World Bank asks NHAI to look for new models

August 23, 2011

Upset with delays in the implementation of highway projects, the World Bank has asked the National Highways Authority of India (NHAI) to look for alternative ways of awarding highway contracts to private companies.

Till now, funding from the World Bank for the National Highway Development Project has been confined to EPC (engineering, procurement and construction) projects costing over Rs 4,000 crore. In an EPC project, the government gives a contract for road construction on an outright payment to whoever quotes least cost.

NHAI is currently awaiting a response after it invited expression of interest. “As part of transaction assistance,” points out a senior NHAI official, “the World Bank has asked us to invite EoIs from consultants to select new mode for implementing highway projects.”

EPC projects have witnessed a lot of delays — some even stretching beyond seven years, when completing a road project normally takes three years. The World Bank customarily withdraws fund for a project that has not been built in seven years, leaving the project funding to NHAI.

Analysts feel that availability-based model would be suitable for India, as it is a large country and no one-size fit solution can be implemented for all. “Globally,” says Arvind Mahajan, executive director of consultancy firm KPMG, “the models are availability-based, depending on the conditions prevalent. And all these models are derived out of the basic model prevalent. NHAI has also experimented various models and a availability-based approach would be the best.”

Others feel that delays in the past is what makes the World Bank find issues with the EPC model. Notes National Highways Builders Federation Director General M Murali.“A hybrid model, with features for BOT (build operate transfer) annuity and BOT (toll) will be the best model for such projects.”

BOT (annuity) mode envisages a private company building the road and the government paying to the company in instalments every six months.

The maintenance of the road is also not the job of the road developer. In BOT (toll), a road developer builds the road and recovers the money through toll collection. The company is allowed to collect toll to recover the investments made during a period called concession period and can range up to 25 years.

The World Bank, apart from funding for developing highways, also fund the VGF (viability gap funding) payments and annuity projects. VGF is done in a BOT (toll) project to make it financially viable.

Source: business-standard.com