The road sector has seen multiple policy tweaks in the past year. At the central level, the minister has spent a lot of time and personal equity bringing stakeholders to the negotiating table to unclog stalled projects. The pace of awards has increased. Quite a few states have also seen increased activity. However, plenty of challenges remain and certain concrete issues continue to impede progress.
Among key policy changes, the new toll-operate-transfer (TOT) model aims to improve the National Highways Authority of India’s (NHAI) cash flows by monetising national highway projects. As many as 75 projects have been identified for potential TOT. The hybrid annuity model (HAM) should also help in funding socially desirable but financially unviable projects. The concept of a land pooling arrangement has been mooted to return a proportion of developed land along highways to landowners for commercial development. The adoption of technology in the form of online portals and FASTag tolling has proceeded apace.
In fiscal 2015-16, NHAI awarded 79 contracts spanning 4,340 km and it met 90 per cent of the construction targets. Big-ticket awards included the Eastern Peripheral Expressway and the Delhi-Meerut expressway.
The Ministry of Road Transport and Highways (MoRTH) has scaled up the 2016-17 targets. The aim is to award 25,000 km of national highways in 2016-17 (10,000 km awarded in 2015-16). The construction target is 15,000 km (6,000 km constructed in 2015-16). During April-July 2016, NHAI awarded 15 projects spanning 764 km – 10 were awarded under HAM and five on an EPC basis. States such as Maharashtra, Delhi, Karnataka, Kerala, Jharkhand and Uttar Pradesh have also accelerated activity.
The major problem areas remain land acquisition and financing. There are also operational bottlenecks. Developers claim that the model concession agreement needs greater clarity in areas such as compensation for revenue losses. Between January 2014 and October 2016, only 15 national highway projects achieved financial closure. Out of 19 HAM projects awarded in 2015-16 and 2016-17 (April-July), only two achieved financial closure, despite NHAI picking up 40 per cent of the tab. There have also been many corporate debt restructuring cases, indicating that balance sheets are still quite stressed. Some players are exploring the possibility of raising money via the masala bond route and others are selling off assets to deleverage. Investors have been seeking cluster deals to take over a group of road assets at one go.
Stakeholders are impressed with the apparent commitment on the MORTH’s part to find solutions to extant problems and there’s more interest in the sector. However, a lot needs to happen on the ground before full health is restored.