Mukund Sapre, Executive Director, IL&FS Transportation Networks Limited shares his views on the increased impetus to the Roads & Highways sector and the outlook for the sector in the coming times with Garima Pant.
What will the increased budgetary allocation mean for the roads & highways sector and the infrastructure sector at large?
New projects under EPC mode are expected, which will help improve cash flow in the sector at large. Rural connectivity has also got a boost this year with dedicated allocation under PMGSY scheme. Railway is another sector that has also got significant allocation in the budget (Rs. 1.31 trillion). Significant improvement in private participation is expected in the sector, jointly with Metro projects coming up in numerous cities. It has been observed that traditionally, ambitious plans are laid out but the Ministry had been unable to achieve the same. This time however, it looks like the Ministry has set realistic targets for the year. It is also expected that all the revamping measures undertaken in the past couple of years will bring about positive impact on the ground this year. Execution of project is also likely to pick up pace in this fiscal year under the New Land Acquisition Act.
How can the government and the industry address road-safety concerns?
In order to reduce road accidents and thereby improve road safety, one has to be proactive in identification of black spots, pre-empt the occurrence and take action accordingly. Taking reactive steps will not help to cut down accidents, which has been the case thus far. Given the various stakeholders in the sector, it is imperative that each participant plays their part in bringing about this reduction in road accidents. At the Ministry level allocation of higher budgets should be done to build in safety features in highway projects like VUP’s, PUP’s, Animal crossings, Pedestrian FOB’s etc. The Ministry should also focus on effective implementation of traffic rules and promote a safe driving culture within the country. The industry should come together in defining standards, creating enabling provisions within their project implementation structure to aid in giving shape to the efforts of the Ministry. Provision should be made in Bill of quantity (BOQ) for safety items and penalty should be charged if any lapses in implementation of the same are found.
Vulnerable Road User specific requirement should be incorporated in all road projects. At an individual sector player level proper comprehensive and accurate road accident information should be maintained, if possible in standard formats, and meaningful analysis should be carried out to identify requisite corrective action that needs to be taken. Top priority should be given to road safety during design and construction stage itself. Greater involvement of the company Management would ensure that these measures move from paper to ground. Eventually, all the stakeholders must unite and synergize to address the road safety concern.
How the various national schemes launched in the segment are helping the sector to grow?
A large quantum of projects/schemes launched by the government envisages a healthy business environment for infrastructure companies. The pace of construction of PMGSY roads has accelerated to reach 133km roads per day in 2016-17, as against an average of 73 km during the period 2011-2014 and a further outlay of Rs. 27, 000 crore will boost the rural road construction project of the government and improve the cash flow in the sector. The higher allocation of union budget comes at a time when the ministry has unveiled an expansion programme of constructing 20,000 kilometres of national highways over the next three years. This includes the Bharat Mala project that envisages developing 6000 km roads along coastal and border areas, Char Dham project connecting four pilgrimage spots including Badrinath and Kedarnath and Sethu Bharatam involving building 350 bridges and rail over bridges in two years. With the new Hybrid Annuity model where the government gives 40 per cent of the construction cost while the developer invests the remaining 60 per cent the new model will not only result in reduced equity investments by developers, but will also reduce initial capital outflow for NHAI. All these programmes/schemes will provide the much-needed impetus to the construction companies, especially those involved in the development of roads and highways
Which are the key projects that are drawing interest and investment across the country?
With growing capabilities in the country, the Government is coming up with mammoth, challenging and capital-intensive projects like Tunnels (Zojila Pass tunnel project), Metros and large ambitious projects like Mumbai Trans Harbour Link (MTHL), Cable stay bridges etc. In addition to these the government has also finalized the blue print of auction of completed road projects on TOT basis (Toll-Operate-Transfer), which is attracting large amount of investors. In this model lump sum-one time payment will be made by authority for operation and maintenance of the project for a period of 15-20 years.
With a spate of reforms in the Roads & Highways sector, which of the models – EPC, BOT & HAM – would be the best choice and why?
Currently, with Banks and FI’s being reluctant to lend to the sector, tying up funds for BOT/ HAM has become a serious hurdle and often takes much longer than anticipated. Given that the BOT model has been in fray for over 15 years now, many of the banks have attained lending limits to the sector and the players in some cases. Under these circumstances, EPC mode appears to be the clear choice as not only will this speed up implementation of projects, which is the need of the hour, but also help improve cash flow in the cash strapped sector. Having said so, it makes no business sense for the Authority to execute projects which are financially viable through EPC as it could be a potential income source for the Authority if bid out through BOT. To conclude, although EPC projects would lead the list, a few projects under BOT are also expected to be bid out.
Do you believe the Hybrid Annuity Model (HAM) would be able to rejuvenate PPP in the sector?
Well, until date, around 36 projects HAM projects were bid out which on an average attracted 5-6 bidders. Out of these projects, only 11 could be financially closed while others are still struggling to achieve closure. It appears that the Authority is trying pass off projects, that otherwise could not be executed normally for want of land and clearances and other regional issues, under the ambit of an attractive model in form of HAM. As of now, it appears that this strategy has not worked as evidenced from the reaction of Banks & FI’s to HAM projects. However, if the projects put under HAM are packaged efficiently and small structural changes brought about in the model to address the Banker’s concern, it should get the sector going.
