be awarding any road project on the PPP (public-private partnership) mode during the financial year. We will now award 5,000 km of road projects under the government-funded mode," Vijay Chhibber, secretary in the roads ministry told Business Standard.
It is expected 2014 will bring some cheer to the roads sector, as a committee on premium rescheduling, headed by Prime Minister's Economic Advisory Council Chairman C Rangarajan, will announce its recommendations.
The committee is yet to finalise the terms and conditions of the rescheduling. NHAI is to receive dues of Rs 1,51,000 crore through the next 20 years.
An independent road regulator, though, is likely to be set up, either by the end of this year or next year. This entity will address many of the concerns in the sector. The regulator will have adjudicatory powers in areas such as contract management, dispute resolution and the renegotiation of future contracts. "We are looking to pass it before the Budget," Roads Minister Oscar Fernandes told Business Standard.
The government has also decided to tweak a policy, allowing road developers to exit projects.
The ministry is considering making the scheme lucrative by allowing a substitute to buy the stake in the existing special purpose vehicle (SPV), as opposed to the earlier policy that required the substitute to create a new SPV. As SPVs set up to undertake road projects often received tax benefits from the government; there was no clarity on the benefits extended to a new SPV.
EXPECTATIONS FROM 2014
- Independent road regulator likely to be set up to address issues ranging from contract management to dispute resolution
- Relief for private road developers as the Rangarajan panel will allow road developers to pay just 25% of the assured premium to NHAI in the next 3 years
- Government will award a judicious mix of road projects, instead of allowing only PPP projects
- Following the exit policy announcement and premium restructuring, stake sales in the roads and infrastructure sectors likely
- Road ministry likely to come out with its recommendations on quadricycles, which is expected to boost the fortunes of companies such as Bajaj Auto
