Road regulator a boon for the highways sector, say experts

The announcement about the setting up of a regulator for roads in the Union Budget by Finance Minister P Chidambaram is a blessing in disguise for Indias highways sector, according to experts.

They say that the dispute-heavy sector can now look forward to a third party to resolve them, in the form of a regulator.

In the absence of a regulator, many disputes have landed in the courts, like in the case of the Delhi-Gurgaon Expressway, where toll collection was stalled for more than a month.

The present dispute redressal method is very tough and costly, said Vishwas Udgirkar, senior director at Deloitte Touche Tohmatsu.

Companies say many such issues arise and the nodal agency, National Highways Authority of India (NHAI) is unable to address them. They claim that the NHAI is also a party in most cases which involve concession agreements of road projects, and hence cannot be neutral.

There are a lot of differences on the completion of a project, change in the scope of a project and concession time period increases, which are sought when land acquisition is delayed, explained Mukund Sapre, executive director of IL&FS Transportation Networks. Many engineers who are appointed from the government's side, report to the NHAI.

The number of disputes could also go up if a regulator comes into place, as many developers do not battle with the NHAI. The developers would have to go back to the NHAI for other projects. So, they tend to stay away from complications, said an industry expert.

Projects which are awarded on engineering, procurement and construction (EPC) basis have more number of disputes than those awarded on public private partnership (PPP) basis. EPC projects have cost and contract valuation-based feuds, said Udgirkar.

The regulator could also ensure that the toll charged is fair, transparent and reasonable, apart from facilitating and overseeing the development of the road sector, said B K Batra, deputy managing director of IDBI Bank.

Industry players expect their regulator to play a similar role like that of Airports Authority of India, or Central Electricity Regulatory Authority. Road projects which are now under the control of state governments can also be regulated at the national level. A regulator can take over some of the functions which are now being executed by the Ministry of Road Transport and Highways like annual toll increases, provide exemptions from toll to certain categories of vehicles, and others.

Batra also expects an independent authority to bring in uniformity of standards across toll roads, project costs and provisions of concession agreements of all the projects awarded. He also hopes that lenders too, like themselves, can look forward to safeguarding their interests, better.

Risk assessment of a road project is easier for banks if there is clarity on some clauses of a concession agreement. They could represent the regulator directly with such matters.

Around 70-80 per cent of project cost is funded by lenders and our interests should get protected in cases where projects are terminated or delayed, said Batra.