Elimination of policy-related barriers in order to step up activity in the road sector has been the key focus area of the government. In the past 12 months, the Ministry of Road Transport and Highways (MoRTH) has introduced crucial policy changes targeted mostly at fast tracking the implementation of languishing projects. While these measures are yet to turn investors bullish, there have certainly been some gains on the project execution front.
Indian Infrastructure looks at key policy initiatives in the sector…
- One of the most noteworthy developments is the approval of the toll-operate-transfer (TOT) model aimed at augmenting the National Highways Authority of India’s (NHAI) monetary resources. In August 2016, the Cabinet Committee on Economic Affairs (CCEA) authorised NHAI to monetise public-funded national highway projects. Only those projects which are operational and have been generating toll revenues for at least two years after commercial operation date are eligible for monetisation. Seventy-five operational projects have been preliminarily identified under the TOT model. The move is expected to provide an efficient operation and maintenance (O&M) framework with reduced NHAI involvement in projects after completion of construction. It will also create business opportunities for a new vertical of developers who specialise in O&M of highways and for a category of investors averse to taking construction risks but who are adequately equipped to make long-term investments in road infrastructure.
- In January 2016, the CCEA accorded approval for the hybrid annuity model to be considered as one of the modes for implementing highway projects. Adopting this model for those projects that are not found to be viable in the build-operate-transfer (BOT) (toll) mode will aid in maximising the road length constructed given the limited financial resources available with the government.
- Several policy initiatives have been taken to revive highway projects facing a resource crunch. In a bid to aid sound execution of BOT-based projects and address stakeholder concerns, the government introduced amendments to the model concession agreement (MCA) for BOT projects in September 2015. As per the revised MCA, changes have been made with respect to termination of contracts, project milestones, toll collection and rationalisation of timelines.
- In November 2015, the CCEA approved a scheme entailing a one-time fund infusion to revive and physically complete languishing national highway projects, under the “extension of provision” available for converting BOT (toll) projects to BOT (annuity) projects. In July 2016, NHAI and the State Bank of India (SBI) entered into a pact to infuse funds in three projects located across Bihar, Maharashtra, Goa and West Bengal. In September 2016, the authority decided on a one-time fund infusion of Rs 3.5 billion for implementing the project involving the six-laning of the Gurgaon-Kotputli-Jaipur section of National Highway-8, which has been languishing for quite some time.
- In December 2015, the CCEA approved the MoRTH’s proposal to authorise NHAI to extend the concession period of projects and rationalise compensation to concessionaires. With this approval, NHAI is now authorised to extend the concession period for all current projects being implemented on a BOT (toll) basis which have been languishing during the construction period due to causes that are not attributable to the concessionaire.
- The central government has also allowed the segregation of construction cost from the cost of land acquisition, centages and preconstruction activities, for the appraisal and approval of national highway projects. All projects with a civil construction cost of up to Rs 10 billion will be appraised by the MoRTH’s Standing Finance Committee (SFC)/Expenditure Finance Committee (EFC). All national highway projects with a civil construction cost above Rs 10 billion will be appraised by the Public Private Partnership Appraisal Committee/EFC/Public Investment Board headed by the secretary, Department of Economic Affairs, and subsequently approved by the CCEA.
- Further, the central government has proposed a land pooling arrangement under which it will return a substantial proportion (as much as 40 per cent) of developed land along proposed expressways and city bypass projects to landowners for commercial development.
- In order to promote the greening of highway corridors, the MoRTH launched the Green Highways (Plantation, Transplantation, Beautification and Maintenance) Policy, 2015, in October 2015. According to the policy, 1 per cent of the total cost of all highway projects will be kept aside for highway plantation and maintenance. In addition, about Rs 10 billion per year will be available for plantation purposes.
With these measures in place, the outlook for the sector is fairly optimistic. Several stalled highway projects have been reawarded or remodelled. The launch of new implementation models is expected to revive the interest of investors as well as the private sector. However, issues such as land acquisition and the absence of long-term funding sources are still areas of concern. To speed up project execution, the sector needs a more effective dispute resolution mechanism, proper project development and preparation, and more balanced risk allocation.