Investment pick-up in highways slipping
The NDA govt’s two major focus areas, road and power, are not seeing investment growth despite policy efforts. A two-part series finds out what is keeping the private sector away from these sectors
The National Democratic Alliance government’s two major focus areas, road and power, are not seeing investment growth despite policy efforts. A two-part series finds out what is keeping the private sector away from these sectors.
The Ghaziabad section of the National Highway-24 from Delhi to Meerut recently became a metaphor for what ails the roads sector.
At a press conference last month, Union Road Transport and Highways Minister Nitin Gadkari said, “I am approached only by people who want to stop the construction of some road or the other. No one asks me when a project will start.” The National Highway-24 project has been delayed by at least five years because the National Green Tribunal’s (NGT’s) approval nod on some constructions was awaited. In November, the Tribunal approved the construction of the two bridges on Yamuna and two flyovers on each side of the existing one near the Commonwealth Games Village.
Prime Minister Narendra Modi was indignant at the slow pace of the ~6,700crore project, aimed at reducing the travel time from Meerut to Delhi by 30-45 minutes, during a review meeting in October. The National Highways Authority of India (NHAI) says about 90 per cent of the project land has been acquired.
When Gadkari took charge of his ministry in 2014, he had set for himself a target of constructing 40 km a day in two years. The length of the highways awarded and constructed between April and November 2016 is 5,688 km and 4,021 km, respectively. This means the construction is a mere 16 km a day. It is not that the government has not taken initiatives to spur investment. One such initiative was the exit policy framework permitting concessionaires or developers to divest 100 per cent equity two years after the completion of construction. In May 2015, the government allowed developers to exit highway projects two years after completion mainly to unlock investments worth ~4,500 crore and provide a renewed thrust to the sector. These projects were in advanced stages of completion but were stuck due to lack of additional equity or the lenders’ inability to further disburse.
The decision was taken because the sector was struggling to attract investment under the PPP (public-private partnership) model. The government's effort to unlock investment in the highways sector may have taken off with a hybrid annuity model, with some 33 national highway projects costing around ~29,450 crore being awarded under this mode, but litigation surrounding land acquisition and environment issues is still keeping the sector in the slow lane.
There are many such contracts hanging fire including the Kanyakumari (Tamil Nadu) to T hi ru van ant ha pu ram( Kerala) project. An official in the road ministry said land was acquired for the Kan ya kumar iThi ru van ant ha pu ram project with much difficulty.
The EPC (engineering, procurement and construction) contract on connecting the two states is expected to be of ~1,200 crore, and will be executed by the NHAI.
Many projects get stuck because of contractors approaching the NGT, according to the official. Infrastructure experts say the government should be responsible for finishing projects in time.
“This is not the first time that one arm of the government is blaming the other for delays. Judicial issues come up when the construction norms are not met by the concessionaire,” said Vishwas Udgirkar, senior director, Deloitte India.
He said the responsibility for ironing out issues like land acquisition, environment clearances and legal hurdles lay with the government.
“These (land acquisition, environment clearances, legal issues) are not unexpected issues but if they are taken care of, finance will automatically come,” Udgirkar said.
These delays have a cascading effect on the overall progress of the infrastructure sector as the government stares at a slower pace of road construction, bundled with lowering highway contract awards during the current financial year (2016-17). Gadkari recently hinted at the government scaling down its target of awarding 25,000 km of highway contracts in 2016-17. With a downswing in the award of road contracts, the pace of highway construction will take a hit.