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While the government is pulling out all stops to boost the country’s infrastructure, it needs to get its act together if it wants to attract bidders, says Shyam Vasudevan
As India fights hard to pull out all stops towards maintaining its track record of 9% GDP growth year after year, it is also toying with unique models to boost the infrastructure sector.
Renowned for inadequate infrastructure, the Indian industry has been crying for improvement. The government has committed $500 billion towards infrastructure development to be spent over the next five years. It has also set up something unique among developing countries: a public-private partnership (PPP) model.
Nine projects worth almost one billion dollars pertaining to phase III have so far got approvals from the PPP approval committee. This phase aims at four-laning of 10,000 kms of national highways on a Build-Operate-Transfer (BOT) basis. The efficiency of this model can be seen when recently, a project had come under the review of the Prime minister’s office for under performance.
NHAI promptly took action and several contractors were asked to go, warned or have been reprimanded. The present approvals have given way to the signing of 18 contracts comprising 1120 kms. The total cost of implementing the third phase is estimated to be $13.5 billion dollars.
The union cabinet has also given in-principal approval for phase VI of the NHDP. About 1000 kms of expressways will be developed at a cost estimate of $3.2 billion.
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The funding for the project is expected to come from private partnerships. In cases, where there has been very little interest from private participants and where the return on investment is believed to be low, the government has provided for longer concession periods and the provision of Viability Gap Funding (VGF) where the government foots a considerable proportion of development cost.
Currently, nearly 4006 kms of highways are under toll. The PPP progress report so far indicates that 42 contracts have been awarded under BOT toll, 20 contracts under BOT annuity and two contracts under DBFO model. Together, these amount to $4.6 billion.
As at the end of FY’08, 175 contracts covering a total length of 15,803 km have been awarded under the BOT programme with a total cost of over $17 billion.
NHDP has seven phases in all. Phase I and II comprising the north-south and east-west corridors have been completed in 2007. Phase III and IV which also comprises two-laning of 20,000 kms of highway is underway. Phase V includes 5800 kms of the Golden Quadrilateral to be six-laned has received cabinet approval and is under implementation.
Phase VI has now received approval and Phase VII under which ring roads, bypasses, service roads and flyovers are proposed to be developed in the major cities is also under consideration. Tenders for these projects will likely be issued in early or mid 2009.
The National Highways Authority of India (NHAI), the nodal implementing agency for national highway projects in the country, has so far implemented 66,590 kms of highways. Of this, 55% are two-lane highways, 35% single-lane and 10% four-lane.
Road blocks along the way
Evidently all’s not well with the world’s most ambitious highway development programme. The government may have to switch from BOT to annuity models for many stretches in the NHDP to make it attractive to potential bidders. This is because projects for Orissa, Jharkand, Chattisgarh, Bihar and Kerala saw a tepid response from bidders.
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