Will auction of public funded highways work?
With the Union cabinet’s clearance to monetize public funded national highways in the country on Toll Operate Transfer (TOT) model, the road transport and highway ministry is expecting the sector to revitalize. Under this arrangement, the National Highway Authority of India (NHAI) is now authorized to lease as many as 75 National Highway projects, which are operational and have been generating toll revenues for at least two years to various entities on TOT model. The decision has come as the NHAI’s present model of Operation Maintenance and Transfer (OMT) has been partially successful. A highway ministry official requesting anonymity said in the traditional public funded NH projects once the project is completed and the contractor exits, the entire responsibility of regular and periodic maintenance and day-to-day operations including toll collection comes on to the NHAI and they usually outsource it to various vendors and contractors. However, the market feedback, which the NHAI and highways ministry has got, indicates that there are a lot of international institutions, which have a long term investment appetite and are keen to participate in operational highway projects with stable toll revenue outlook. These investors generally hesitate from taking construction risk but are willing to look at de-risked Brownfield road assets, he said, adding that the investors include Abu Dhabi Investment Authority (ADIA), Ontario Teachers’ Pension Plan, etc. He said that under this TOT model, the right of collection of user fee (toll) in respect of selected operational NH stretches constructed through public funding is proposed to be assigned for a specific time period, to developers/investors against upfront payment of a lump-sum amount to the government. Further, during the tenure of the contract, the operation and maintenance responsibility would remain with the assigned developer/investor. A senior NHAI official on condition of anonymity said, “This is not a ‘distress sale’ of assets. These assets continue to remain in the sovereign. Only the toll collection rights are being transferred for a specific period along with maintenance obligations in lieu of a lump sum upfront fee. The fee is to be determined by market in an open competitive and transparent manner. Such asset recycling has successfully being tried in other geographies of the world in the past.” With the increase pace of National Highway construction in the country, the number of public funded operational highway projects is likely to increase over time. Such completed and operational public funded projects in some cases have been bid out under the OMT contracts wherein the selected concessionaire is required to take care of the projects operation and maintenance of around six-nine years depending on when the major periodic maintenance is due. But the biggest limitation of this model is that it’s a short tenure model and NHAI fails to get an upfront payment for investments which the TOT will provide now. The road ministry official said, “The corpus generated from proceeds of such project monetization could be utilized by the government to meet its fund requirements regarding future development and operation and maintenance of highways in the country. This could address development/strengthening of highways in unviable geographies. The model would facilitate efficient toll realization through private sector.” The initiative is also likely to create new business opportunities for a new vertical of developers who specialize in operation and maintenance of highways, category of investors (Institutional Investors including Pension and Insurance Funds, Sovereign Funds, etc.) which is averse to taking construction risks but is adequately equipped for making long-term investments in road infrastructure. Greg Pateryn Jersey
NHAI to roll out scheme for highway patrolling and quick response system
National Highways Authority of India (NHAI) will soon roll out a highway incident and allied services scheme to aid road users. The scheme will include highway patrol and quick response mechanism for commuters facing problems. While the focus will be on helping accident victims and ensuring smooth traffic, the increased patrolling is also likely to deter criminals who target commuters. “We are preparing standard operating procedures for the scheme. NHAI will set the norms for people to be engaged in this service,” NHAI chairman Raghav Chandra told TOI. He said those engaged in such schemes, to be outsourced to private players, will have no policing powers. “They will call up local police for action,” Chandra said. The scheme is being designed under public-private partnership model. The need for a specialised patrolling system has been underlined after a string of crimes, including the recent gang rape of a woman and her daughter on NH-91 in Bulandshahr, UP. Cory Littleton Womens Jersey
Toll tax on national highways may be here for next 30 years
Minister of Road Transport and Highways has proposed that a bulk of the money required for construction, especially the Bharatmala project, be raised through monetisation of public funded national highways projects, according to a report in The Indian Express. The proposal, which is likely to be approved by the union cabinet is about putting 75 projects, constructed by NHAI using public money on auction for bidding by private firms. Private operators would be offered the toll collection rights for next 25-30 years in lieu of a lump sum payment to the government. The proposal, if implemented is expected mop up of about Rs 80,000 crore, the report said. The projects identified for this purpose under the model called Toll-Operate-Transfer (TOT) have been in operation for at least two years and currently generate toll of Rs 2,700 crore per year. The idea behind this is to generate immediate resources while ensuring that operation and maintenance of constructed highways is more efficient. The private sector is also better in terms of toll collection, the report said quoting a government source. Last month, the government had announced that about Rs 7 lakh crore would be spent to develop around 50,000 kilometres of national highways over the next five years. Sebastian Aho Authentic Jersey
Modi govt nod to auctioning stretches of national highways
The Modi government on Wednesday cleared a plan to auction completed stretches of national highways built from public funds and give investors such as sovereign funds the right to collect toll. The money raised from the auction would be used to build new highways. The road transport and highways ministry has identified 75 highway stretches that would go under the hammer to begin with, an official statement said. “We plan to auction completed projects in bundles of five-six. The length of the first such bundle of highway projects is around 6,000 km,” a ministry official said. The highest bidder would have to pay the money upfront and will get the toll collection rights on the auctioned stretch for 30 years. The bidder would also have to operate and maintain the highway stretch. Union minister of road transport and highways Nitin Gadkari hopes to generate between Rs 80,000 crore to Rs 1 lakh crore from the first tranche of auctioned projects. Gadkari has set a target to build 30km of highway per day. If he has to deliver on this promise, the government needs to invest Rs 5 lakh crore over the next five years. The funds generated from these auctions could be used to meet its requirements for expansion of highways and their maintenance. “This could address development/strengthening of highways in unviable geographies,” the statement said. A government official told HT that international sovereign funds and pension funds looking at long-term investment for assured returns were expected to bid for these projects. “The completed highway projects fit their bill as they are risk free. There are no construction-linked risks like land acquisition issues or regulatory hurdles,” the official said. The government said the existing model of inviting companies to operate and maintain highways for six-nine years had only attracted smaller investors, largely contractors and developers. Jim Dray Authentic Jersey
National Highways Authority of India gets nod to monetise projects
The government on Wednesday opened up brownfield investments in the highway sector to institutional investors. The Cabinet has allowed the National Highways Authority of India (NHAI) to monetise public-funded national highway projects, which are operational and are generating toll revenues for at least two years after the commercial operations date, under a toll operate transfer model. The monetisation will be subject to approval of the Ministry of Road Transport and Highways or NHAI on a case-to-case basis, an official statement said. Around 75 operational highway projects completed under public funding have been identified for potential monetisation using the toll operate transfer model. The government is of the view that monetisation of public-funded national highways could create a framework for attracting long-term institutional investment on the strength of future toll receivables. Market feedback indicates that certain institutional investors from outside the country have a long-term investment appetite and are keen to participate in operational highway projects with stable toll revenue outlook. The proposal also means operation and maintenance (O&M) framework requiring reduced involvement of NHAI in projects after construction and completion. The corpus generated from the proceeds could be utilised by the government to meet its fund requirements regarding future development and O&M of highways. It would also create new business opportunities for a new vertical of developers who specialise in O&M of highways, institutional investors including pension and insurance funds, and sovereign funds which are otherwise averse to taking construction risks but are adequately equipped for making long-term investments in road infrastructure. The proposal is also aimed at ensuring better O&M of public-funded highway stretches resulting in enhanced quality of service for highway users. At present, the selected concessionaire for operate, maintain and transfer contracts, which are completed and operational, is required to take care of the project for a period of around six to nine years. Evan Engram Womens Jersey
Plan to monetise National Highways to fund road construction projects on Cabinet table today
With Nitin Gadkari setting a huge target of building 100 km of roads per day, his Ministry of Road Transport and Highways has proposed that a bulk of the money required for construction, especially the Bharatmala project, be raised through monetisation of public funded national highways projects. In a proposal to be taken up by the Cabinet on Wednesday, it has suggested that toll collection from 75 operational national highways be put on auction for bidding by private firms. These projects have been in operation for at least two years and currently generate toll of Rs 2,700 crore per year. Successful concessionaires would be given toll collection rights for next 30 years in exchange for an upfront payment of a lump sum amount to the government. “We are looking at a revenue mop up of about Rs 80,000 crore,” said sources. The proposed Toll-Operate-Transfer (TOT) bidding would be for 75 projects that were completed under the engineering, procurement and construction (EPC) route where the government provided the money and a developer executed the project. The idea is to generate immediate resources while ensuring that operation and maintenance of constructed highways is more efficient. “The private sector is also better in terms of toll collection,” they said. Operation and maintenance has been a concern area because of staff limitations of the National Highways Authority of India. Moreover, it’s a global practice to hand out O&M, including tolling rights, to private sector after completion and stabilisation of projects. “The existing operation-maintenance-transfer model works only for the short term, say 6-9 years, and the proposed transfer would ensure that O&M obligation of these roads would lie with the concessionaire until the end of the term,” sources added. India plans to develop road projects spanning 50,000 kms and entailing investments of about $250 billion over the next five to six years. Prime Minister Narendra Modi has put infrastructure development, mainly road construction, on top of his agenda. Sheldon Richardson Jersey
All states to be equally connected under Pradhan Mantri Gram Sadak Yojana: Centre
Centre said todat that there will be no discrimination against any state in allocation of funds for construction of rural roads under Pradhan Mantri Gram Sadak Yojana (PMGSY). Rural Development Minister Shri Narendra Singh Tomar said today in Lok Sabha that so far 65% of the rural habitations have been connected with all-weather roads and remaining 35% will be completed by March, 2019. Tomar said that in the 2nd Phase of PMGSY upgradation 50,000 kilometers road will be done at a cost of Rs 33,000 crore. “After the 14th Finance Commission, the States are now getting 42% funds, while earlier they used to get only 32%. So, there is no dearth of funds for this project,” Tomar said. The budgetary provision for the PMGSY was around Rs 9,000 crore in 2012-13, it had been enhanced to Rs 19,000 crore in 2015-16. Government has recently announced the formation of District Development Coordination and Monitoring Committee (DDCMC) called “Disha” for effective development coordination and monitoring of 28 Central Schemes for monitoring of the PMGSY. The Minister said that from 2011 to 2014, 73 kilometers road was built per day, while at present 100 kilometers of roads is being built each day. government has set a target of taking per day road construction to 133 kms. Bobby Smith Womens Jersey
India’s poor infrastructure biggest roadblock to ‘Make in India’: S&P
: The country’s poor infrastructure is the “biggest hurdle” to government’s flagship Make in India programme, S&P Global Ratings said today. “Infrastructure is the biggest hurdle to the ambitious Make in India programme of the government,” S&P Global Ratings Credit Analyst Abhishek Dangra told reporters on a conference call. The infrastructure deficit is costing up to 5 per cent of the GDP and an improvement will boost export competitiveness, according to some estimates. However, he was quick to add that the export powerhouse of China also faces problems on the infrastructure front. Every rupee invested in infrastructure development has a ripple effect and helps the GDP by Rs 2, he added. The passage of the Goods and Services Tax, billed as the country’s biggest indirect taxation reform, will give a fillip to the logistics and manufacturing sectors, he said. Dangra said there are problems in the country’s transportation sector with capacity constraints and underlined the need for better regulation. “India’s transportation infrastructure sector could significantly benefit from a stable regulatory environment that has an independent regulator, appropriate dispute- resolution mechanisms and supportive, comprehensive policies,” he said. Citing the case of the power sector, Dangra said better regulation has helped in a turnaround and we are looking to have a power surplus in 2016-17. Even if the government leads with transportation spends, execution will be a key challenge, he said. The government’s limited finances will make it essential for the private sector to pitch in, the agency said in a note. “The government is scaling up spending, but its heavy debt burden could derail its ambitions to improve public infrastructure,” it said. The global ratings agency said India Inc will see a turnaround in performance soon. “The performance of Indian corporates is bottoming out. It will be a slow, U-shaped recovery for them,” S&P Global Ratings Credit Analyst Geeta Chugh told reporters on a call. Revenue growth is expected to move up in the next 2-3 years, the agency said, adding that this will be possible largely on increased government spending and the consequent increase in domestic economy. Gio Gonzalez Jersey
Four-lane highway at teeming Gurugram-Sohna Road delayed by 3 years
Much like the Dwarka Expressway, the development of a planned four-lane highway at the teeming Gurugram-Sohna Road will also take three more years. The 92-km road connecting Rajeev Chowk at NH 8 to the Rajasthan border in Alwar district has recently achieved national highway status. But problems came to the fore during the 25-hour gridlock on Thursday and Friday, particularly at the stretch between Rajeev Chowk and Badshahpur. FAULTY DESIGN “We took charge of the Gurugram-Alwar road last week and soon hired a consultant company to check feasibility to develop a four-lane highway,” said Ashok Kumar Sharma, project director, NHAI. The NH 248 is highly congested, especially between Gurugram and Badshahpur, owing to a faulty design from the Haryana PWD, MCG and HUDA. Experts cite the flyover at Subhash Chowk as a key example of the flawed policies of the government and civic agencies that had passed the design of the structure from Huda City Centre Road to Hero Honda Chowk in spite of the Rajeev Chowk to Badshahpur stretch on NH 248. Compared to the previous road, the NH 248 has about 100 times more vehicular traffic due to a large number of IT companies, business houses and upscale residential complexes in the neighbourhood. “The consultant company will check the feasibility of an underpass at Subhash Chowk on NH 248. Besides that, it will also look for possibilities of elevated corridors at highly congested places such as Badshahpur, Sohna town, Nuh and Ferojpur Zirka,” Sharma said. He added that company will submit its feasibility report in three months and like the other NHAI project, it is also expected to be complete in three years. The NH 248 starts from Rajeev Chowk situated on NH8 and has four lanes till Nuh, the headquarters of Mewat district. The road further towards Ferojpur Zirka and touching Alwar border still has just two lanes. Denzel Perryman Womens Jersey
Road developers step up bidding war in quest to win EPC projects
Road developers are locked again in a bruising bidding war, offering to build highways at prices that are lower than cost estimates, just months after the government offered a bailout to companies to help revive stranded road projects. Several debt-laden developers, unable to take up build, operate and transfer (BOT) projects because they are capital-intensive, have opted to bid for engineering, procurement and construction (EPC) projects, where the government pays the contractor to build the project. A total of 52 EPC road projects worth about Rs.26,700 crore have been awarded between January and June, according to data compiled by brokerage Equirus Securities Pvt. Ltd. Of these, close to 40 projects were won below the National Highways Authority of India’s estimated cost and each of the projects attracted three to 14 bidders. The government’s push for a new low-risk hybrid-annuity model (HAM), in which the state commits up to 40% of the project’s total cost to kick-start private sector investments, and the emergence of a number of smaller, regional companies have added to the competitive intensity, according to road developers and analysts. The government has been trying to resolve stressed assets in the sector by giving faster land acquisition approvals and providing last-mile funding. Last year, it eased rules for companies to exit their operational road projects. It has terminated more than 40 unviable BOT road projects spanning 7,000km lane. These projects are being re-awarded via the EPC route. Larsen and Toubro Ltd (L&T) has decided to focus solely on EPC projects. It won five awards in the six months ended 30 June, all of them below estimated costs. It won two EPC projects in Tamil Nadu in February by bidding 27% and 13% lower than the project cost suggested by the awarding authority. In March, L&T won a road project in Kerala at a bid that was 38% below the estimated project cost. Similarly, Bhopal-based Dilip Buildcon Ltd has won six contracts, which were between 13% and 31% below the estimated cost. Apart from L&T and Dilip Buildcon, firms such as PNC Infratech Ltd, Ramky Infrastructure Ltd, Ashoka Buildcon Ltd and GVR Infra Projects Ltd have won EPC road contracts in 2016. The NHAI, which invites bids from developers and awards them to the lowest bidder, is the sole agency responsible for the development of national highways. Projects are also awarded by the ministry of road transport and highways and states. Infrastructure developers, weighed down by debt, are seeking to monetize dozens of highway and power projects to repay creditors. Many are taking on state-funded EPC projects to pay their interest and other costs and to grow their order book. Companies with weak balance sheets that do not support investing in BOT or HAM projects are bidding aggressively for EPC projects, said Devam Modi, an analyst with Equirus Securities. “This makes them bid below the NHAI cost, and this will impact margins, but it is difficult to say how much they will lose as of today.” L&T, however, said it has been able to win projects at lower costs due to better planning, design, and engineering. “It has nothing to do with competitive intensity. We do not want to improve market share at the expense of margins,” said chief financial officer R. Shankar Raman. While Dilip Buildcon acknowledges intense competition, it does hold NHAI’s project cost as an accurate metric. “Every state has a different cost and often cost estimates are not accurate… Competition has definitely increased. From four bidders in 2014, there are seven-eight bidders in EPC projects. But a lot depends on a company’s cost structures and their target for contracts,” said Rohan Suryavanshi, head of strategy and planning. The shift towards awarding projects under the HAM model this fiscal will heighten competition for EPC projects and benefit companies with financial muscle because of moderate competition for HAM projects, Edelweiss Securities Ltd analysts Parvez Akhtar Qazi and Rita Tahilramani wrote in their 27 July report. “The shrinking pie of EPC projects (expected to more than halve in FY17 from about Rs.40,000 crore in FY16) is likely to result in intense competition for such projects,” they wrote. In contrast to EPC, all the 25 HAM projects between January to July this year were awarded above the estimated project costs. Many of these projects had nine to 13 bidders each. MEP Infrastructure Developers Ltd along with partner Sanjose India Infrastructure, Sadbhav Infrastructure and MBL Infrastructures Ltd have won the most number of projects under HAM so far this calendar year. A total of 50 HAM projects are to be awarded in fiscal 2017. EPC projects formed the bulk of awards in the past two years; this year, however, most projects have been awarded on the HAM model, said Vasistha Patel, executive director at Sadbhav Infrastructure Projects Ltd. “This has led to aggressive bidding for the limited number of EPC projects… In EPC, we earn margins of 11-12%, while in BOT, they are naturally a little higher,” he said. Sadbhav had also bid 3-5% below the estimated cost for some projects, Patel said. India has set a target to award 25,000km of road projects in FY17 under the ministry of road transport and highways and NHAI, compared to 10,000km achieved in FY16. Randall Cunningham Authentic Jersey