Partnership through duress

Our roads sector wants to go cool, and with good reason. Minister CP Joshi will be on Google Plus Hangout on 29 March; National Highways Authority of India (NHAI) has taken another step towards its private partners.

The media has routinely celebrated and trashed the Budget (usually, both of the above together, as is the annual tradition). The element for infrastructure that needs to be viewed with interest, both with spotlights on as well as through a magnifying lens, is not so much the step towards easing foreign investor sentiment, but the proposal to establish a road regulator to assuage the domestic investor’s scepticism.

Examine the circumstances for this ointment-proposal. It comes after a year of diminished activities (stemming, surely, from diminishing returns) in the sector, as two of the biggest players-GMR and GVK-walked out leaving NHAI looking vulnerable, and leaving a hole of Rs 12,700 crore. Against the targeted 7 km per day, construction was at 5.94 km per day-fairly acceptable, given the struggle the Authority has had in the past to keep pace with the target rate. A length of 1,605 km was completed (December figures).

Not all of this is unplanned: NHAI’s primary objective this year has been to complete existing projects in public-private partnership (PPP), and award more projects under engineering, procurement and construction (EPC). As many as 86-nearly 59 per cent-of the planned 146 projects are stalled. This spelled trouble right away.

But it is in the awarding that the sector has taken a telling hit: Merely 837 km were awarded until January this year, as against more than 5,000 km in 2010-11 and nearly 6,500 km in 2011-12. With the Prime Minister’s intervention, the establishment of the Cabinet Committee on Investments, and assurances about environmental clearances, such concerns should have eased. Why, then, has it only managed to let the growth slip further?

Banks have hitherto regarded the road sector-the second biggest infrastructure sector-as a cash cow after the power sector woes (where banks chose, or were "coaxed" by the government, to lend to loss-making segments). Now, banks are no longer gung ho about roads. Contractual and approval delays and disputes are considered the main culprit. Underestimation of timelines and cost escalations continue to plague the sector.

So the real problem is perception of the sector by the various stakeholders as less viable than projected. And NHAI has swung into action. First, GMR exited the hyped Kishangarh-Udaipur-Ahmedabad project, followed by GVK from a Madhya Pradesh project, both citing environmental clearance delays. GMR and NHAI are now locked in a court dispute, but GMR has now asked NHAI whether it is possible to restructure the premium of Rs 636 crore in a way as to keep the amount lower in the initial years and compensate later. NHAI has now proposed to compensate for delays in PPP projects beyond a contractor’s control, such as clearances. Although such compensations are common in EPC projects both awarded by public and private sectors, it is a first for a PPP project, and evidences the seriousness with which the government needs to bend over backwards, and so may win the Prime Minister’s favour.

Our country’s infrastructure has chosen to learn from experience, and NHA’s latest aggressive solution to woo back contractors-and investors-is no different. In the shape of things to come is the welcome and increasing-if reluctant-realisation of government agency as partner, not boss.

We have seen that to convert intention to execution is where we are falling short and the budget does not create any accountability benchmark. There is a great need for "an accountability bill" which would put the onus on project owners to be accountable along with all such departments that are to serve the fulfilment of the project. The devil lies in execution and the rest is just text. So let’s cut the text and ask for delivery.