Path to Recovery

Recent initiatives by NHAI to boost highway construction

The National Highways Authority of India (NHAI) is committed to providing a safe and smooth ride to commuters on national highways. The authority was able to accomplish the construction of 3,979 km of national highways in financial year 2019-20, the highest-ever achieved in a fiscal by NHAI. Further, the authority has set a target of building 4,500 km national highways in 2020-21. Currently, around 450 of ongoing projects covering over 24,000 km of national highways are at different phases of construction.

However, the ongoing COVID-19 crisis has had a strong impact on the Indian road sector. While the nationwide lockdown and consequent shortages of labour and raw materials have delayed numerous ongoing road projects across the country, growing market uncertainties and financial constraints being faced by highway developers are also expected to take a toll on private participation in upcoming highway projects. As part of the COVID-19 relief package, the central government has announced an extension of completion timelines by up to six months for road contractors. Besides, a standstill period of six months has been announced for road sector contractors and public-private partnership (PPP) concessionaires, with no associated penalties for not meeting project milestones. The government has also agreed to ease the companies’ cash flow position by partially releasing bank guarantees.

Meanwhile, NHAI has also been taking several initiatives to revive the road sector and enhance its award and construction activity.

COVID-19 relief to highway developers

In order to better the plight of highway developers, NHAI has laid out the principles of force majeure in national highway contracts with private developers after extensive meetings with industry representatives and the government. The authority has given a three- to six-month extension to all private highway developers whose contracts ended on or after February 20, 2020. Concession fees or premiums payable to the government have been deferred for all private national highway projects for the same period for which they incurred losses in toll collection because of the nationwide lockdown. Besides, the toll collection period for existing contracts has been extended by 21 days. Moreover, the days can be extended in proportion to the loss incurred in toll fees during the lockdown phase, if the toll collection is less than 90 per cent of the daily average collections. If the collection is less by 25 per cent for four days, then that equals to one day of extension. The authority has also offered COVID-19 loans to highway developers to help them tide over the crisis. However, these loans will be granted only to those parties who are not in default of contractual obligations as on February 19, 2020. An interest rate of 2 per cent above the bank rate will be charged on the loans extended to private operators. The interest will be compounded quarterly and calculated on the daily outstanding balance of the loan. The loan will be disbursed within 60 days of receiving a valid request from the concessionaire.

Steps to fast-track project execution

Seeking to reduce delays in highway construction on account of non-availability of land, statutory approvals and inadequate detailed project reports (DPRs), NHAI is planning to adopt a new project execution mechanism. The authority is planning to appoint project management consultants (PMCs) who will be responsible for the entire project – from project conceptualisation to making DPRs, and from obtaining clearances to supervising construction and maintenance. A draft document has been floated for engaging PMCs for each project or package with the objective of making one agency responsible for establishing the technical, economic and financial viability of the project.

Over the past several years, the high cost of land acquisition and arbitration issues have been some of the key hurdles in project implementation. Seeking to reduce the cost of land acquisition, NHAI is working on alternative greenfield alignments. This will not only reduce the land acquisition cost, but will also reduce the cost of utility shifting substantially. Land pooling and the value capture mechanism are also being explored by the highway authority. To reduce build-up of arbitration cases, NHAI has asked its project managers to cancel portions of the proposed contracts in case of hurdles in land acquisition. In a letter to the authority’s regional offices and project directors, NHAI has urged that the matter of land acquisition not be left pending as it leads to litigation in the future. Besides, the authority has asked its regional offices for stricter maintenance of land acquisition progression data.

Besides, in order to keep the national highways entrusted to it in a patch-less and traffic-worthy condition, the authority has directed its regional officers and project directors to undertake maintenance of the highways on a top priority basis given the upcoming monsoon season. The aim is to facilitate timely action and ensure that the highway stretches are traffic-worthy, latest by June 30, 2020.

Steps to fast-track arbitration claims

The government has been focusing on expeditious settlement of arbitration claims to deleverage its balance sheet. NHAI is looking to settle the majority of its arbitration cases through conciliation. Recently, the authority settled an arbitration claim worth about Rs 6.5 billion with Infrastructure Leasing & Financial Services for nearly Rs 2 billion through a conciliation process.

Enhancing private participation

NHAI has awarded more than 120 projects on the PPP-hybrid annuity model (HAM) in the past three years. However, there are numerous concerns with regard to build-operate-transfer (BOT-toll) projects. The authority has been working with the industry to address some of the challenges being faced, including financing challenges. Meanwhile, NHAI has also fast-tracked dispute resolution and rationalised the model concession agreement framework to make investments in the highway sector more attractive. In order to provide relief and get stuck projects moving, the authority has introduced the “harmonious exit” clause in new concession pacts for BOT projects.

The authority is likely to rely on the private sector for constructing more than half the projects during the ongoing fiscal year. As per plans, about 40 per cent of the 2020-21 construction target will be executed on HAM, while 5-10 per cent will be executed on the BOT model. The remaining road projects will be executed by the authority through the engineering, procurement and construction mode.

Ensuring adequate training of highway engineers

NHAI has recently announced plans to develop 57 highway stretches, spanning about 1,735 km, near each state capital to serve as model national highways. These model stretches will also serve as a platform to instruct highway engineers in the country, including state public works department engineers. The model stretches will have all the required safety and aesthetic features like road signs, road markings, road furniture and safety items, proper junctions and entries/exits. Other features include functional drains, pedestrian facilities, street lighting, plantation and landscaping, elegant toll plazas, user facilities and wayside amenities, CCTV cameras at all vulnerable locations, no black spots to avoid accidents, and eco-friendly measures. Some of the highway sections identified for development as model stretches are the Varanasi Ring Road, Chennai Bypass, and the Dausa-Jaipur, Jalandhar-Amritsar, Srinagar-Banihal, Madhya Pradesh/Maharashtra border-Nagpur (including Nagpur Bypass), and the Brahmaputra bridge-Guwahati stretches. NHAI has issued policy guidelines to help its regional officers and project directors identify and plan the development of model stretches and complete them in a timely manner. Sufficient financial power has been given to them to take quick decisions in the matter. Besides, the NHAI headquarter will be monitoring the progress closely through an online e-portal (Data Lake), where pictures/videos of each model stretch will be uploaded apart from other related information.

Challenges and the way forward

The Ministry of Road Transport and Highways has plans to double the pace of highway construction in the coming years. It has firmed up plans to execute Rs 15 trillion worth of national highway projects within the next two years. Although NHAI has taken numerous initiatives in response to the COVID-19 pandemic to address the major challenges facing highway construction, the fear remains that the initiatives may fall short of what is necessary for complete revival of the sector. According to ICRA, the extension in the concession period by NHAI with the idea of compensating companies for loss in toll collection during the first phase of the nationwide lockdown is inadequate, as it does not compensate for the loss in net present value terms for the majority of the BOT-toll projects. ICRA claims that the relief approach followed by NHAI may end up becoming contentious with concessionaires disputing the proposed relief measures. Besides, this approach discriminates among concessionaires, since entities that have not opted for a loan moratorium earlier are better off as they would now have access to a COVID-19 loan from NHAI at a much cheaper rate (bank rate plus 200 basis points) with flexible repayment terms. Besides, though steps have been taken to enhance private participation in road construction, these may turn out to be inadequate owing to the growing market uncertainties and unhealthy balance sheets of private developers during the COVID-19 crisis.

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