A new contract method holds the key to renewed attempts by the government in drawing private players back to the highways sector. After finding it difficult to award highway sections to private developers, the government shifted from the BOT (build, operate, transfer) model to the government-funded EPC (engineering procurement construction) and introduced the new method — the hybrid annuity model — for projects granted from October 1. Under the new model, the National Highways Authority of India will provide an initial grant up to 40 per cent of the cost and the developer has to chip in with the rest and complete the project.
In August, the Cabinet Committee on Economic Affairs cleared a proposal to allow infrastructure companies to divest 100 per cent of their equity after two years of completion of construction for all projects given under the BOT model, irrespective of when year the contract was handed out.
Data from India Ratings and Research — a unit of Fitch Ratings — shows that 21 highway projects worth Rs 26,000 crore failed to attract bids over the last two fiscals. As a result, NHAI had to fall back on EPC contracts to plug the gap.
Disputes too are hampering completion of projects. Data from the road ministry shows 112 cases involving Rs 25,000 crore were pending under arbitration between the NHAI and developers till end-April 2015. Added to this is the fact that an underdeveloped bond market has forced PPP road projects to mainly depend on debt from commercial banks — Rs 1.67 lakh crore till February 2015, up 384 % from FY08.
A challenging target for project awards through the public-private-partnership route is likely to be set for the coming fiscal — at close to 5,000 km of highway sections worth over Rs 45,000 crore. These include bids for the proposed Bharat Mala project that entails road development along the international borders and the country’s coastline and the Char Dham connectivity project that envisages linking up the religious tourism circuit.
A bigger challenge is the task of managing project risk in older projects. An estimated 7,500 km of highway projects have being deemed to be at high risk of not being completed, including 5,100 km under construction and 2,400 km operational sections that were awarded mostly between fiscals 2010 and 2012 on the BOT format.
One thing that did not happen
Despite a concerted push from the government, there was limited participation by private players in the highways sector.