High On Highway
India is building roads at a frenetic pace. The dream of building 40 kilometres a day is within the realm of possibility now.
While taking charge of the Ministry of Road Transport and Highways in May 2014, Nitin Jairam Gadkari set himself and his ministry an audacious target - to raise the pace of road construction in the country to 40 kilometres (KM) a day. This amounted to a four-fold increase from 8.7 KM per day in 2013/14, which was around a seven-year low.
A spate of reforms has ensured that this 'impossible' target is now within reach. Over the last four years, road construction has picked up pace from 12 KM per day in his first year (2014/15) of the NDA government to almost 27 KM a day in 2017/18. For this fiscal, the last of this government's five-year tenure, the target is 45 KM per day.
"We achieved the highest ever award of 51,073 km of National Highway projects and highest ever construction of 28,531 km over a four-year period from 2014/15 to 2017/18. Construction of National Highways has more than doubled to over 27 km a day and the total investment in the sector has increased by 2.5 times," says Gadkari.
Developing modern high-speed highways criss-crossing the country is a sure-shot way to develop the countryside. India has a total road network of 5.6 million KM of national and state, urban and rural roads, the second largest in the world. National highways account for 2 per cent of this network but carry over 40 per cent of overall traffic. Led by high investment from the public exchequer, it has also given a boost to the infrastructure sector. Government investment in highways more than doubled from Rs32,000 crore in 2014/15 to nearly Rs65,000 crore in 2017/18. It is proposed to be increased by 9.4 per cent to Rs71,000 crore in the current fiscal year.
"We have moved from 91,000 KM of highways in the country to more than 1,26,000 KM today. But we are also doing this expansion differently now. Last year, in October, we launched an ambitious consolidated project, Bharatmala, that looks at optimisation of national corridors, be it development of economic corridors or port connectivity," says Y.S. Malik, Secretary, Ministry of Road Transport and Highways. "Under Phase I of this project, we are building 24,800 KM of highways. On top of that there is a residual commitment of 10,000 KM, taking the total figure to 34,800 KM with an overall investment of Rs5,35,000 crore."
More importantly, the reforms initiated by the government in the sector have helped make it financially viable, rescuing it from going belly up. By the end of fiscal 2014, the sector was grappling with the problem of around 400 stalled projects. At stake was an investment of Rs3.85 lakh on the verge of becoming Non-Performing Assets or NPAs.
"Nearly 99 per cent of those projects have been cleared. We have saved Indian banks Rs3 lakh crore worth of NPAs," says Gadkari. "The delays were being caused by land acquisition, utility shifting and forest clearances. We changed the methodology and now we do not award projects if 80 per cent of the land has not been already acquired." To get things going, the government increased investment in the sector from its own pocket. The majority of the projects awarded in 2014/15 and 2015/16 were under the Engineering, Procurement, and Construction (EPC) route where financial liability of the project rests solely with the government.
"He (Gadkari) has cleaned up a large amount of historical mess. Right now there are hardly a few (stalled projects) left - the figure would be in single digits," says Vinayak Chatterjee, Co-founder and Chairman, Feedback Infrastructure. "He saw that the private sector confidence was low, and the Build, Operate, and Transfer (BoT) programme was caught in a quagmire of obstacles. So, he quickly, and in a very timely fashion, shifted focus to EPC driven by public spending. As a result of that he has very deftly steered clear of the twin balance sheet problem of private sector and bank NPAs that had hit the power sector but surprisingly did not hit the road sector."
Recognising there was a limit to which EPC can be pushed given the financial burden on any government, a new hybrid annuity model (HAM) was also devised. In a departure from other PPP models, under HAM, a private investor has to bear 60 per cent of the project cost, which in turn will be paid by the government through annuity payments from the date the project is commissioned. The balance 40 per cent cost will also be provided by the government during the construction period.
"There were a few projects where it was felt the private sector could help the government by leveraging their funds so they developed the HAM model," says Chatterjee. "That makes the PPP (public private partnership) much easier. So, wherever they felt there was enough private sector interest in projects, they went ahead with HAM. Right now, it is a mix between EPC and HAM in the 80:20 ratio, and the emphasis remains on public expenditure."
According to Crisil, HAM has already become the preferred mode for the National Highways Authority of India (NHAI), the premier highway construction body in India. In 2015/16, only 10 per cent projects awarded by the NHAI were under HAM. That number has risen to 50 per cent in 2017/18, representing an order value growth from Rs7,000 crore to Rs76,500 crore in these three years.
Another major high point is the success of the asset monetisation exercise under the Toll Operate Transfer (ToT) model. The NHAI's first auction of a bundle of projects that included five highways in Andhra Pradesh, and four in Gujarat, with a total length of under 700 km, earlier this year, fetched Rs9,681 crore - over 50 per cent more than the initial expectation of Rs6,258 crore. Bidding for a second tranche of seven stretches of operational toll roads totalling 566 km across Tamil Nadu, Telangana, Rajasthan and Gujarat is expected to fetch another Rs6,900 crore.
"The road sector has taken the lead in asset recycling by implementing ToT. You monetise state-owned assets that are in operating mode and plough that into the EPC to create fresh assets," says Chatterjee. "The first batch went far beyond expectations and the second batch is ready for bidding with expectations of another Rs6,500 crore."
At least on the highway, the government is delivering on its promises.