New Approach

Nagpur ring road to be developed on the hybrid annuity model

Conceived in February 2015, the Nagpur four-lane ring road widening project in Maharashtra is one of the latest projects to be awarded under the new hybrid annuity model (HAM). The proposed ring road for the city of Nagpur will also act as a stand-alone bypass and is planned to be executed in two packages under Phase VII of the National Highways Development Programme (NHDP). In March 2016, the National Highways Authority of India (NHAI) awarded Packages I and II to the joint venture (JV) between MEP Infrastructure Developers Limited and San Jose India Infrastructure and Construction Private Limited. Implementation of the project under this new mode is likely to decide the fate of HAM in the road sector.

cover (Page 1)Project scope

The Nagpur ring road, proposed by the Nagpur Public Works Department (PWD), is a 22.23 km two-lane alignment between National High   way (NH)-7 and NH-6 on the Nagpur-Amravati road in Maharashtra. The Nagpur PWD has proposed the upgradation of the existing alignment of the ring road (Package I). In addition, it has also proposed the construction of the remaining part of the outer ring road from km 34+500 to km 62+035 in the city (Package II) and has acquired land for construction.

Packages I and II, entailing an aggregate design length of 61.3 km, require about 104 hectares of land. Under Package I, around 36.6 hectares of land is required for road widening, the toll plaza, truck lay-bys, rest areas, public facilities and junction improvements. Under Package II, 67.35 hectares of land is required for various facilities such as toll plazas and ramps.

cover (Page 1)Cost and financing plan

The Nagpur ring road is the first project in the state, and the second in the country, to be developed on a hybrid annuity basis. During 2015-16, NHAI awarded nine projects in this mode. As per NHAI’s estimates, the Nagpur project is estimated to cost Rs 11.38 billion. However, as per the concessionaire, the bid project cost for Package I is Rs 5.31 billion and that for Package II is Rs 6.39 billion, totalling Rs 11.7 billion. Meanwhile, the first-year operation and maintenance bids stand at Rs 63 million for Package I and Rs 67.5 million for Package II.

Under HAM, NHAI will finance 40 per cent of the project cost as an upfront capital grant during the construction phase. The remaining 60 per cent will be paid by NHAI to the developers in three instalments over 15 years from the date of project completion at a fixed rate of return. NHAI will levy toll to recover the project cost. The concessionaire is required to construct, toll and manage the road for 15 years. This includes a construction period of 30 months each for both packages. The contracts for the project have been awarded to the MEP and San Jose JV, with the companies holding a 74 per cent and 26 per cent stake respectively.

cover (Page 1)Lessons from other outer ring road projects

To ensure sound project implementation, lessons can be drawn from other outer ring road projects executed across the country. Over the years, several state governments have introduced innovative models to deal with financial constraints or pre-construction issues faced by such projects. Commonly, due to the sheer size of the ring roads, these projects are divided into two or more sub-projects or packages. For instance, the Hyderabad outer ring road project has been implemented in five packages and the Chennai outer ring road project is being developed in four parts.

The Jaipur ring road and the Surat ring road projects are being undertaken by providing innovative solutions for the problem of land acquisition. For the Jaipur project, developed land will be allotted to landowners in lieu of the acquired/surrendered agricultural land. Apart from the main transport corridor of 90 metres, corridors of 135 metres will be developed on each side for project-affected people. Besides, 25 per cent of the developed land (based on a mixed land use pattern) will be awarded to farmers. Implementation of the Surat ring road project will be based on a self-financing development model. Land within 500 metres of the proposed ring road will be reconstituted into plots. About 60 per cent of the land will be reallotted to the owners and about 40 per cent will be kept for the development of social and physical infrastructure. About 15 per cent of this land will be sold for residential, commercial or industrial use and the sale proceeds will be used to provide infrastructure facilities.

cover (Page 1)Expected benefits and potential concerns

On paper, the traffic estimates for the Nagpur ring road stretch present a promising picture. The traffic volume is projected to grow at an average rate of about 50 per cent between 2016 and 2040. Once the outer ring road is complete, the number of heavy vehicles on the inner ring road – from Wadi via Dhaba, Mankapur, and Nari to Automotive Square on Kamptee Road – will reduce substantially. Heavy vehicles from three national highways and three state highways will bypass the city.

In conclusion, the project is expected to reduce congestion in the city as well as travel time for commuters. However, the financial viability of the project rests on the actual traffic flow which is often not in line with the inflated estimates. NHAI has made efforts to tweak the financial modelling of the projects to reduce the viability risks faced by the concessionaires. However, NHAI itself has limited fiscal bandwidth to deal with the revenue shortfall.

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