Building an efficient system of roads & highways
As a bureaucrat, Nagendra Nath Sinha, chairman of NHAI and MD of NHIDCL, is used to dealing with challenges even when they come unannounced
There’s no room for anxiety and doubt in Nagendra Nath Sinha’s schedule. As chairman of NHAI and MD of NHIDCL, Sinha has his work cut out for him. Considering that the government has accorded the highest priority to infrastructure development, it’s not only road building that takes up his time. The country’s enigmatic geography and equally its people come much in the way when the Ministry of Road Transport & Highways is looking at constructing thousands of kilometres of roads. But the indefatigable bureaucrat is undeterred.
For the last two years, Sinha has held the portfolio of MD of National Highways and Infrastructure Development Corporation (NHIDCL). In March, he was entrusted with the additional responsibility of chairman of NHAI. While Sinha is not complaining, what he would like is a sense of order that will ensure quick work. Over the last couple of years, the ambitious plans to construct 40km of roads per day has largely remained unfulfilled as the Ministry of Road Transport & Highways (MoRTH) has constantly been stymied with a sluggish land acquisition process. Sinha says, “There is a vision that NHAI and contractors and landowners should set up a system so that their systems and ours work together. There is a dire need to constantly update the work done on the ground, thus eliminating all kinds of disputes – including those that involve parties arguing about different levels of deployment. In the case of contractors, this could relate to material or machinery required to build a road.”
In the fast lane
As an organisation, both NHAI and NHIDCL have matured. For Sinha, who has been constructing border roads as NHIDCL MD and surmounted intractable development issues, the systems of NHAI and its authority are a breeze, have been set and cannot be overruled. The nodal agency that has for years been developing and maintaining India’s roads & highways, is now moving swiftly on an asset monetisation drive. It has sought request for proposals for empanelment of agencies for preparation/submission of report on inventory of highway assets, and assessing physical condition of the existing national highway stretches under consideration for award on toll-operate-transfer (ToT) model. Sinha says, “The ToT model was approved by the government in 2016 for monetisation of publicly-funded highways. Under this, investors make a one-time lump sum payment in exchange for long-term toll collection rights. NHAI has created an inventory of projects of around 600km of stretches traversing through Haryana, Uttar Pradesh and Punjab that could be offered in a ToT bundle. We are calling experts to create an inventory of projects in the future.”
According to him, it is the “push” from the highest quarters of the government to go big on the asset monetisation drive. “We have already studied road stretches of around 5,000km to be offered on the ToT model, and could potentially monetise around 15,000km of road stretches by 2025,” he added. NHAI had invited bids for ToT in June for a cumulative 566km of highway stretches in Bihar, Jharkhand, Tamil Nadu and Uttar Pradesh with a floor price set at Rs 4,995 crore. The first round of ToT auctions got the government Rs 9,681 crore against the initial estimated concession value (IECV) of Rs 6,258 crore set by the government. In its latest bundle of ToT projects, about 27 companies have evinced interest for which the IECV or reserve price is Rs 4,995.48 crore. The last date of bid submission is September 11. Under the model, the highest bidder wins the right to operate and maintain highway assets for 30 years.
Similarly, as part of a revised strategy for implementation of the Bharatmala programme — which entails construction of 60,000km of national highways across the country — NHAI plans to prioritise projects with financial viability so they can be recycled soon after they are constructed. Sinha says the nodal agency will consider projects with high traffic density, and their ability to be monetised almost immediately after completion, and those that will yield revenue will be taken up first. “The idea is to recycle assets faster. We want to see that projects are monetised as soon as they are ready, and the funds can be put into building more roads. It is for this reason that the government will resort to a combination of toll securitisation and ToT to make debt sustainable,” he added.
Recently, in a letter the PMO held the NHAI responsible for unplanned and excessive expansion of roads and stated that roads infrastructure has become totally unviable. Moreover with private investors and construction companies walking out of green field projects, the model of hybrid annuity (HAM) and EPC mode is unsustainable. Sinha says that the agency is looking into this and has already implemented asset management. “But then, if the NHAI does not build roads, who will?” he asks.
The HAM model was created to incentivise bankers by lowering overall project risk so that they could lend more to public-private partnership (PPP) projects. It includes favourable clauses such as guaranteed partial payment from the NHAI even after a default by concessionaire and the subsequent termination of agreement.
A determined effort
This fiscal, NHAI has plans to award 6,000km highway projects. If achieved, this would be the second-best for the authority ever, in terms of project awards. In 2017-18, NHAI had awarded 7,400km highway projects and set its highest construction target ever for 2019-20. The authority, which built 3,320km highways in 2018-19, hopes to construct 4,500km (12.32km/day) in 2019-20, proposing to clock over 35% growth. Sinha says, “We will continue with the hybrid annuity model, in which the government contributes 40% of the project cost in phases throughout the construction period. Apart from land acquisition, the increased cost of land acquisition (which in many cases have gone up three times) and the civil construction cost are coming in the way of higher award and construction of highway projects.”
This year, NHAI plans to award around 1,000km of the targeted 6,000km through the EPC route. “Efforts would also be made to award 600km project through the traditional PPP model. We propose to raise around Rs 75,000 crore debt in the current fiscal, of which Rs 40,000 crore is expected to come from National Small Savings Fund. This apart, we might raise around Rs 5,000 crore through masala bond and also through tax-free bonds from the domestic fund,” he added.
In order to streamline operations, NHAI has withdrawn from the North-East and the mandate to construct roads in that region will go the NHIDCL. In the North-East, including Sikkim, NHIDCL has worked on roads covering 10,892km, at an outlay of Rs 1,66,026 crore. The civil work progress in the region is 2,520km at a cost of Rs 36,839 crore while there are detailed project reports for 8,372km at a cost of Rs 1,30,998 crore.
New methods of construction
Technology is beginning to play a critical role in India’s infrastructure. A factor earlier ignored, today the road transport ministry has realised that technology driven projects will become its differentiator. Despite IT being a very minuscule part of the department with limited budget, over the last four years, it has proved to be a powerful instrument. From projects like Bharatmala to port connectivity to making the North East more accessible to building thousands of new highways and underpasses across the country, technology has been playing a seminal role by enabling ministry to monitor, maintain cost and deliver projects on time. It is also being used to facilitate projects during preparation as well as through its various stages of implementation including monitoring.
This tech-push to the ministry came in the form of NHIDCL which was set up in 2014-15. Subsequently, the NHIDCL set up three key IT projects – INFRACON, INAM-Pro and ePACE. These three projects along with Indian Bridge Management System (IBMS) have delivered significant results and helped the department in improving transparency, better monitoring and greater control over projects implementation.
The portal has the facility to host firms and personnel CVs and credentials online with linkage to Aadhaar and Digi-locker for data validation and purity. The portal also facilitates the public agencies to receive technical proposals through INFRACON. This has been done to significantly reduce the paper work being done during bid submission and also to bring in transparency and accountability in the process.
Similarly, during the construction of highways, the lack of a common marketplace led to the formation of a segregated network of buyers, while at the other end of the spectrum, the suppliers still remained aggregated. This disparity gave way to cartelisation and inflationary pressures on pricing of cement and steel. To address this challenge, the ministry launched INAM-Pro, which provides a common platform wherein buyers are aggregated, and volatility in prices is controlled and maintained within an upper ceiling price.
INAM-Pro has been developed as a platform for infrastructure and materials providers. With this platform, the aim is to free the infrastructure sector from external impediments like materials shortages, cost escalations due to material prices — things that have historically plagued the field of infrastructure development. This portal has been envisaged to match the supply and demand in the infrastructure materials industry, by providing a platform for companies to float their demands before it occurs, and for suppliers to adjust production and prices accordingly. It acts as a common marketplace for infrastructure material providers viz. cement companies, infrastructure providers, Ministry of Road Transport and Highways and other stakeholders.
ePACE (Projects Appraisal and Continuing Enhancements) is an online integrated management information system (MIS) designed to monitor and improve the progress of highways development works, at the click of a button. ePACE provides instantaneous access to static and dynamic information for all these projects for ensuring their effective and real time tracking. The information captured spans the entire lifecycle of the projects and acts as a decision support system for the top management by helping them identify the projects that are lagging behind and also helps them mitigate the factors responsible for such lags. In essence, ePACE captures information from multiple levels and stages of project execution, and then collates it on a desirable single platform, ready for use by the top management for effective project monitoring.
A compelling proposition
Over the last couple of years, NHAI and NHIDCL has not deterred from cracking the whip when it comes to contractors defaulting on projects. There are several instances when the government bodies have terminated the contracts of those who have failed to meet the deadline or quality standards. of course, ‘Cure Notices’ are sent out to the contractors in the hope they will mend their ways. It’s under Nitin Gadkari that the agency has decided to take action against any company that will come in the way of quick execution. State commissioners too are known to frequently hold meetings with NHAI and NHIDCL representatives to understand progress of projects in their state. Bottlenecks are removed and the pace of work is expedited. All this has helped the government bodies to quicken the pace of roads and highway construction.
NHAI has also begun advancing dates to start work for projects even before the official go ahead comes in. These decisions are taken when the concessionaires are highly-renowned companies and known to have executed large projects well on time or before schedule. In projects under HAM, road companies are entitled to an incentive annuity for completing projects ahead of schedule. According to the NHAI, concessionaires are not worried because most of them have done preparatory work and are confident of earning incentives.
Simultaneously, NHAI is also planning to raise funds from LIC to fund highway projects. The highways authority plans to raise Rs₹75,000 crore from the markets in 2019-20 to fund key infrastructure projects such as Bharatmala. Besides raising funds from the market, the government has allocated Rs₹36,691 crore to NHAI as budgetary allocation this year. Without divulging further details, Sinha also said that NHAI is working with National Infrastructure Investment Fund (NIIF) to fund large greenfield projects. Along with this, he said that an infrastructure investment fund (InvIT) — mutual fund like instruments that enable investment in infrastructure sector by pooling small sums of money from several individual investors-- will also be floated by December, which will soon get approval from the Cabinet.
What has pushed the costs high and is delaying projects is the high land acquisition costs that has forced the NHAI to tweak its strategy for project implementation. The nodal agency has decided to consider only those projects that require minimal land acquisition as it finalises highway contracts worth about Rs 3 trillion under the Bharatmala scheme.
But the government has it all worked out, for now at least. With a renewed MoRTH back at the Centre, Sinha and team are leaving no stone unturned to ensure that infrastructure development continues to see growth.