Removing the roadblocks to building highways

<i>Business Standard</i> looks at how govt will revive investment in highways sector

Award of highway contracts picked up pace after land acquisition, environment hurdles were cleared, but investors’ interest in the sector may take time. In the third of a four-part series, Business Standard looks at how the government will revive investment in the highways sector even as contractors have their hands full.
 
Union Road Transport Minister Nitin Gadkari recently said the central government executed highway projects worth Rs 4.5 lakh crore since May 2014, but experts say the pace of awarding contracts in the coming year might slacken in a saturated market even though bottlenecks like land acquisition and environment clearance are out of the way.
 
Contractors have their hands full, and there aren’t enough consultants in the market to take up jobs now, according to an expert.
 
When the National Democratic Alliance government assumed office, there was a slowdown in the industry due to lack of private investment. According to an official, infrastructure activity picked up after the government decided to award more contracts on an EPC (engineering, procurement and construction) basis.
 
EPC projects are fully funded by the government and, therefore, debt-wary companies find them easier to execute.
 

At the same time, the government is attempting to improve private investment flows into the highways sector. A way by which this has been done is introducing hybrid-annuity models (HAMs), under which 18 projects have been awarded till December 2016. These contracts are partially (up to 40 per cent) funded by the central government.
 
The government support for road construction is expected to jump nearly 60 per cent next year to Rs 23,891.59 crore, as it chalks out big plans on roads. Currently, funds are not an issue with the government. The financial situation is more comfortable because “you can monetise road projects”, an official told Business Standard.
 
This government and its predecessor (the United Progressive Alliance) have invested in the sector but the impact is less than what had been expected, according to Vishwas Udgirkar, partner, Deloitte Touche Tohmatsu India.
 
Operationalising policy decisions is taking time. Another expert, however, says there aren’t any bottlenecks as of now, so it is time the government went fast on awarding projects. “The government should not hesitate in awarding more projects,” he said.
 
Even as the government and the National Highways Authority of India (NHAI) gear up to award more highway projects in the coming months, the issue of stuck projects is still pending. The central government is facing hurdles in arranging debt for at least half of the 10 “chronic” highway contracts. National highway projects of more than Rs 8,600 crore turned “chronic” primarily due to issues relating to land acquisition, which impaired construction.
 
These projects were severely impacted by environment and forest clearances, local issues and aggressive bidding by overzealous companies. These 10 projects belong to a host of key construction players such as L&T, Gammon and Era Infra. They are in Tamil Nadu, Andhra Pradesh, Karnataka, Odisha, West Bengal, Haryana, Rajasthan and Uttarakhand. Banks have flagged these projects because they are susceptible to becoming NPAs. Of the total 46 highway contracts awarded till December 31, 2016, 24 projects have been awarded on EPC, 18 on hybrid-annuity and four on BOT (build-operate-transfer).

 For 2017-18, the government has made a provision of Rs 2,41,381 crore for the transport sector as a whole. This includes rail, roads and shipping. The Budget allocation for highways alone has gone up to Rs 64,900 crore in 2017-18. The plan is to build 2,000 km of coastal connectivity roads. Besides, the ministry of road transport and highways, and the NHAI have set a target of constructing 15,000 km in 2017-18. The goal is steep as the minister himself admitted that the government would be unable to achieve the current financial year’s target of 10,000 km.
 
During April-December 2016, around 5,000 km of roads were constructed but the government is expected to fall short of its target by 2,000 km.
 
Next: Power