Vinayak Chatterjee: The high road to efficiency

January 16, 2012

For a historically capital-starved and infra-deficient nation, we have rightfully been obsessed with asset creation in the public-utility space. Little emphasis has been paid, however, on the maintenance of these assets or the delivery of pre-determined service levels from these assets. Take, for example, our roads and highways. Highway users continue to be a frustrated lot in spite of massive investments in this sector. Waiting-time at toll-plazas, safety aspects, ride quality and haphazard lane-management continue to bedevil even newly constructed roads.

Highway operators must eventually get prepared for regulatory raps as well as individual and “class action” litigation for failing to provide desired levels of service. They will have to wake up to the reality that toll cannot be charged merely for the privilege of being allowed to use a particular stretch of road. The “purchase consideration” inherent in charging a toll has to come bundled with the commitment of a smooth ride at a designated average speed, with full consideration of safety and highway amenities. Failure to ensure this should attract penalties and damages.

In this cauldron of frustrations and rising aspirations, it is interesting to note that the responsibility for operations, maintenance and tolling (OMT) is gradually shifting from the developer or the contractor group to independent and professional OMT service providers. Simultaneously, the focus is also shifting from merely reducing capital expenditure to optimising life-cycle cost, as well as, providing an accountable delivery of services.

My friend and colleague, Vivek Rastogi, who has a deep knowledge and insight on these issues, likes to draw out lessons from Brazil’s experience.

Brazil, with emerging-economy demographics much like India, has faced similar challenges in highway operations. Brazil embarked on its public-private partnership (PPP) highway development programme a decade ago. Its journey in developing national highways on a build-operate-transfer (BOT) basis has been equally successful. The operations and management (O&M) for these highways started the same way as where India is today — a toll revenue leakage as high as 25 per cent, below par patrolling and unsatisfactory maintenance and traffic management.

What is remarkable is that in the last 10 years Brazil has improved the O&M performance to reach close to world standards. There are four main reasons for this success:

An independent governance and regulatory body: the Brazilian Agency for Land Transportation (ANTT) was set up in 2001 to monitor the performance of concessionaires. ANTT sets aggressive service-delivery standards. These include mandatory electronic tolling, patrolling every 90 minutes, fixing pot-holes in 24 hours and replacing damaged safety signals in three days. It has a monthly monitoring mechanism for each concession. Any major gaps in performance are severely penalised.
Electronic tolling accounts for 60 per cent of the collections. This has significantly improved the productivity for heavy transport vehicles and also resulted in more accurate toll collection.
There is a strong and time-bound legal support for issues affecting the concessionaire. Users paying toll are answerable to the legal system and these cases are closed within 30 days. Major accidents and erring drivers are also referred to the same legal set-up. This level of processing is possible since the legal set-up directly reports to ANTT.
The police is extremely responsive and officers are actually stationed in the control rooms of the concessionaire. This support from the police has helped the concessionaires in reducing revenue leakage to near-zero levels.In essence, Brazil has created a virtuous circle in which concessionaires have near-100 per cent toll collection and thereby have adequate funds and motivation for O&M. They have strong legal and police support to ensure this is an ongoing process. In case they do not deploy adequate funds or do not perform activities in a timely fashion, the regulator ANTT has the stick ready. The same is the case in other developed countries with large PPP highway development programmes — such as Portugal, Spain and Malaysia.In contrast, India has a vicious circle – one that reduces the value and impact of the new asset – and this, unfortunately, starts from the design and construction phase.
Sarkari authorities often “under-design” to reduce project costs and sometimes to save “viability-gap” funding. The under-provisioning of service-lanes, under-passes and pedestrian facilities are simply obstinacy to recognise genuine consumer needs. The state also often abdicates its role in removing encroachments and ensuring hassle-free right of way. Many Indian concessionaires have their roots in the construction business. They enter BOT highway projects for the construction revenue and not for operating a long-term asset. As a result, profit maximisation during construction is often in conflict with the desired asset lifecycle longevity. The concessionaire has little legal or police or state support to make all users pay. This is one of the reasons 20-30 per cent leakage in toll collection is not uncommon.

These three aspects – poor design parameters, short-sighted development and collection difficulties – together create a financial pressure on the concessionaire. This is the start of the slippery slope — a story with which we all are very familiar across most Indian roads. The resultant poor O&M of roads leads to more headaches and accidents.

Similar to ANTT of Brazil, the National Highway Authority of India (NHAI) is currently performing the role of setting O&M requirements in the concession agreements and monitoring implementation. The NHAI role in follow-up and corrective action often lags intent, leading to the known “chalta-hai” attitude.

Is there hope for the Indian highways? Yes. There are well known, implementable solutions. However, most of these are systemic solutions requiring states and NHAI to play a bigger coordinated role:
NHAI needs to be strengthened for O&M supervision and related penal action. The authority should go to the extent of displaying the service levels on the road and invite comments from users of the highway. In case of continued low service levels, either the toll rate could be reduced or NHAI should appoint a third party to manage the O&M of the highway.
State governments need to find an effective mechanism for providing better police support.
A separate legal tribunal for highway-related cases should be considered.
NHAI and the Ministry of Road Transport and Highways need to ensure the implementation of electronic tolling systems that will not only improve throughput, but also lead to more accurate toll collection.
The bureaucracy will have to get used to a widely different nature of contracting. From the centuries old, lowest capital cost tender system, the bureaucracy will have to define service-level agreements and choose parties that will deliver agreed levels of service at “minimum” cost to the citizen.With
all these in place, the romance of a long-road journey can surely be brought back. All we need is 21st century attitudes, technologies and systems in place.

Source: business-standard.com

Written by ITW Editor · Filed Under BOT, Highway, Road

One comment on “Vinayak Chatterjee: The high road to efficiency” Post your comment

Daljit Singh Khokhar on January 18th, 2012 12:53 pm

I really appreciate the views of Mr. Chatterjee. I have also emphasized on the construction of Quality Roads by adhering on the Specifications of IRC strictly with additional mandatory clause of `Third Party Stage Inspection for all Expressways,Highways and Metro city roads,District PWD/ Municipal Corporation roads to improve the life and Quality.

If we are having inspection provisions of Industrial Boilers,Pressure Vessels,Safety provisions as per factory act for the safety of the workers and general public then why the inspection of Roads are not covered under strict inspection Act for the roads which are used by millions of vehicles and pedestrians ? Similarly OMT laws should be strict and the road contracts should be awarded to the Agency who have excellent record of Quality construction of roads and possess modern road testing equipments such as Automatic Road Survey System(ARSS) ,Longitudinal Profiling with International Roughness Index,Video imagining Accelerated Pavement Testing Facilities to study pavement deterioration material behaviour etc. When we are spending good chunk of money (Several lakh crore of rupees in every financial budget and five year plans) the tolls should be removed altogether to save money and time and diesel or petrol by putting no barriers to collect toll for faulty roads and connectivity. The Government should take the onerous for making Quality roads.

I also suggest to review the BOT and PPP policy of funding after getting the feedback from the past performance.