Private investment in roads hinges on key policy changes

Rakesh Mohan committee pegs it at Rs 33,000 crore a year

The National Transport Development Policy Committee, headed by former Reserve Bank deputy governor Rakesh Mohan, has pegged private investment needs in the road sector at Rs 6.65 lakh crore over the next 20 years.

The finance ministry-appointed committee’s report comes at a time when private-sector investments in the road sector have dried up over the past few years.

The figure (Rs 6.65 lakh crore over 20 years) translates into Rs 33,250 crore a year, which is less than the total value of projects awarded under the public-private partnership (PPP) route in 2010 - Rs 51,354 crore.

Investments have been drying up since 2010 as is evident from the fact that only projects worth less than Rs 500 crore could be awarded in 2013; besides, the government was forced to cancel awarding projects under the PPP mode.

According to experts, one of the major tasks of the next government will be to revive interests in the PPP model to kick-start investment. A slew of policy measures, including single-window clearance, foreign funding and a flexible model concession agreement, would be needed to revive private-sector interest.

Private developers in India have been staying away from road projects and have tapped foreign markets where the return on investment has been better. Additionally, many developers are also staring at distress sale of road projects since a number of road projects have not taken off and returns are expected to be slow in the coming years as the economy comes out of a slowdown.

“A single-window clearance can help bring down delays that developers face. Besides, pension and insurance funds should be allowed to invest. The model concession agreement also needs to be reviewed periodically and the government should be willing to share risks with the private sector,” says M Murali, director-general, National Highway Builders Federation.

Of the Rs 6.65-lakh crore, private-sector investment in the construction of national highways is pegged at Rs 4 lakh crore. The remaining investment is expected to go into expressways and state highways. The total investment requirement for road sector is pegged at Rs  44.7 lakh crore.

The government’s target is to bring in private investment worth Rs 75,000 crore during the 12th five-year Plan, but the committee has suggested “the policy of build, neglect and rebuild” needs to be broken and that the government needs to ensure the road-sector in the country is adequately given importance.

As of now, road projects worth Rs 83,000 crore are pending completion. Since 2009, the United Progressive Alliance (UPA) government has recorded the completion of only three projects, adding a meagre 315 km to the existing highways’ network, despite awarding a record 147 projects under the PPP mode, with a combined value of Rs 1.47 lakh crore.

“As far as foreign investors are concerned, there is the problem of insecurity of projects. The Delhi-Gurgaon expressway was taken over by the government and that has sent out a wrong signal. Companies such as ours find the foreign market such as Qatar and African countries more lucrative as the return on investments have been better,” said the CEO of a leading infrastructure company. A large number of developers in India are currently plagued with massive debt and these include companies such as Gammon, GVK and GMR.

Last year, the government was forced to revise its plan to award 9,000 km of road projects in the wake of private-sector companies deciding to steer clear of bidding for road projects. As many as 22 bids found no takers from the private sector, forcing the government to construct roads on government-funded mode.

“There are a host of regulatory changes that can bring about the desired change in the road sector today. Land acquisition, for instance, should be made easier and companies should only be invited to bid when clearances are granted,” said Vishwas Udgirkar, senior director at Deloitte.
SLOW LANE

• Investments have been drying up since 2010 as is evident from the fact that only projects worth less than Rs 500 crore could be awarded in 2013
• Private developers in India have been staying away from road projects and have tapped foreign markets where returns have been better
• As of now, projects worth Rs 83,000 crore are pending