Government had made the model concession agreement (MCA) mandatory for the highway projects that were to be awarded through PPP route.  MCA allows projects to be carried out on the basis of build-operate-transfer (BOT) and build-operate-own (BOO). While MCA ensures risk and reward involved in implementation of the projects is optimally balanced, it also promises increase in the pace of project award. However, recent statistics of project award for national highways shows that government is lagging behind in awarding the projects.

Till March 2008, there was not much progress in awarding highway projects for phase III and phase V due to procedural bottlenecks. However, in March 2008 UPA government announced that it would award 70% of 14,500 km of national highways as the procedural hurdles such as environmental clearance, land acquisitions, preparation of new model concession agreement, and litigations have been cleared. However, even after that progress has been extremely slow.

In 2008 government is mainly inviting bids for phase III and Phase V, which involves upgradation of existing highways. Out of 61 projects that suppose to be awarded by the end of 2008, so far (till Jan 2009 end) only three projects have been awarded and other three are in process. Moreover, out of the 29 projects that the NHAI invited bids for, while 18 projects did not receive bids, 11 projects that received bids include only single bids for 3 projects. Project award rate was down to 17% in 2007-08 from 70% in 2005-06. Considering current progress and approaching elections in April-May 2009, things are bound to get further slow.

Project completion rate for national highway projects has seen downward trend over the period. In 2004-05 completion rate was 81%, which was down to 73% and 79% in 2005-06 and 2006-07, respectively. 56% completion rate in 2007-08 was the lowest ever under NHDP.

The regulatory body NHAI has failed to perform its functions due to the lack of autonomy. Despite its autonomous status, major problem with NHAI is rampant interference in its functions by the administrative ministry (Ministry of Shipping, Road Transport and Highways). The ministry has changed 5 chairmen of the NHAI in last three years (i.e. since 2006). These changes have largely been driven by differences between the administrative ministry and the NHAI. If we look at the tenures of the last five chairmen, the highest tenure was 11 months and the lowest was 2 months. If the ministry continues such interference in the NHAI functioning it defeats the very purpose of an independent authority and NHAI would end up becoming just another tool in the hands of the ministry.

NHAI is also running short of its spending target for highways projects. In 2008-09 NHAI spent only 52% of the total allocated funding of Rs. 31,000 crores till January 2009 and it is expected to spend another 16% by the end of this fiscal year. That means 32% of the total allocated spending would be unutilized. In 2007-08 NHAI spent 89% of total allocated spending, much better than the current year.

Private players are finding NHAI projects unattractive because uncertainty about income stream over the contract period. Many times traffic claimed in the contract is questioned by the bidders as well as financial institutions. Even clauses in the concession contract like the concessionaire has to put in more investment if actual traffic during contract period exceeds over expected, has questioned healthy income stream over the contract period. Another important issue is land acquisition. It is responsibility of government to make available land for the highway projects. NHAI projects guarantee only 40-50% land at the beginning of the projects and remaining later during the contract. According to private bidders this further inflicts uncertainty during the concession period. Ideally government should make available 80-90% land in the beginning of the project to remove uncertainty.

India’s 3.2 million km road network, though the second largest in the world, of which only 2% constitutes the Golden Quadrilateral highways, is perpetually choked even before the first of the million Nanos trickle in! US have built about 46,000 miles in 12 years and China, 30,000 miles in half the time! The total completion rate of the National Highways Development Programme stands at a shameful 28% overall or 9,165 km out of the proposed 31,755 km.

The new government will have to ensure greater level of efficiency than what has been displayed so far in executing NHDP. Ensuring NHAI works autonomously in real sense would be the first task government has to look in. Recent order by high court on stopping the administrative ministry from changing NHAI chairmen frequently is certainly a positive step. Still there is a lot to be done. The fact that India’s competitiveness and economic growth is negatively affected by its poor infrastructure, delays and inefficiencies in awarding new projects and in completing already awarded projects are crucial impediments that government has failed to overcome.

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Tags: highway, UPA

This entry was posted on Thursday, March 26th, 2009 at 3:19 pm and is filed under Policy, Regulation and Competition. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.