Government Set to Award 3,000 km Road Projects under EPC this fiscal

July 23, 2012

To accelerate highway building process, Road Transport Ministry is all set to bid out at least 3,000 km of projects this fiscal and 20,000 km by 2017 under EPC mode that minimises risk to developers.

Finding that 20,000 km of National Highways of the total about 74,000 km are single, low density traffic lanes, not viable on PPP (public private partnership) basis, the government is ready with the final draft of EPC (engineering, procurement and construction) that would be sent to the Cabinet by the month-end.

“We are ready to award over 3,000 km on EPC mode this fiscal to accelerate the road building process. The Ministry has decided for upgradation of 20,000 km highways to two-lane standards on EPC basis during the XIIth Five-Year Plan (2012-17), a Road Transport and Highways Ministry official said.

EPC mode would not only minimise time and cost overruns but would also result in increased bidding by developers, the official added.

In EPC projects, the government pays the developer for constructing the highway while the toll revenues accrue to the government.

The other two modes through which the highways projects are bid are build operate transfer (BOT-toll) and BOT-annuity. and EPC. In the BOT mode, the developer has to operate the highway for several years.

The model draft for EPC said, “Experience also suggests that annuity based projects are comparatively expensive, while conventional contracts (BOT) are prone to time and cost overruns. It has, therefore, been decided to adopt the EPC mode of construction.”

The draft quoted a sample analysis of 20 NH projects executed on item-rate contracts that took, on an average, 61 months to complete as against 29 months taken by projects executed through PPP which generally adopted the EPC mode for project execution.

“Further, these projects had cost overruns of an average 48% (ranging from 25 to 183%) besides large volumes of foregone toll revenues on account of delayed completion,” the draft said.

With a view to enabling a transparent, fair and competitive roll out of highway projects, the model draft incorporates international best practices and provides a sound contractual framework that specifies the allocation of risks and rewards, equity of obligations between Government and the Contractor, precision and predictability of costs etc, the draft added.

On selection of contractor, the draft said it will be based on open competitive bidding and “the bidder who seeks the lowest payment should win the contract.”

On defect liability period, it said that same has been made two years from the earlier specified one year to “in order to provide additional comfort to the Government.”

The draft has been finalised by an inter-ministerial panel against the backdrop of differences between the Road Transport Ministry and the Planning Commission over some issues including the defect liability period.

Road Transport Secretary A K Upadhyay last week said that the Ministry after obtaining stakeholders comments on draft EPC would send it for Cabinet nod by July 30.

The EPC mode is expected to accelerate the pace of awards as the National Highways Authority of India (NHAI), which has not awarded a single project in the last quarter.

Last month, Prime Minister Manmohan Singh had set a target of award of 9,500 km of road projects in FY13 for the Ministry.

SOURCE: http://business-standard.com