Road sector will see investments of over Rs1 trillion this fiscal: Vijay Chhibber

New Delhi: Although reviving investments in the roads sector is a priority for the National Democratic Alliance government, private investors are still cautious. However, according to road secretary Vijay Chhibber, prospects for private participation are bright because of the proposed hybrid annuity model, which provides fiscal support from the government and takes away the traffic risk from the investor. The ministry has set a target of awarding road projects of 1,000km per month that could lead to over Rs1 trillion in investments, Chhibber said. He also assured that any change in toll policy will take care of stakeholders’ concerns and provide for compensation in a transparent manner. Edited excerpts from an interview:

While the ministry has been able to improve its project awards in the last fiscal year, private participation in terms of investment continues to be low. The government-funded model is not sustainable in the long run. How are you planning to change this?

The roads ministry has awarded 8,000km of national highways (NH) in the financial year 2014-15. Though only about 700km were awarded on BOT (build, operate and transfer) model last year, with the right policy interventions in this fiscal (2015-16), we believe that private investment will soon return to this sector. Already, we have received bids for eight road projects under BOT (toll) for around 885km of NH with total project cost of Rs11,600 crore.

In the new financial year, you are looking to award 10,000km of road projects. How much investment do you see in the road sector in the year?

This year, we hope to award a substantial number of roads on BOT (toll) and hybrid annuity models. We have finalized our MCA (model concession agreement) and RFP (request for proposal) document for hybrid annuity and around 20 projects would be rolled out by the end of this month for an aggregate length of around 1,260km. We have a target of awarding about 1,000km per month. The above would entail a spend of around Rs1.1 lakh crore in financial year 2015-16 to provide impetus to the infrastructure sector in general and the road construction industry in particular.

The other major worry that the sector has—and is seen as an important reason making investors unsure about investing in road projects—are statements by the road minister on the discontinuing of toll collections from certain projects. Given that toll is the main source of revenue based on which the private sector makes investment, lack of clarity and signs of tinkering with the toll policy in the future have developers and investors worried. Will the road ministry make its stand clear on the toll policy?

The toll policy shall continue as it earns substantial revenue for the ministry and the financing plan for future development of the National Highways Development Project factors toll plough-back as a source of budgetary support for highway development. The system of electronic toll collection across all operational toll plazas (around 300) of the country is in progress and has already been completed in 196 toll plazas. This will help commuters to pay toll in a hassle-free manner. However, no policy prescription is cast in stone and can be dynamic. Notwithstanding that, I can only assure that any change in the extant toll policy will be made after due consultations with all stakeholders, and any adverse impact on account of change in policy will be fully compensated in a transparent and time-bound manner.

At what stage is the proposed Bharat Mala project? Is this project your priority?

We envisage the development of the Bharat Mala project comprising an estimated 5,500km of highway length with an investment in excess of over Rs55,000 crore all along borders and coastal areas, stretching from the north-east part of India till western India. Apart from providing connectivity to the ports under the Sagar Mala project, this project will provide seamless connectivity along the borders with Nepal, Bangladesh, China, Pakistan and Bhutan, which is crucial for strategic reasons. This is a priority programme and we will shortly be seeking formal approval from the government. In anticipation, the detailed project reports are in progress.

The issue of reviving bank lending continues to be a challenge given the bad loans most banks have on their books from lending to this sector. Any measures being taken to address this?

We have built in enough clauses to increase the comfort level of the lenders in the MCA for BOT (toll), which will be amended shortly. The banks are expected to do due diligence when they lend money to developers.

What new measures or models are under consideration to improve investments in the sector? Sale of tolling rights for completed road projects and new models such as the Swiss Challenge are being spoken about.

We are in the process of finalizing the modalities to hive off completed highway projects which have been built on EPC (engineering, procurement and construction) mode with defect liability period (DLP) and without DLP. This will help to raise funds for new highway development. It will create a new business vertical for those players who are interested in operations and maintenance of the roads with tolling rights over, say, a 20-year tenor. This tolling-operations-transfer model is in advance stages of conceptualization. You will come to know of it soon.

Swiss Challenge is usually a mode of delivery for new projects. In India, it is still new. It is based on the premise that a developer who has core competence in a particular field will come and prepare a detailed project report (DPR) for a project, which will then be bid out by the government. The first right of refusal to do the project shall lie with the developer who made the DPR. This method can be tried for developing expressways, where superior technology for road-building can be showcased.

There is also a concern that somewhere in its bid to bring private investors back, the government may be bending back too much and taking most of the risk away from the private sector. How will you make sure that it remains a balanced reallocation?

The government is playing a supportive role to encourage private participation in highway development by reallocation of risk. There is no question of bending in anyone’s favour. It is always imperative to design concession agreements with the underlying objective to realign the revenue streams of the project with debt repayment stream.

The more there is a mismatch in this scheme; the brunt shall have to be borne by the authorities or financial institutions. The ministry is laying a lot of emphasis on project preparation and ensuring that LA (land acquisition) and statutory clearances are given to the private developers on time. Moreover, we would prefer to have a healthy mix of different modes of delivery of projects, depending on traffic, location and various other factors. The over-dependence on any one mode, say, BOT (toll), as in the recent past, has not been useful, particularly in times of economic stress. Learning from our past experiences, we intend to have a healthy mix of government and private-funded projects. This should be the way forward.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.