We are moving to a fixed-contract regime: A K Upadhyay

Interview with Secretary, Ministry of Road Transport & Highways

The government wants to provide the much-needed boost to the economy through a renewed focus on road development. However, a sceptic industry is unsure of whether the Centre would be able to meet its target of awarding 9,500-km projects this year. A K Upadhyay, secretary, ministry of road transport and highways, in an interview with Shaikh Zoaib Saleem and Jyoti Mukul, admits even as the government is trying to take a liberal view of bids to hasten projects, concern on clearances for projects remains. Edited excerpts:

The award of road construction projects in the quarter ended June was not in line with the prime minister’s ambitious target of 9,500 km. Do you think it is possible to achieve this target?
It is true the first few projects have not seen good response. But, this is the initial part of the year. We are keeping a watch. We held a detailed meeting with the concessionaires and lenders on their concerns. Chairmen of the banks, concessionaires and lenders were addressed by the minister, and the deputy chairman of the Planning Commission is trying to understand the problems the sector faces. One is from the financing side—for instance, the availability of equity. The other is on our side, primarily environment and forest clearances. So, we are in dialogue with the ministry. Maybe, it is a combination of various factors that has led to a situation in which the awards are not very encouraging. But we are hopeful.

Contractors say one of the problems is project costs estimated by the industry and the National Highways Authority of India (NHAI) are different. This creates problems in financial closures.
The overall project cost is prepared by the same consultants who work for the banks, or concessionaires. It is not as if we prepare costs in-house. To arrive at the same platform, we have told contractors they can vet our documents and see where the difference lies. It is for the consulting industry to come to a harmonious platform. It should not give one kind of appraisal for us and a different one to others. If cost estimates are different due to time overruns, the difference can be 5-10 per cent for a year. But if the difference is 20-30 per cent, it has to be revisited, as the same set of consultants is carrying dong this.

Is it true most high-profile projects have been awarded earlier, and not many attractive projects are in the pipeline?
You are right. Many profit-making projects are not there. But whatever bid would be made, it would be made with respect to a specific project. Now, we allow zero to 40 per cent grant. Earlier, industry had given us premium. Instead, what it can do is seek a grant; that is permitted in the policy. I do not, therefore, see why that should make a difference. We also have some cash contracts, which would be public-funded projects. A lot of projects would not be build-operate-transfer toll ones, but cash-funded projects like traditional contracting. This infuses cash in the industry. Projects that are not viable would be public-funded through engineering, procurement and construction (EPC) contracts.

Won’t it be difficult to achieve the 9,500-km target, given that the first quarter is over and you are yet to get feasibility reports?
The problem is not feasibility reports. The problem is our processes and industry’s response. Our own processes need to be simplified, and we are working on that. Also, the industry has to come forward.

How are you addressing land acquisition, as well as other industry concerns such as large sums locked due to disputes?
As far as certain obligations on our part are concerned, these are very clear. On land acquisition, utility shifting and environment clearances, we have to act very fast—that is very clear. The industry also mentioned some old claims. The board is now considering expediting these. Some claims should be paid right away; we do not doubt that at all. The problem arises when parts of the claim are soft and not directly related to work on the ground—for instance, idling charges. Another type of claims are lost-profit ones. On that front, the industry should come forward to negotiate and discuss a settlement. NHAI’s door is open to discussions. There has to be some kind of give-and-take.

The EPC contract was seeing a few changes. Have these been finalised?
The only remaining step is securing approval of the Cabinet Committee on Infrastructure.

How would it be different from the earlier contract?
This is a drastic change. Earlier, we called it an EPC, but it was an item-rate contract. In fact, we used EPC for any cash-funded project. But EPC is a very specific term. It refers to a fixed-term, fixed-time and fixed-cost contract. It does not require measuring each item of work. The earlier contract has been completely replaced and now, we are moving to a fixed-contract regime.

Of the 9,500-km target, how much would the EPC contracts account for? When would you roll these out?
It should be 3,000-4,000 km. The rolling out would be concurrent. In fact, two projects are already bid out. There are some projects on the anvil. As and when we get the feasibility reports, we would roll out the bids.

What is the expected highway construction target this year? What about the target of 20 km a day?
We should be doing 3,000 km. The target of 20 km a day would be met in two years—from FY14. For that target, you must have three times the work at hand, with an average construction period of three years.