The government's ambitious plan to partner the private sector in building roads and highways seems to be staring at an uncertain future, with private sector funds drying up and the government taking flak for unfavourable and stringent policies.
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 public-private-partnership (PPP) mode, with a combined value of Rs 1.47 lakh crore. The dream run for privately-funded projects, which started during the National Democratic Alliance (NDA) regime, seems to be coming to an end and experts don't expect a revival in private sector investment before 2015.
Minister for Road Transport and Highways Oscar Fernandes said, "Now, we are now awarding projects on the government-funded mode. One of the reasons is funding has become a big problem and land acquisition continues to affect us. State governments have not been successful in acquiring land for projects, but we are sure the dream will continue," he told Business Standard. During its first term, the UPA government had awarded 4,920.69 km through the PPP mode; so far, 3,166 km have been completed. The combined value of road projects pending from the UPA government's first term is Rs 13,095 crore. Projects worth Rs 69,047 crore, awarded during the government's second term, are yet to be completed.
"We were the first to bring in this model and we saw complete confidence from our contractors. People have no confidence in the system and there is no transparency. Today, the road sector in the country is in shambles," said BC Khanduri, who was in charge of the roads ministry during the NDA regime. "We created a system where the number of Indian contractors bidding for projects rose to 80 per cent, compared to 20 per cent when we took over."
Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said, "There are problems with implementation and a lot of work is going into improving the situation. The dream has not ended. We have done more in the last 10 years than was done in the previous 10 years, but less than the target."
Since 2004, the government has awarded 220 road projects, worth Rs 1.84 lakh, under the PPP model; while 59 projects have been completed, 67 projects, worth Rs 65,368 crore, are in the construction phase and are scheduled to be completed by 2014-15. In the case of these projects, many developers had threatened to walk unless the government introduced a policy to reschedule the premium payments.
"We have been asking the government to allow rescheduling of the premium. The move will free equity which will help companies invest in new projects; the government has been sitting on the proposal since last year," said a senior NHAI official. Also, the government hasn't been able to decide on the exit policy proposed last year which will help companies free investments. A decision on setting up a road regulator is also pending.
"These are two measures that will help free capital. In addition, we also need a road regulator to address various issues in the sector. This is also the time to learn from experiences and refine the PPP model which will allow a concession model that has the flexibility to adapt to changing times, as these projects are awarded for long periods," said Vishwas Udgirkar, senior director, Deloitte.