PPP in highways: fading out? Issues and the way forward

Abstract

The 12th five year plan has seen the government double its target of investment in infrastructure from INR 20.5 trillion to INR 40.9 trillion. This amounts to expenditure in infrastructure of more than 10% of GDP. The investment has the capability to propel India to a high growth trajectory. Though infrastructure investment targets have been met over the past 5 years they have remain lopsided towards the Telecom and the Oil & Gas sectors. Other critical infrastructure segments, including roads, railways and ports, have witnessed a shortfall in actual investments. The Highways sector in India is going through a difficult phase. For instance, in 2012-13, out of total targeted award of around 8000 Km, the MoRTH/NHAI could award only 1322 Km of highways on BOT (Toll) and the trend continues this year, as well. The ministry has been able to award only 3,169 km of road projects in 2013 -14 against a target of 7,500 km. A critical analysis is therefore required to identify the reasons behind this trend. The present research, thus, is an extensive study of some of the road projects awarded under the PPP model in past few years. The various issues faced/being faced by these projects have been identified. Some the most common issues have been discussed in detail and suggestions have been made to overcome these issues. While a host of factors, a few of which are sector specific and others which are external and beyond the control of MoRTH/NHAI and Contractors / Developers, have adversely affected the sector, one of the issues which has significantly affected some biggest projects in recent years is the inability to honour premium commitments upfront in the current economic environment and their continuous requests to reschedule the premium payments. The present report ,thus ,further analyzes concerns in facilitating such changes to make the environment more conducive for developers/contractors and suggests broad guidelines on when such decisions should be taken. Also, the report analyses the curious anomaly of levying toll prior to completion of construction, due to delay in project construction but rigidity in the toll levy timeline, as evidenced by the Panipat -Jalandhar case. Finally , the report analyses the appropriateness of EPC contracts under the current scenario which NHAI is facing.