Government may change way road contracts are awarded

November 21, 2011

The government may change the way it awards road projects that it finances itself, in an attempt to make the bidding process more transparent.

The highways ministry, the National Highways Authority of India (NHAI) and the Planning Commission held a series of meetings recently to consider allowing contractors to carry out engineering work as well under so-called engineering, procurement and construction (EPC) projects, two officials from NHAI and the Planning Commission said, requesting anonymity.

Contractors typically execute only procurement and construction under EPC contracts, while engineering and design are done by government-contracted consultancies.

The government’s preferred method of awarding road contracts is the build, operate and transfer (BOT) mode, under which the bid winner finances, constructs and maintains a road for a specified “concession period”. The developer collects tolls or is paid an annuity by the government for the concession period.

Projects bid out as EPC contracts are typically those deemed unattractive for the private sector because they lie in areas that are either insurgency-hit or low in traffic.

The 12th Five-Year Plan, which gets underway in 2012, allocates more than 20,000km of highways to be bid out as EPC projects.

Contractors currently make their bids on the basis of costs incurred for every material that goes into road construction. Officials said this makes it easy for them to overcharge the government.

The Planning Commission now wants to award such contracts on a turnkey basis, under which the lowest bidder will be awarded the contract and will be responsible for building the road and maintaining it for a specified period, said the NHAI official mentioned above.

Analysts said handing over engineering work to private contractors may lead to fresh problems for the government.

As all roads constructed as EPC projects are handed over to the government a few years after construction, contractors could cut corners on engineering work, said Parvesh Minocha, managing director of Feedback Infrastructure Services, an infrastructure services company.

Minocha said that as concession tenures for BOT contracts are much longer, contractors deliver high-quality engineering and design works on such contracts.

To make EPC projects more attractive for contractors, the government should package smaller and less-profitable stretches of two-laned roads or service roads to be given on EPC contracts with lucrative expressways or highways to be given on BOT contracts, Minocha said.


New Land Acquisition bill to raise land acquisition costs for road projects

October 31, 2011

OriginalThe new Land Acquisition and Rehbliltation Bill is expected to increase the government’s spending on land acquisition by up to 30 per cent from the current level of about 8-11 per cent as the road projects are not exempt from the provisions under the resettlement and rehabilitaion part of the Bill.

NHAI spends about Rs. 25,000 crore every year on land acquisition and other related activities.

Land acquisition has always been a major roadblock for road projects. As per norms, NHAI has to acquire 80 per cent of the land for the private developers building roads under the Build operate transfer or BOT route. Most of the delays in road projects have been primarily due to land problems and the new Bill, sources say, is expected to make things worse for the road sector.

Hassles in acquiring land for road projects have been the reason for delays in 30 per cent of road projects. In 2010, after aggressive measures by the then road Minister Kamal Nath, NHAI had managed to acquire 8,533 hectares against 6,000 hectares acquired in 2009. But clearly 2011 is expected to be a bad year.

In fact, NHAI’s land acquisition record has been abysmal in states like Goa, Kerala, West Bengal, Tamil Nadu and Haryana with barely an inch of land being acquired in Goa for road projects. With the new Bill soon becoming an Act, it could be a tough road ahead for the road sector.


Experts push PPP to fund GCC transport solutions

October 24, 2011

CPCS vice president Sean McDonnell speaks on ‘Investment opportunities and PPP in the transport and railway sectors’ as Yusuf Saeed, Anil Bhandari, Khalid al-Ghalib and Moazzam Mekkan look on. PICTURE: Jayan Orma

By Ramesh Mathew/Staff Reporter

GCC states have been urged to avail of an array of options to finance their massive rail, port and road infrastructure projects.
At a session on ‘Investment opportunities and private-public-partnership (PPP) in the transport and railway sectors’, experts asked government planners and decision makers to identify potential investment opportunities for the private sector.
The speakers also deliberated on the roles to be played by financial institutions and multilateral development institutions, which they said could co-ordinate various segments involved in developing major projects.
Speaking on the modes for financing projects, some of the speakers also made presentations on the successful PPP projects, implemented in different countries.
Initiating the discussions, International Financial Corporation (Dubai) Infrastructure Advisory Services manager Moazzam Mekan said there is a great level of misunderstanding among governments and people on the issue of private participation in the execution of mega projects.
The senior infrastructure policy professional said private participation in projects simply means transferring risk element in a major ‘build operate and transfer’ (BOT) project by government to private entrepreneurs.
“No private investor willingly bears the risk to get involved in the development of a public utility unless he is convinced of reasonably good returns on its completion,” said Mekan. This could perhaps be one of the main reasons why PPP projects are still in the infancy even today in most GCC states, he said.
For successful implementation of PPP projects, the speaker argued for the participation of different players at different levels of building and operating.
The GCC states has at hand rail, port and other transport infrastructure projects worth $142bn to be executed over the next decade, said Qatar National Bank senior manager (syndications) Yusuf Saeed.
Of these, the GCC railway network alone would cost approximately $25bn and the first phase of Qatar’s Metro and GCC line network would cost approximately $35bn.
Financing options that Saeed mooted included deficit financing, direct borrowing, GCC syndicated lending, GCC bonds, equity reserves, project specific borrowing, government grants, joint ventures, and private participation.
The QNB official said along with the international banks, inquiries could also be entertained from the regional banks and local banks as well depending on the size of the projects. The speaker also felt that infrastructure funds have a major role to play in coming years.
National Commercial Bank of Saudi Arabia senior executive vice president (Corporate Banking) Alsharif Khalid al-Ghalib shared the concerns of Mekan on the issue of PPP as a mode of financing the key projects.
Insisting that the entire GCC is fast emerging as the global transport hub with a series of economic activities, the speaker said the six GCC states together have close to 30mn vehicles on their roads.
Highlighting the necessity of strengthening the public transport network through the GCC rail and building of major highways, al-Ghalib said PPP is still to make any headway in the region.
He cited the formation of government-backed financial bodies on the lines of the KSA’s Public Investment Fund (PIF) to finance major transport projects.
The official said there is so much for the GCC to learn from the successful PPP experiences in Europe in recent years, especially in the transport sector. Out of the over 30bn PPP investments made by the European companies in 2008, more than 20% were to strengthen the transportation networks elsewhere, he said.
Canada Pacific Consulting Services vice president Sean McDonnel and Dubai-based Ab International CEO Anil Bhandari made presentations on the PPP projects in railway in Canada, Hong Kong and Nigeria.
The success of the railway projects in Nigeria including the three-lane mass transit metro in Abuja showed how the best could be derived from the available choices and resources, said Bhandari.
The $3.3bn 1315 Lagos-Kano line is one of such successful examples of the private participation that GCC states could try to emulate, said Bhandari.
McDonnel said the Canada Pacific Railway Company is carrying approximately 1.6bn passengers a year in their Hong Kong Metro project and the stakeholders are getting sufficient returns on their investments, said McDonnel.


NHAI goes in for a board shake-up

April 3, 2008

The ministry of shipping, road transport and highways has been under severe criticism for NHAI’s inability to meet the deadlines for developing road projects in the country.

New Delhi: Ahead of plans to give out some 10,000km in road projects over the next year, the ruling United Progressive Alliance, or UPA, is replacing at least half of the six-member board of the National Highways Authority of India, or NHAI, the country’s apex road regulator.

The radical revamp of the board, the first of its kind, comes at a time when the ministry of shipping, road transport and highways, which works closely with NHAI, has been under severe criticism for its inability to meet the deadlines for developing road projects in the country.

The revamp comes at a time when the ministry of shipping, road transport and highways has been under criticism for its inability to meet the deadlines for developing road projects in the country

The revamp comes at a time when the ministry of shipping, road transport and highways has been under criticism for its inability to meet the deadlines for developing road projects in the country

NHAI oversees the National Highway Development Programme (NHDP), under which, almost 33,097km of highways were to be four-laned. Barely 50% of the projects have been awarded so far. As of February this year, work on only 7,942km of highways have been completed; of this, work on around 5,500km was completed during the tenure of the National Democratic Alliance government, which preceded UPA.

NHDP, launched in 1996, was seen as a flagship programme for successive governments, especially since an estimated 60% of freight is still transported by road in the country. There are 66,000km of national highways in India.

Neither the minister, T.R. Baalu, nor the concerned officials, NHAI chairman N. Gokulram and road transport secretary Brahm Dutt, could be immediately reached for comment on Thursday evening. As a result, it is still not clear as to why the government has sought such an overhaul in the NHAI board. The changes have been effected over the past 15 days.

Mint has independently confirmed from various government officials who do not wish to be identified that three out of the six members on NHAI’s board were asked to return to positions at the ministry in the last fortnight. According to officers at NHAI who do not wish to be identified, one of the members C. Kandasamy has already been named a chief engineer at the ministry of shipping and road transport.

A.V. Sinha and Nirmaljeet Singh, too, are being forced to “come back” to their parent ministry. “In one case, the ministry said it would promote a junior officer thereby forcing an NHAI member—on deputation with NHAI—to seek repatriation (back to the ministry),” an officer at the regulator who did not wish to be identified added.

While Sinha could not be reached for comment, Nirmaljeet Singh and Kandasamy declined comment. “I am not with NHAI any more. And for any information pertaining to board members, please contact the chairman,” Kandasamy said.

The shake-up in NHAI’s board comes at a time when the regulator has been accused of not only failing to meet deadlines, but also misgovernance.

“In fact, one of the members was threatened with suspension because some projects in Tamil Nadu got delayed,” said the officer at NHAI.

Highway builders say working with NHAI is difficult primarily because officers refuse to make decisions. “You can say one contractor is bad or may be two contractors are bad, but how can all contractors be bad at the same time? It is the authority (NHAI) that refuses to make decisions for three years sometimes. We are tired of working for them,” said an executive with a highway builder who did not wish to be named. “Why is it, that the same contractors perform on time when it comes to work by the Delhi Metro Corporation?” the executive asked.

Contractors also claim that the authority is unwilling to release money for changes in the scope of work for fear of being investigated by the vigilance department. Mint had earlier reported that almost three in ten NHAI contracts end up in some form of arbitration or the other.

None of the contractors or highway builders contacted by Mint would speak on record, saying it could affect their chances of winning contracts from NHAI in the future.

Meanwhile, the NHAI officials said the board was being revamped because it did not agree with certain proposals made by the Planning Commission on guidelines for drafting tenders for upcoming projects.

“The fact is that the minister has been unhappy with the way the NHAI has functioned in the last year and so these changes are being contemplated,” said a senior government official, who did not wish to be identified.

NHAI has also been named in a court case filed by the National Highway Builders Federation, a trade body representing highway contractors, who claimed that recent pre-qualification criteria used by NHAI favour large bidders. The case is expected to be heard by the Delhi High Court on Friday.

One analyst said it was not fair to accuse only the board, saying that other organizations, such as the Planning Commission, were equally to blame for not ironing out policy issues related to work on NHDP. “The paranoia of the government (over being blamed for non-completion of highways in an election year) could be a factor,” said this analyst who did not wish to be identified.


Evaluating toll road credits

November 1, 2006

It has been recently reported that the government of India has given its approval for six-laning of 6,500 km of national highways, including 5,700 km forming part of the Golden Quadrilateral at a total cost of Rs 41,210 crore. In terms of financing, the expectation is that private sector will commit investments of Rs 35,690 crore. Also the government, in order to accelerate implementation of highway projects of Rs 2,20,000 crore, has set a target of awarding 175 contracts for Rs 76,540 crore, all on BOT basis by March 2008. Since a number of these projects are going to be predominantly debt financed with repayments supported by toll collections, it would be timely and useful to have an analytical framework for assessing the credit quality of various types of toll roads and financing structures.

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