Highway projects: NDA ahead on approvals, UPA on execution

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In the first eight months of the National Democratic Alliance (NDA) government under Narendra Modi, the road transport and highways ministry sanctioned 15 new projects, under the National Highway Development Programme (NHDP), and awarded a total of 1,678.27 km. This compares well with the eight months of the United Progressive Alliance (UPA)-II regime prior to the announcement of Lok Sabha elections, when a total of nine projects with a cumulative road length of 940.5 km had been awarded. But the catch lies in implementation.

According to the latest available data, actual work has commenced on 10 projects totalling 901 km under the NDA government's first eight months. Under the previous government, 1,032 km of road length under 11 projects had seen commencement of work in the eight months between July 2013 and February 2014. There is a lag between projects being awarded by the National Highways Authority of India (NHAI) and the start of the actual work.

However, these are early trends. Things might change in the course of Modi's prime-ministership.

The government has set itself an ambitious plan of building 30 km of roads a day. Union Minister for Road Transport and Highways Nitin Gadkari had previously said an average 11 km of road was being laid each day, likely to go up to 15 km by the end of March this year. "We are targeting 30 km of road construction a day in the next two years," he had announced in the Rajya Sabha. But at the current rate, the target seems far from being achieved.

"There's no significant difference in the extent of work completed between the two governments frankly. Their overall performance has been quite average over the past year. The market has been quite tepid and that could be a factor why they need more time," said an industry analyst.

According to ministry officials as well, the road sector has been through a lot of flux in the past three years that has rendered private interest down, primarily due to lack of capacity with companies. Financing and land acquisition also came in the way of investment.

"The UPA government started the groundwork to revive the sector and the current government has the ability to take decisions. Introduction of the hybrid annuity model was a good move and could help in the coming days. We have to wait and watch," said Vishwas Udgirkar, senior director, Deloitte India.

The highways sector has received the highest support in the recent Union Budget. While the budgetary support for 2014-15 was Rs 28,881 crore, it jumped by about half in 2015-16 to Rs 42,912 crore. Though this would mean the government plans to allot a lot more projects with government funding or as engineering, procurement and construction (EPC) ones, the attempt is to bring investment in highways back on track.

The difference between the modes of investment in projects that have begun work could well be considered a reflection of the status quo in the road construction sector. While a total of seven projects found takers in the build, operate and transfer (BOT) mode during UPA's regime, only four such projects saw interested parties under the current NDA government. Out of the four, one project is in the BOT-annuity model.

The BOT model is of two types - toll and annuity, both involving the construction from concessionaires (private players). While BOT toll implies investment recovery from toll collection on highways, the annuity model involves fixed payments from the government to the private party. With assured periodic returns, the annuity model frees the private party from dependency on traffic for toll collection.

An outcome of this lack of investor confidence is the government has undertaken six EPC projects as compared with four in the UPA's regime previously. The EPC model, usually the last resort for road construction, involves the government executing the road project.