National Highway Development Project An update Mr. M.

. Murali, Director General, National Highway Builders Federation Infrastructure is our biggest opportunity in the next 10 years we must invest at least $150 billion (Rs.6.51 trillion) to modernize and to expand Indias infrastructure. I am not an astrologer to predict the course of events, But I have a dream like I said in my first speak as the Finance Minister in 1991, I quote No power on earth can stop an idea whose time has come. These words are from Prime Minister Man Mohan Singhs speech at New York Stock Exchange in September 2004. The Infrastructure boom was first gaining moments their private investors have since then brought in billion of dollars. Roads form an important part of Indias transportation system, as they carry 70 per cent of freight and 85 per cent of passenger traffic (annual growth projected at 12-15 per cent for passenger traffic, and 15-18 per cent for cargo traffic). India has a road network of more than 4 million KM , the second largest in the world. The focus of various governments to improve connectivity has brought about big-ticket investments in the road sector. Sources say that these improvements are essential if governments are to meet their objectives of achieving the targeted 10 per cent growth rates and reducing poverty. Spurred by the success in building and maintaining various infrastructure capacitiesroads, railways, ports, airports-policy makers are increasingly going in for public private partnerships (PPPs) as the referred option of financing these projects. While phases I and II had been funded though fuel cess and budgetary grant, the PPP route will fund the construction of highways under NHDP phases III, IV, V, VI and VII. More than 80 per cent of the investment is expected to come from the private sector. Status of NHDP Programme as on December 2008
Phases Phase I GO Phase II NSEW Corridor Phase III Upgradation and Four Laning Phase IV Widening Highways Phase V Six Laning Phase VI Expressway Links Length and year of commencement 5,846 km (approved in 2000) 7,300 km (approved in 2003) 12,109 km (approved in 2005-07) 20,000 km (approved in 2006) 6,500 km (approved in 2006) 1,000 km (approved in 2006) Completed in Km 5704 3083 613 Balance to be completed in Km 142 4217 11496 Remarks

Nil

Nil

Yet to kick off

63 Nil

6437 Nil Feasibility report being prepared

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Usually, the Government gives a grant to the concessionaire (or developer) while putting up a project. However, in case of busy stretches, where the concessionaire can earn substantial amounts by way of toll, there is a negative grant that the developer has to pay to the government, the reverse of a grant. To build any infrastructure project, the first and foremost challenge is building trust. PPP projects have many challenges in their life cycle. Stake holder complexity is refutable reality, the success of the project lies on transforming this reality being transparent and working in true partnership spirit. Another step forward was the relaxation of the foreign direct investment (FDI) limit from 74 per cent to 100 per cent in 1999 for construction, maintenance and operations of national highways. This aimed at attracting international construction players. India also signed the multilateral investment Guarantee Agency to safeguard foreign investors interests. Indian companies were permitted duty free import of high capacity and modern road construction equipment. Subject to condition that imported equipment cant be sold with 5 years of import. A 100 per cent income tax exemption was also granted for 10 years. Challenges The road sector has made the transition from being a government dominated arena to a private sector-friendly one in the last decade. Large-scale programmes and proactive policy initiatives have created improved road networks and increased investor interest. However, the sector faces challenges that could retard growth unless they are properly addressed. Indias road network now spans some 3.3 million km and is the second largest I the world. From 2.7 million km in 1998, the network currently comprises primary roads including 68,354 km of national highways, secondary roads including 131,899 km of state highways, and 487, 763 km of major district roads (MDRs0 and rural roads. However, road density still stands at 2.75 km per 1,000 people (the world average is 6.7) and 770 km per 1,000 sq. km (the world average is 841). National highways constitute only 2 per cent of the total road network but carry 40 percent of the traffic. Fifty-nine per cent of national highways are double lane and 27 per cent are single or intermediate lane. Only 14 per cent are four laned. The primary network is poorly surfaced and heavily congested with average truck and bus speeds of 50 km per hour. State highways and MDRs constitute about 13 per cent of the total road length and carry 40 per cent of the traffic. The quality of the secondary network, particularly MDRs, is much below prescribed standards. The Planning Commission states that close to 50 per cent of the state highways and MDRs are of poor riding quality. Losses due to poor road conditions are around Rs 60 billion per year.

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 Some other factors continue to pose challenges. These involve land acquisition, encroachment on highways, environment and forest clearances, shifting of utilities, railway approvals for rail over bridges, local law and order problems, poor performance by contractors, etc. Another step forward was the relaxation of the foreign direct investment (FDI) limit from 74 per cent to 100 per cent in 1999 for construction, maintenance and operations of national highways. This aimed at attracting international construction players. India also signed the multilateral investment Guarantee Agency to safeguard foreign investors interests. India companies were permitted duty free import of high capacity and modern road construction equipment. A 100 per cent tax exemption was also granted for 10 years. Role of Public Private Partnership PPP has emerged, as a viable financing option at both the central and state levels as funds from traditional sources have been insufficient to meet increased investment needs. Moreover, experience has shown that government ownership and management prevents roads from operating efficiently. The Government has implemented NHDP projects on three PPP formats-Build-OperateTransfer (BOT) toll, BOT (annuity) and special purpose vehicle (SPV) route. BOT (toll) has been the preferred mode accounting for about of 65 per cent of the total private investment. BOT (annuity) and the SPV method have accounted for 28per cent and 7 per cent of the total private investment respectively. It is expected that BOT (Toll) will continue to remain the dominant format for the future phases of the NHDP. Key issues in Road sector under PPP: a. One of the key issues is the large investment requirement coupled with uncertain recovery. High costs of land acquisition, tolling equipment, maintenance and related costs place a substantial burden on early debt service capacity. Further, road projects are highly dependent on traffic volume growth to repay debt. Unavailability of traffic information and inaccurate historical data result in incorrect forecasts, which cause difficulty in debt servicing. b. Road projects are characterized by back-ended cash flows and require term loans of longer tenor (ideally 10 to 12 years) with back-ended repayment structure. However, there is a dearth of long-term structured sources of funds, as banks cannot have more than 15 per cent exposure. The capital markets in many emerging countries including India are insufficiently developed to support the raising of such long-tenor debt. c. The accuracy of the cost estimate of an infrastructure project is a function of a number of factors and the key ones includes level of detail to which the project has been designed, Rigor with which the estimation has been carried out including local knowledge, material price fluctuations between the time of estimation and the time of tender.

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d. The problem is that developers can rarely wait for completion of detailed design before trying to attract finance for a project and it is always a problem. Finally, the tender cost is the cost that a contractor offers to build the project and ideally should be close to the design cost. e. However, this does not always happen due to reasons as varied as commercial, political or market forces, Engineers are sometimes guilty of not recognizing and allowing for the non-technical factors which influence the cost estimates. f. Material cost fluctuations are common and developed countries publish indices, but in India there is a dearth of organized and accurate data and indices on costs of construction materials and labour making the exercise much more difficult. The fluctuations in material prices have to be gathered by inquiry each and every time and the reliability of the data gathered depends upon the sources as well as the skill and experience of the estimator. Then there are the other factors which can bring about a divergence between the cost estimate and the final cost. These includes type of contract, terms of contract and contract procedure, Pressure to provide optimistic estimates are able to show good return on a project and thereby attract investors, Insufficient contingencies. h. Contingencies for known risks need to be adequately allowed for following a risk analysis. Last but not least, there is the unknown and it is always wise to allow for some cost for unforeseeable risks depending upon the complexity of the project and the commercial, political, social and environmental dynamics. Current Scenario There are around 53 projects worth of more than Rs 60,000 crores are currently in the pipeline out of which Government received bidders for around 16 projects including single bidders for 6 projects. The reasons behind this non participation in the bidding process by the road developers are due to reasons severe cash crunch, high cost of borrowing, lack of realistic data in DPR and traffic estimates prepared by NHAI made most of these projects unviable for bidding. The remedial measures taken by the Government by way of increasing the project cost and releasing the viability gap funding amount during the construction period itself is an encouraging steps towards for making the project viable.

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I.
PQ / TE ND ER

DETAILS OF NHAI PROJECTS

LEN GTH (KM) ESTD. COST

S NO

PROJECT DESCRIPTION

PACKAGE NO.

NH No.

INR CROR ES

REMARKS

4 -laning of the selected stretches of National Highways to be executed as BOT (Toll) Project under NHDP Phase-III Panikoili-KeonjharRimuli Section from km 0.00 A to km 163.00 Rimuli-Roxy-Rajamunda Section from 163.00 to km 269.00 Chandikhole-DubariTalcher Section from km 301.890 to km 428.030 4/6 -laning of JaipurReengus section of NH11 in the state of Rajasthan to be executed as BOT (Toll) Project under NHDP Phase-III Four/ Six-laning of selected stretches of National Highways to be executed as BOT (Toll) Project under NHDP Phase-III Hyderabad Vijayawada section from Km. 40/000 to Km 221/500 Four/ Six-laning of selected stretches of National Highways to be executed as BOT (Toll) Project under NHDP Phase-III VijayawadaMachilipatnam section from Km. 0/000 to Km 63/800 4/6 -laning of the selected stretches of National Highways to be executed as BOT (Toll) Project under NHDP Phase-III

NHDP/PH-III/ BOT/Orissa/01

215

166.1 73

1086

NHDP/PH-III/ BOT/Orissa/02

215

96.45 3

654

NHDP/PH-III/ BOT/Orissa/03

200

133

810

NHDP/PH-III/ DL-4/09

11

52.65

343

NHDP-III/ BOT/AP/01

181.9 81

1460

CDCL-Gannon Dunkerley Ltd is the sole bidder for this project NHDP-III/ BOT/AP/02

64.75

468

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4-Laning of MP/ Maharashtra BorderDhule (km 168.00 to Km 265.00 ) 6- Laning of PimpalgaonNasik - Gonde (km 380.00 to Km 440.00 ) 6-laning of Chandikhol Jagatpur - Bhubaneswar section (Km 413.0 to Km 418.0 and Km 0.0 to Km 62.0) 6-laning of Delhi - Agra section (Km 20.5 to Km 199.6) 6-laning of Vijaywada Elluru Rajamundry section (Km 3.4 to Km 200.0) Jorbat-Shillong Section of NH-40 from km 0/000 to 61/800 6-laning of KrishnagiriWalahjpet section (Km 0.00 to Km 148.30)

NHDP/PH-III/ BOT/MH-06

awarded to HCC-John Laing consortium 3 97 675

NHDP/PH-III/ BOT/MH-07

60

752

Awarded to L&T-Ashoka Buildcon Ltd consortium

NHDPV/ MC-II/03

67

951.38

NHDPV/ MC-II/04

179.1

1917.63

NHDPV/ MC-II/07A

198.2

2002.5

NHAI/SARDP /2008 NHDPV/ MC-II/013

536 40 4 & 46 61.92 Following companies bided :a)Reliance b)Soma-Isolux c)GMR Following companies bided :a)GMR b)GVK

148.3

1489.55

10

6-laning of KishangarhUdaipur section (Km 364.00 to Km 113.800) 6-laning of ChilkaluripetNellore section (Km 1182.802 to Km 1366.547) Ghaziabad to Aligarh Section of NH-91 from Km 23.600 to Km 140.200 Muzaffarnagar-HaridwarDehradun section of NH58&72 from km 131.000 to 218.200 of NH-58 and from km 156.000 to 196.800 of NH-72 International Competitive Bidding for prequalification of bidders for 4/6 laning of km 387.100 to 407.100 on NH-1 Jalandhar-Amritsar Section in Punjab on BOT

NHDPV/ MC-II/09

79, 79A & 76

315

3076.38

NHDPV/ MC-II/013

183.7

2163.9

Soma- Isolux is the sole bidder for this project

91

126.3

1325

11 B

58 & 72

127

1306

12

NS-1/BOT/PB

20

290

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14

Widening To 4-Lanes and Strengthening Of Existing 2-Lane Carriageway Of NH-47 Including Bridges From Km. 348.382 To Km. 358.300 In The State Of Kerala Balance Works. Madhya Pradesh/Maharashtra Border - Nagpur Section of NH-7 from Km 652.000 (New Km 653.225) to Km 729.000 including Kamptee Kanhan and Nagpur Bypass Pune-Sholapur section from km 40.00 to km 144.00 Kuttipuram Edapally section from km 318.00 to 438.600 Tirupati Tiruthani Chennai section from km 274.800 to km 341.600 in state of Andhra Pradesh and km 0.00 to km 59.600 in state of Tamilnadu Balance works of widening to 4/6-lanes and Strengthening of Existing 2-lane Carriageway of NH-5 in the State of Orissa from Km 136.500 to Km 199.141(BhadrakBaleshwar) Two-laning of Shillong Bypass connecting NH-40 and NH-44 from km 61/800 of NH-40 to km 34/850 of NH-44 in the State of Meghalaya on DBFO pattern under SARDP-NE on Build,Operate and Transfer (Annuity) basis. Four-laning of JorhatDemow Section of NH-37 from km 453/000 to 534/800 in the State of Assam on DBFO Pattern under SARDP-NE Phase A on BOT(Annuity) Basis

87

NS-1/BOT/MH

95.06 3

1,133.8 4

OSE Ltd is the sole bidder for this project

NHDP/Ph III / BOT/ MH/ 08 NHDP/Ph III / BOT/ KL/ 01

110

923

B 15

17

112

1158

NHDP/Ph III / BOT/ AP/TN/07

205

125

802

16

OR-III

62.64

228.49

NHAI/SARDP /2008/2

40 & 44

47.06

226.112

17

562

-7-

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JaipurTonk-Deoli section from km 18.700 to km 165.000

NHDP/ BOT/RJ/ 3

12

148.7 7

1071

18 B Gujarat/Maharasthra Border Surat HaziraPort section NHDP/ BOT/GJ/ 1 6 130.7 69 1300 Following companies bided :a)Soma- Isolux b)GMR Following companies bided :a)Soma Isolux, b)HCC-John laing , c)Maytas-CR18 d) Navinya-Atlantia SPA

19

Kishangarh-AjmerBeawar Section from km 364.125 to km 58.245 Cherthalai - Ochira Section (km 379.100 to km 465.000) OchiraThiruvananthapuram Section (km 465.000 to km 551.900) Thiruvananthapuram Bypass and continuing the bypass with new alignment further as alternative road for existing NH 47 from Thiruvananthapuram to Kerala/ Tamilnadu Border CoimbatoreMettupalayam Section from Km 328/000 to 383/200 Karaikkudi Ramanathpuram Road Section from km 94/00 to km 174/00 New By pass for existing NH 47from Kerala/Tamilnadu Border to Kanyakumari and NH47 B from Nagercoil to Kavalkinaru Four laning of Armur Adloor Yellareddy stretch from km 308.000 (Armur) to km 367.000 (Adloor Yellareddy) of NagpurHyderabad Section on NH-7

NHDP/ BOT/RJ/ 2

93.56

722.24

A 20 B

NHDP/Ph III / BOT/ KL/03

1286 47 83.6

NHDP/Ph III / BOT/ KL/04 NHDP/Ph III / BOT/ KL/02

1222 47 47 85.6 43

521

21 B NHDP/Ph III / BOT/ TN/ 08 NHDP/Ph III / BOT/ TN/ 09 NHDP/Ph III / BOT/ TN/10 67 50 500

599 210 47 & 47 B 80 70.36

22

706

23

NS-2/BOT/AP1

60.25 5

490.5

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Four laning of NH-4A from Goa/Karnataka Border km 84+000 (Design Chainage km 84+000) to Panaji-Goa km 153+070 (Design Chainage km 149+070) , total length 65.07 km in the state of Goa under NHDP Phase-III on BOT Basis. Rohtak to Hissar Section of NH-10 from Km 87.000 to Km 170.000 Amritsar-Pathankot section of NH-15 from km 8.042 to 102.420 Baihata-Chariali Tejpur Section from km 0/000 to 130/000 CuddappahKurnool section from km 167.750 to km 356.030 KundapurSurathkal section from km 283+300 to km 358+080 (Section 1) and Mangalore- Kerala Border [km 375+300 to km 376+700 (i.e. Nantur circle to Mahaveer circle) and km 3+700 to km 17+200 (i.e. Mahaveer circle to Kerala border)] (Section 2) 4-LANING OF KHAGARIA BAKHTIYARPUR SECTION OF NH31(KM153.00KM270.00)

NN/DL2/10

4:00 AM

65.07

382.46

IRB is the sole bidder for this project

A 25 B

10

89.36

647

15

102.4

704 OSE Ltd is the sole bidder for this project

26

NHAI/NHDP /2008/4 NHDPIII/ BOT/AP/03 18

52

133.9 8 188.2 8

1236.7 1567

27

28

NHDP-III/ BOT/KNT/ 04

17

90.08

616

1704

29 4-LANING OF PATNA BUXAR (181.300-KM117.00 ON NH-30 AND KM0.00KM75.00ON NH-84

NN/DL3/2/B/5

31

120

1620 NN/DL3/4/B/6 30 & 84 125

30

4-LANING OFPURNEAKHAGARIA SECTION OF NH31(KM270.00KM410.00) NN/DL3/1/B/4 31 135

1285

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4-LANING OFSONBARSA MUZAFFARPUR SECTION OF NH77(KM0.00-89.00) NN/DL3/5/B/1 4-LANING OF HAJIPUR CHHAPRA GOPALGANJ PACKAGE-I (KM 10.00KM94.700 ON NH-85) NN/DL3/3/B/2 4-LANING OF HAJIPUR CHHAPRA GOPALGANJ PACKAGE-II (KM2.300KM10.00 ON NH-85 AND KM143.200KM207.200 ON NH-19) NN/DL3/3/B/3 85 84.7 77 89

921

32

917

33

958 19, 85

71.7 619 67 6 76.7 66.76 506

A 34 B

4-laning of NagapatnamThanjavur from km 0/0 to km 80/0 4-laning of Talegaon Amravati from km 100/00 to km 166.725 Four/Two Laning of Dindugal Theni NH.45 Ext ( km 2/750 to km 73/400) and Kumili Theni NH 220 (km 215/500 to km 273/600) 4-laning of Trichy Karaikudi from km10/00 to km.94/000 Including Trichy bypass km.109.558 toKm.135/930 4-laning of Tindivanam Krishnagiri from km 38/150 to km 214/00 4-laning of Kannur Kuttipuram (Package-I) from km 148.00 to km 230.00 4-laning of Kannur Kuttipuram (Package-II) from km 230 to km 318 4-laning of Pune Sholapur (Package II) km 144.400 to km 249/000

NHDP III / BOT/ TN/14 NHDP III / BOT/ MH/10

NHDP III / BOT/ TN/11

45 Ext. & 220

772

133.7

35 B

NHDP III / BOT/ TN/12

768 210 108.3 7

NHDP III / BOT/ TN/13

927 66 189.0 0

NHDP III / BOT/ KL/05 NHDP III / BOT/ KL/06 NHDP III / BOT/ MH/09

834 17 83.2 821 17 81.85 813 9 101.3

36

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6-laning of BelgaumDharwad section (Km 433.00 to Km 515.00) 6-Laning of Varanasi Aurangabad section (km 787.00 to km 977.00) 6-laning of Indore- Dewas section (Km 577.55 to Km 610.00 and Km 0.00 to Km 12.60) 4-LANING OF PATNAHAJIPURMUZA FFAR PUR OF NH77(KM 0.000-KM 46.3.000) including Muzaffarpur bypass connecting NH-28 FOUR LANING OF EXISTING 2 LANE OF MOKAMAMUNGER OF NH-80 FROM KM 0.000 TO KM 70.000 PROJECT UNDER NHDP PHASE III

NHDP-V/MCII/ 19

80.18

637.5 Following companies bided :a)Soma -Isolux b)Gammon India Ltd.

38

NHDP-V/MCII/ 011

190

1916.75

39

NHDP-V/MCII/ 22

45.05

410

40

77 NHAI/DBFO(An nuity)/NHDP PhIII/BIHAR/04 63.37 1

570.056

41

NHAI/DBFO/DP R NHDPPhIII/BIH AR/04

80

70

755.588

Note: 1) The estimated project costs are before the increase 2) The information sourced from NHAI/ Industries

Conclusion: The reasons behind the slow progress, as building and maintaining roads is an expensive, time consuming and hurdles in land acquisition and environmental clearance. One of the key issues is the large investment requirement coupled with uncertain recovery. High cost of land acquisition, tolling equipment, maintenance and related cost place a substantial burden on early debt service capacity. Further road projects are highly dependent on traffic volume growth to repay debt. Unavailability of traffic information and inaccurate historical data result in incorrect forecasts which can cause difficult in debt servicing. Another problem faced by the private investors is experiments of Government policy with many formats and tweaks with varying degrees of success. The private investment flows into this sector purely depends on the consistent, long term policy adopted by the Government which will beneficial to both sides. The current global liquidity crisis has led to slowdown in the pace of road construction ,the impact to Private sector and PPP projects are so severe due to lack of funds and the infusion of funds by the Government to this sector will take a longer time revive.

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To avert this slow down and gives a breathing space to road building it is necessary to develop mutual trust between the Government and concessionaire and also implore possibilities to attract bidders for the pending projects by way of revising the project cost ,reducing the traffic data, provide concession-al interest rate for these projects, amend the rules and regulation in the concession agreement into consumer friendly will lead to positive results. Over and above the lack of proper land acquisition rules ,disputes resolution mechanisms are the major hurdles in the progress of the ongoing projects which may resorted by the Government by adopting a proper remedial solution . In the current environment the private investors will picked the projects selectively as they find it difficult to access capital. The Government has to find ways to enable faster capital inflows and more expeditious projects implementation to gap Indias infrastructure development which remain highly potential in the years to come.

(The views expressed in this article are personal may not be the views of the organization representing)

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