• In Conversation

The largest public-private partnership (PPP) project in the world just got larger. India is preparing to complete 7,000 kms of roads in a year and has work worth Rs. 2,00,000 crore in progress. We talk to Kamal Nath, the Union Cabinet Minister of Road Transport and Highways, about what it will take to pull this off.

Building 20 kms of road per day and 7,000 kms a year is a huge target. Can it really be achieved, given our track record?
We have set a quantum jump in targets for ourselves by attempting to speed up the development of roads from the 2-3 kms of the recent past to 20 kms per day. To achieve this target, a holistic approach needs to be taken. Almost every aspect of the project development needs to be examined closely—the quality of DPRs, the process of land acquisition, the monitoring of work during implementation, etc.

One of the biggest challenges we face is capacity development within the National Highway Authority of India (NHAI). We need to bring about an attitudinal change in the NHAI; we need to make it decentralized and more responsive. Along with this comes the need for policy changes—for example, in the model concession agreement (MCA), in the request for proposal (RFP) / request for qualification (RFQ) documents, in the process of land acquisition, and in the dispute resolution mechanism.

With market conditions being in a state of flux, more so overseas than in India, will we be able to raise the investment amount needed for this project?
India, today, is a leading destination for infrastructure expenditure. As is underscored by the aspirations laid out in the eleventh 5-year plan, this sector offers tremendous potential for growth; the highway sector, in particular, offers among the best returns. Both the domestic and the international community consider India to be a favorable parking lot. We are confident that the required investment can be raised.

The NHAI has posted its work plans for 2009–10 and 2010-11 on its website. These work plans give complete details of the project to be awarded during these years. By March 2010, 126 projects will be awarded. And to ensure that these projects are bid for, we have already completed a series of policy changes in the model documents, such as the MCA, the RFP and the RFQ.

Will the private sector be contributing to this project?
The higher rate of growth of the national economy in recent years has led to an unprecedented demand for infrastructure services. And the lack of adequate infrastructure is seen as the key impediment to India’s road to still greater economic growth.

But the government is committed to speeding up development in the country. PPPs have become the preferred mode to ensure greater efficiency in developing highway projects and meeting the huge financial demands. In the PPP mode of project execution, all investments (excluding Viability Gap Funding) are required to be brought in by the private sector.

We look forward to the private sector contributing about $12 billion this financial year, and $41 billion over the next couple of years.

What criteria do private companies need to meet in order to bid?
A pre-qualification document has been prepared and posted on the NHAI website. The minimum qualification for any player to be eligible has been spelt out there, both in terms of the financial criteria and the technical.

In the past, many bids issued by the NHAI have gone by without a single bidder. What steps will be taken to make these projects more attractive?
The response to any project is a function of cost, traffic, availability of capital resources, and the policy framework applicable to it (including incentives/grants). With the proposed shift in our policies and the favorable economic outlook, the lack of response to road projects isn’t likely to be repeated. It is necessary to convince investors that notwithstanding the structural challenges, the profit pool remains large and attractive.

How will transparency be ensured and unnecessary litigations avoided in the bidding process?
Transparency is inbuilt into the international open-bidding process we follow. And till date, there have been no issues in this regard. We are also working on a dispute resolution process that will improve the current system.

So far, startups and smaller companies haven’t really figured in the scheme of such projects. Will that change this time around?
Actually, NHDP phase I and II did quite a lot to bring many of the fringe players in this segment to the center stage. Many of them have evolved from petty contractors into developers. In the BOT structure, there’s no bar on sub-contracting; the local strengths of small players are being utilized by the bigger players. Hence, we cannot concur with the view that any segment has been left out.

Also, you cannot have startups bidding for a Rs. 1,000-crore project. They have to play the role of working with bigger contractors and thus make it more economical for them.

What kinds of opportunities do you see for entrepreneurs in the infrastructure sector, specifically with this project?
As India moves along its growth trajectory, one of the biggest deficits currently lies in the infrastructure space. And within this is the road deficit. Meeting this deficit and keeping pace with the increasing demand that’s flowing from the growth we are witnessing will be a huge challenge. The private sector will have a big role to play here. Sixty percent of it will be under the PPP model. Another 20-25 percent will be on annuity basis where, again, the private sector will participate. Only 15 percent, I believe, will be as per the normal EPC route. So there is a huge amount of capacity-building to be done.

Indian entrepreneurs have to adopt and adapt. They have to realize that the days of the normal contracting jobs are over, as are the good old roads that state PWDs built. The key now is maintenance, technology and the best practices that the private sector has to follow. Roads form the basis of growth. Wealth does not create roads, but roads do create wealth.

Which ancillary services are likely to benefit from such a massive project?
Roads are the most open of all infrastructures and have the highest multiplier effect. Roads affect trade, agriculture and industry; they are instrumental in bringing about an all-inclusive growth. The ripple effect of the road sector development would be felt through the entire economy. In fact, I believe that highways themselves have the potential to contribute 1.5–2 percent of the GDP.

Land acquisition has seen some rocky roads in the past. How will this issue be tackled?
Land acquisition for National Highways is not a combative issue. Land does not need to be acquired in large patches; instead, it is acquired in a linear manner and adds immense value to the land alongside. To speed things up, we are bringing about policy changes that’ll reduce the time taken for land acquisition from 18 months to 8 months.

From the NHAI’s side, the land acquisition issue is being addressed on a war footing. This is being done through the creation of special land acquisition units and a decision that the project will not be awarded unless 80 percent of the land is available.

What about the issue of accountability? Do you agree that we fail to assign responsibility for the construction work undertaken?
Accountability is a very important issue to which I accorded top priority when I took over this ministry. To bring about accountability at the NHAI, regional offices have been created, each headed by a Chief General Manager (CGM). The CGM of each state is responsible for the road construction work done in their states. This will reduce diffused responsibility, which was the case earlier.

CGMs are now required to venture out into the field and make sure that work is being done on the ground, not at the headquarters. This will ensure that there is no time delay in the execution projects due to a concentration of power at the center. Also, in each state, committees have been formed under Chief Secretaries, so that there is no diffusion of responsibility in things like clearances, land acquisition and highway development.

©Entrepreneur December 2009

Tags:
BOT, infrastructure, Kamal Nath, NHAI, PPP, roads