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PPP in rural roads and infra is our aim in 12th Plan

PPP in rural roads and infra is our aim in 12th Plan

As PURA gains momentum, rural roads are set to rope in private participation through 'bundling' the contracts-mainly, involving longer clusters of roads and of allied activities. Arvind Mayaram, Additional Secretary, Union Ministry of Rural Development, shares with Shashidhar Nanjundaiah the ministry's plans in the role of rural roads in an integrated rural development plan for the next five years.

Has the connectivity target for the development Road Development Plan Vision 2021 been achieved so far?
I'd say it is on track. It is asymmetrical because implementation is a responsibility of the state gover­nments. In some states, all the targets have been com­pleted and some state governments have not completed them. But on average, I would say that the progress has been satisfactory. We have been working closely with the state governments to create greater capacities for quicker implementation.

Satisfactory?
Well, the quality has been very good.

Is there a pattern among the states that are doing particularly well or particularly badly?
Most of the southern states have also nearly com­pleted the programme. Rajasthan is another example. They completed the PMGSY target two years ago, de­spite some initial confusion on definition of “habitation”.

Quality control has been a concern and it looks like the rural development plan, and specifically the PMGSY, has factored that in. In what ways have you done so?
Rural roads which were constructed have to be seen in two parts: pre-2007, maintenance of rural roads was the responsibility of the state governments. And there has been some level of indifference to maint­enance, in terms of budget constraints and so on. Subsequently, the Government of India decided that the roads will be given on a five-year maintenance contract, funded by the state governments. In this phase, the maintenance has been much better than what it has been earlier.

Some of the states have been fully funding the maintenance programme, while others have been facing some financial constraints. So, wherever there is less funding we have been insisting that new projects will be sanctioned if they are fully funding the maintenance part of it. There is much greater compliance than what was there earlier in maintenance.

How did they manage to get those funds now?
They have re-prioritised their allocations. The state governments are also forced with different priorities, and there are compulsions every year. There is always the temptation of starting new things because new things are seen as something new, while maintenance is not. Besides, it is only 6 per cent of the cost of the project. Therefore the funds generally get diverted to new capital expenditure rather than the maintenance part of it. It is across the country and I cannot say it is true for one state or the other. But some states are better off in terms of their revenues. There it is easier for them to set up money for maintenance. Some states which are not so well off find it difficult to set aside. But now the pro­gramme designed requires it we insist that they have to transfer that money. And therefore the compliance is now much better.

How do you quantify that compliance now?
I would say that the compliance is 100 per cent, to the extent that we do not release funds till the compliance is shown. The amount needs to be put into the State Rural Roads Development Agency before we release the instalment. That is resulting in compliance.

There is another, unusual issue on maintenance emerging from the fact that rural roads are better maintained than district and state roads in many states. Rural roads are not designed for heavy traffic, but a large number of trucks have started using rural roads than district roads because district roads are not as well-maintained. This is resulting in heavier damage to the rural roads now.

Punjab is an example where large number of heavy vehicles move through rural roads and therefore these are heavy loaded vehicles. Similarly, there are mines in rural areas and mining trucks are moving on the roads though these roads are not designed for this. These roads are getting hurt because of that. So, we suggested to the state governments that they should start toll on the rural roads for heavy vehicles alone. If the toll is sufficiently high, it will deter heavy vehicles from travelling on rural roads.

How was the response?
It is difficult to quantify the response because it is spread all over the country. Our responsibility was to construct, and beyond that it is the state governments' responsibility. We would not like to micro-manage.

This would also impact maintenance since the damage is greater.
Yes. Contractors shy away and do not maintain it at the level in which they are expected to maintain because they cannot maintain rural roads with that heavy load. This is a major problem, one that is likely to increase if the states do not take adequate precaution.

Typically rural roads have been contracted out to local, small contractors and have traditionally not been lucrative to the bigger guys. But clearly you would want the bigger players to come into the picture if you want PPP in the future. How are you enabling private participation in rural roads?
Whether in our rural roads or in our National Highways, where foreign investors were being wooed, the problem is a large investor generally sub-contracts the project. This cuts into their margins because our qualification criteria precludes smaller players from coming in, and the margins from sub-contracting are also padded into the tender amount. So the question is whether the government should itself pay the margins and allow smaller contractors to bid, thereby enabling then the tender amounts will go lower. This is a dilemma, because if we would actually benefit from a large developer or contractor, then it would make sense. But if, at the end of the day, if you are going to get the work done only from the small contractor, then there is merit in getting somebody in between and getting the work done on a modified EPC.

PPP is a different ball game. In PMGSY, the contractor does not mobilise any money. (In fact, we provide mobilisation advance.) Under PPP, there would be financial risk for private participants but no commercial risk since it will be on annuity in the case of rural roads. To make rural roads more attractive, we will need to bundle road packages. It is not simply one road. Rural road contracts have a length of only 3-5 km, and the total cost would not go too much over Rs 3-4 crore-too small for any investor to look at. They probably look at a package in the range of Rs 50-75 crore before you can start looking at somebody who would be large enough to do this.

In fact Reliance Infra mentioned to us recently that they won't be looking at any road project under Rs 1,500 crore.
I have a feeling that while they are saying so, they would not mind creating another smaller company if the projects are virtually risk-free (except performance risk) since they are on annuity and Government of India will provide the money. Ultimately these contracts yield 18-19 per cent return on investment (ROI).

When you say bundled, do you mean just the length or would they include allied projects too?
I am talking about a network of, say, 10 roads which are contiguous in the same geographical area, connecting 10 villages. It may not be a single stretch of road of 50 km but 10 roads of 10 km each, for example. So a 50 km stretch would mean a Rs 50-60 crore project. We are looking at those prospects of doing some pilots.

We will now also examine whether we can start micro-logistics network. At the moment we are looking at a road as connectivity to a habitation. But what if we looked at a road network that actually starts with the aggregation of goods and services in that area? There may be individual examples, but it has never been tried in a planned manner. Cold chains, which you mentioned, are an example: What is the amount of produce in an apple or tomato growing area of, say, 50 sq km, and therefore what is the kind and total requirement of logistics network that can be created around that activity, including roads, warehousing, grading centres, sorting centres and so on. You plan this whole thing on the road network and you bundle the entire thing for PPP. So now the project is much bigger. It is not just the roads but you are looking at the entire infrastructure which goes with those roads which is logistics infrastructure.

At what stage do you think this pilot can be implemented?
We should come out with some bundled road projects in the next six months. This is on the concept stage now, so we will calculate and examine the numbers, including the cost of linking the micro-logistics network with local, intermediate and national markets. This requires bigger planning and understanding. I believe we need to move from simple rural connectivity to rural logistics network.

Are you looking at consultants to do feasibility studies?
Yes. We will initially look at World Bank or Asian Development Bank (ADB) to provide us with a technical assistance programme for this because this will require some in-depth study. If we can get a technical assistance programme from World Bank or ADB, we would certainly like to get it done quickly.

Have you had a chance to quantify private participation in rural roads for the future?
I will give you the example of Provision of Urban Amenities in Rural Areas (PURA), where we have done some quantification. We have proposed for 500 clusters for implementation in the 12th Five Year Plan. Our assessment is this will require about Rs 60,000 crore, out of which Rs 20,000 crore would come in as grant money coming from PURA, Rs 20,000 crore from non-PURA government grants, but this will catalyse Rs 20,000 crore of private investment. I do not think that this kind of private investment has ever gone into rural development.

Wouldn't bundling and micro-logistics really be a PURA concept?
Yes. It all feeds into it. However, micro-logistic network would be independent in terms of investment from what we are envisaging in PURA, which is basically a scheme around habitations. Micro-logistic networks are the ones which connect habitations with the hinterland through infrastructure.

How is PURA doing? You had told us in May 2010 that you had undertaken pilot projects in panchayats. How are you taking that forward?
There are seven pilot projects in population-clusters of about 35,000-40,000 each. Currently, they are in the final stages, where their detailed project reports (DPRs) are under approval. We will start signing off on the concession agreements starting 15 January.

Is there a kind of a model concession agreement (MCA) that you have prepared?
Yes, we have prepared an MCA and a state support agreement.

What are the salient features of that MCA?
The Panchayats will be signing the agreements with the private parties, for the first time ever. For the Panchayat to be able to understand what they are signing off the usual kind of a concession agreement of 120-150 pages would not work. Therefore we have collected Panchayat-specific issues in about 10-12 pages, which are being translated into local languages. The remaining 110 pages are like a fitting document that include insurance, performance defaults, penal clauses, how performance will be charged, how the independent engineer will certify, how money will be released, how amenities will be given , etc. The Panchayats do not have to worry because it has the sanctity of the approval by the Government of India.

Under what model are you going to develop this?
It is a PPP with 1/3 participation from the private players.

How will the grant portion be used?
The grant money will be used partly on viability gap funding (VGF) and partly for maintenance for the next 10 years. But for the 12th plan we have suggested the grant should include 25 per cent share from the state government.

Is this something that we need to look forward to the 12th Plan?
We hope that it would be, but it depends on how much the Planning Commission will be able to give us. We are hoping that it would become a major activity.

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