Building Structures

Unlocking the next phase of road development

The National Infrastructure Pipeline (NIP) is a Rs 111 trillion infrastructure pipeline, spread over a timeline of five years from financial year 2019 to financial year 2025.

Ap­p­roximately 39 per cent of the overall investment comes from the central government, while 41 per cent comes from state govern­me­nts. Private sector investments are expected to account for the remaining 20-21 per cent. These investments will fund India’s 27,000 in­frastructure projects, of which the NIP is re­sponsible for only 9,364 projects.

 

 

Addressing challenges through Gati Shakti

In spite of many impending infrastructure opportunities, the road sector continues to face a number of barriers. Lack of coordination and planning across sectors; land acquisition difficulties; issues with statutory clearances, resettlement and rehabilitation; and lack of project readiness are some of the primary obs­tacles that contribute to the difficulty of obtaining private funding.

Gati Shakti is addressing the interdisciplinary challenges. NITI Aayog monitors every single initiative and scheme of the government and links it to an end outcome, even if it is 15 years away. Additionally, the influence of one initiative on another is being evaluated. This is known as the outcome- and output-linked approach.

There is also a focus on financial constrain­ts, not only in terms of streamlining the process through which private sector investments might be attracted, but also maximising the monetisation of existing assets. Moreover, the Govern­ment of India is pushing towards land value capture and sharing, with all states participating in this initiative. This is significant, becau­se land accounts for 40 per cent of project costs in In­dia, particularly in the road sector. It is ess­ential to understand how to recoup these costs.

Numerous projects in the past have en­coun­tered legal concerns and impediments, which are currently being investigated. For ins­tance, the National Highways Authority of India (NHAI) now acquires land digitally. Typically, the time needed for land acquisition for a single NHAI project does not exceed nine months.

Ev­en at the state level, the environmental cle­ar­an­ce process is now executed online through the Parivesh portal. Another aspect that has been made easier over the years is ensuring an exit route for in­vestors in infrastructure projects. The loss of in­formation as a project progresses from one phase to the next has emerged as a significant obstacle. Adoption of building information mo­delling by all infrastructure ministries is being pushed. This will ensure that the information recorded at the time of a project’s conception is retained until its conclusion. Metros, for ins­tance, have been adopting this technique, whi­ch has resulted in 20 per cent savings in construction costs.

Building better – HAM and BOT

Road projects worth Rs 5 trillion have been completed over the past three years, of which 2 per cent have been implemented on build-operate-transfer (BOT) basis. The remaining were divided between the hybrid annuity model (HAM) and engineering, procurement and construction mode.

The central ministries have successfully adopted the HAM model, but it has not yet permeated to the states. In order for it to do so, it is necessary to incorporate an additional me­chanism that would guarantee developers that cash flows will be honoured. This is crucial, as patient capital arrives based on the strength and visibility of cash flows.

Since the model’s inception in 2016, 300 HAM projects with a total bid project cost of over Rs 3.5 trillion have been awarded. A total of 222 projects have achieved financial closure, while the remaining are in different

phases of implementation. Even though, currently, HAM projects are the most suitable for the sector, there is a need to continuously adapt to dynamic situations.

The two areas that need work in the HAM model are operational issues and financial iss­ues. Refinancing is a problem that needs further regulatory attention. Technical issues have been getting a lot more focus, leading to disputes over change/reduction of scope, grant­ing of the provisional commercial date of operation, and the effects of change of scope of operations and maintenance. Another aspect to look into is change in law. The concession ag­ree­ments were written when NHAI was not playing a commercial role. However, now that NHAI has set up an infrastructure investment trust, these issues need to be revisited.

Through its Conciliation Committees of Independent Experts, NHAI has settled various arbitration cases. Due to this success, nine other large infrastructure ministries have opted to replicate the procedure. The time required to reach a settlement is now between three and six months, which is significantly faster than the conventional method.

To allow more private developers to acquire assets, the concession agreements must also be restructured in terms of how the money is distributed and how assets are recycled. The obstacles encountered by the concessionaires include problems with obtaining approval for utility shifting, acquiring mining licences, and visiting the collector to acquire right-of-way (ROW). These hindrances tend to plague projects from their inception, alongside an inability to issue letters of award due to unavailability of land. As a result, concessionaires often block their bidding capacities for over a year.

The “project development preparedness and performance index” is a concept under de­velopment that will track the degree of prepa­redness of a project. Ideally, this should cause minimal or no change in scope.

In BOT projects, existing issues include the risk of traffic, ROW and utility relocation. Another major issue is the reallocation of risk. Even after numerous revisions to the model concession agreement, there are still problems that need to be addressed, such as revenue protection. As a result of the unpredictability of revenue inflows, banks are hesitant to provide non-recourse funding. Even with FASTag and other e-mechanisms in place, making revenue estimates more accurate, the government should provide assurance regarding revenue projections.

There will always be traffic risks, particularly in greenfield projects. These projects may not attract BOT players until they are clubbed with some existing projects and routes. Going forward, the unified logistics interface platform is going to provide the detailed movement pattern of goods and people. This will help identify projects with high and consistent traffic, in turn, helping to garner private sector investments.

As there are very few contractors with enou­gh internal earnings to afford to participate in aggressive bidding, a few margins should be introduced for aggressive bidding on projects.

Based on a panel discussion
between Abhishek Agarwal,
Senior Specialist (Infra Connectivity), NITI Aayog; K. Jayakishan, CEO, Infrastructure Development Corporation (Karnataka) Limited; Ajay Kumar Mishra, President, DilipBuildcon Limited; Sibanarayan Nayak, President Corporate Affairs & Development, GR Infraprojects Limited; and Vishnu Sudarsan, Partner, JSA Legal, at the annual India Infra Forum 2022

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