Highway Projects To Get More State Support

The National Highways Authority of India (NHAI) has decided to strenghthen the state support agreement in the concession pact for road projects. Under the current draft agreement, state governments are obliged to support four-laning of national highways.

In the draft document, state governments are expected to support the project through enforcement of the Motor Vehicles Act, 1988. In cases of violation, especially where axle loads are exceeded, there is no provision for compensation to project operators for the additional maintenance cost incurred. The levies for excessive axle load comprise part of the state government's revenue flow which the state governments are not obliged to share with the project operators. Such fees are about Rs 1,000 per tonne of axle weight.

Sources said that these agreements are being strengthened to allow NHAI to make compensation payments to the `build, operate and transfer' (BOT) operators. Such payments will also be recovered from the state government, they added. However, the mechanism of such recoveries from the state governments has not been specified yet. But this is expected to be worked out for project operators for making the concession documents water-tight.

Potential investors have been complaining about the problems in recovering dues on account of violations in axle load norms. Currently, commercial vehicles operate at axle loads of about 15 tonnes. This is expected to keep the operation and maintenance costs of the projects at about 6 per cent, which is almost double the prescribed limit. Based on this norm, maintenance costs are expected to be just 1 per cent of the total project costs.

The increased maintenance cost and the inability to recover the same from users within the existing legal framework, could impact the targeted internal rate of return of operators. Project operators have been assured a minimum internal rate of return of 18 per cent based on the existing traffic flows.

The sources said that the strengthening of the state support agreement would also entail passing on some of the powers under the Motor Vehicle Act to build, own, operate and transfer (BOOT) operators of the projects. Under the Act, the power to levy penal fees for damaging side walks was vested with the road transport authorities. Besides, the powers to make rules was vested with the states under Section 138 of the Act. Consequently, some of these clauses in the Act may have to be amended, the sources said, to include BOOT operators.