Policy suggestions for private participation in rural roads
The way for the government to attract private participation in rural roads should be introduce innovative bidding and quality processes such as bundling allied projects into a road contract, says Hemant Kanoria.
Of India’s total road network of over 4.24 million km, rural roads account for more than a third. In an understanding that improving transport netÂwork is key to revitalising the rural economy, the Pradhan Mantri Gram Sadak Yojana (PMGSY) was conceptualised in the 1990s. The World Bank also supÂported the PMGSY and in September 2004 came up with the Rural Roads Project with a commitment to invest $400 million for building roads in select districts of Himachal Pradesh, Rajasthan, Jharkhand and Uttar Pradesh between 2004 and 2012. In December 2010, the World Bank approved an additional $1.5 billion for the programme to continue improving connectivity, espeÂcially in the economically weaker, backward and hilly states. Before the World Bank project began, each state government had its own benchmarks for the quality of construction in rural areas. The project has helped to establish common standards for all states benefiting from the project.
World Bank’s role
The World Bank programme has several built-in innovations and sustainability elements.A unique feaÂture is that representatives of local communities get to walk the entire stretch of the proposed road so that their concerns can be taken into account at the design stage itself. For instance, where the community feels that a culturally sacred place, a heritage site, or an important seasonal water body will be affected by the road, an alternative route is found. If the proposed route crosses a very poor villager’s land, his land is not acquired.An environmental protection code is in place to ensure that trees are planted along the newly built roads, steep hillÂsides are stabilised, the top soil is not affected, and debris from construction is not left behind after the work is done.Contracts for road building usually have in-built five-year maintenance contracts that ensure the conÂtractor builds a good quality road at the outset and continues to maintain it for five years thereafter.
The development of rural roads took off quite well during the initial years, and several states like Madhya Pradesh, Rajasthan, Gujarat, Orissa and Uttar Pradesh made decÂent progress. Rural roads built during that phase were good both in terms of quality of construction and speed of implementation.
However, the subsequent years witnessed a decline in maintaining quality of rural roads, especially those PMGSY projects which were outside the purview of the World Bank project. As the number of contractors incÂreased, bids became under-quoted leading to comproÂmise in quality. Most roads are built on cash conÂtracts where the contractor is chosen on the basis of the lowest bids. This singularly L1 criterion has taken a toll on the quality of rural roads.One of the major factors that determine the quality and longevity of a road is its drainage system.With contractors becoming less atteÂntive towards the quality of drainage facility, quality and longevity of rural roads are taking a beating. As a result, there are strengthening works at frequent intervals leading to recurring costs for the government.
Injecting private interest
The government has had to fund most rural roads as the rural roads sector has been unable to attract much private sector participation.Private investment in roads is a challenge as private sector finds it immensely difficult to make the project commercially sustainable.There is huge difference of traffic patterns in rural roads. Also, the work specifications for rural roads are much lesser to even a conventional two-lane highway. The latter must have at least a 7.0 m width with 1.5 m hard shoulder on each side, whereas any rural road has a width of maximum 5.5 m with 1.0 m earthen shoulder on each side. Thus, there is hardly any incentive for private sector to invest in rural roads.
In order to ensure that quality standards are adhered to, the government needs to attract more serious players.The credentials of bidders need to be screened. Factors like experience of bidders in terms of project management, their past track record, their net worth, etc, should also be taken into consideration.The government also needs to consider moving away from the singular L1 criterion.Opting for a minimum cut-off bid price can be considered. Alternatively, selecting the bid closest to the mean bid price can also be a good option.
Build in add-ons into contracts
In addition, the government needs to offer some added incentives in order to attract private capital into construction of rural roads. Allowing the private player to commercially exploit pockets of real estate adjacent to the road stretches can enhance project viability and thus help bring in private investment and more reputed developers. In fact, there is a strong case for involving private players in building rural road stretches especially in agriculturally rich states. If building of agro-processing zones, warehousing facilities, cold storages, etc, can be amalgamated into the road building contracts, private players may even take part in such projects on BOT-toll basis. Such stretches have the potential of rising traffic and there is scope for additional revenue streams from the add-on facilities. Also, commercial utilisation of pocÂkets of real estate, if allowed, can enable private players to build markets, malls, shops, motels, eateries, health cenÂtres, fuel stations, etc, and operate those on lease for pre-determined number of years. Such steps can greatly enhÂance project viability and bring in the much needed private capital that has eluded this sector so far.
Keeping in mind that the quality of rural roads has been unsatisfactory in general and maintenance requires recurring expenditure, the government may consider the option of building concrete roads along particular rural stretches.The advantage of cement or concrete roads is that they need minimum maintenance and last for a very long period of time. States like Bihar and Jharkhand had built several stretches of concrete rural roads. However, the cost of building a concrete road is 6-7 times higher than that of its asphalt counterpart, entailing a huge initial investment. Government may consider getting the private players to build such conÂcrete roads and as incentives can offer some of the above-mentioned add-ons so that private developers can recover their investment during the concession period.
Attracting private investment for rural roads is a tricky proposition. While the government may have to bear the lion’s share of such investment, private players can be involved at select stretches. To ensure that supÂerior quality standards are adhered to, the government should also consider building in the innovation aspects that the World Bank project follows.
The author is Chairman & Managing Director, Srei Infrastructure Finance.
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