The focus on EPC has given a fillip to road industry

A ccording to Arun Karambelkar, President and CEO, HCC, an increased thrust on the EPC mode would help the government to achieve its targets.

Is the present regulatory regime conducive to the growth of the roads and highways sector?
The roads sector had witnessed an aggressive bidding during the financial year 2011 and 2012. Projects of over 11,000 km were awarded during these years. But the lack of proper governance affected the execution of most of these projects. Delay in land acquisition, approvals, design changes, non-availability of funds, etc., resulted in cancellation of almost 50 per cent of these projects.

A slew of policy initiatives taken by the current NDA government since its inception in June 2014 has not only increased the number of projects being awarded, but has also resulted in improved project execution. Switching to EPC mode of contracting, upfront land acquisition, expediting MoEF clearances and awarding projects only after 80 per cent Right of Way (ROW) is available, are some of the constructive efforts the government has taken to boost the roads sector.

We understand that execution of road projects has picked up pace with almost 12 km/day in FY2015 and 16 km/day in FY2016, while the number of projects canceled during FY2015 has reduced to 2.4 per cent and almost nil in FY2016. Now the government has set up an ambitious target of 40 km per day for the year 2017. Hence, we feel that good governance will further improve the current regulatory regime, resulting in good growth for the road sector.

What is the scope for improvement in the existing policies for the sector?
The focus on EPC mode of contracting has given a fillip to the road construction industry and led to improvement in awards and improved order books. Almost 72 per cent of projects awarded in FY2016 were on the EPC route. However, in the work plan for FY 2016-17, only 33 per cent of total annual target is expected to be awarded on EPC route with the focus shifting to Hybrid Annuity Model and BOT-toll based contracts. Considering the fact that most road players still have stretched balance sheets, an increased thrust on EPC mode would help the government to achieve its targets.

Delay in claims settlement still continues to be another area of major concern for most contractors. When the decision of independent arbitrators in the dispute resolution has favoured a construction company, the executing agencies have invariably stalled the payment process by routinely appealing to higher judicial jurisdictions which does not happen anywhere internationally. The government should expedite claims settlement and honour the arbitration awards and desist from going to courts for litigation.

What are the issues affecting the viability of various projects in the roads and highways sector?
Historically, delays in land acquisition and MoEF clearances have impacted viability of many BOT projects in India. These problems resulted in delay in completion, and commissioning of projects. With the overall concession period remaining the same despite delays, the situation resulted in lesser operational period and lesser toll collection. Besides, many projects have also suffered from much less traffic levels than what was envisaged. This, coupled with non-availability of adequate modes of financing, has resulted in delay in financial closure of many projects.

In case of EPC projects, substantial variation has been observed in the scope and quantities from what was envisaged during the bidding stage. This is a result of poor quality of work in preparation of detailed project reports and bidding documents. This has led to massive time and cost overruns, making projects unviable. Also, delay in decision making regarding revised scope, variations, time extensions and awarding of claims, has further worsened the situation and has put considerable stress on most contractors´ balance sheets.

How is the government addressing some of the issues?
The government tried addressing some of these issues in case of BOT projects by announcing a slew of policy initiatives like (i) approval for extending the concession period for stalled toll road projects to ensure that toll collection period and hence project viability does not get impacted due to delays in statutory approvals, (ii) Developer of annuity projects will get compensatory annuities in case of project delays, (iii) The approval process for road projects has been made faster by segregating civil construction cost from total project cost, (iv) Allowing developers to exit highway projects two years after their construction post completion, (v) Availability of one-time financial assistance for eligible stalled road projects wherein 50 per cent of the works have been completed till November 2014, (vi) Premium restructuring wherein delayed premium payment is being allowed on a case-to-case basis, (vii) Adoption of Hybrid Annuity Model (HAM) for road projects.

We are hopeful that these initiatives will now resolve most issues concerning project viability and give a boost to road implementation.

How can completion of ongoing roads and highways projects be expedited?
To expedite and fast track the completion of projects, a number of steps have to be taken across the industry. The regulatory framework needs to be modified so as to ensure timely approvals, clearances and land acquisition. Also, the government must focus on setting large but achievable targets for award/construction of projects and ensure that all measures are taken to achieve the target. Existing EPC contracting models should be revamped so that there is more scope and incentive for innovation and value engineering. The industry as a whole must try and get better technological knowhow and best world-class construction practices, which will result in faster project completion.

"We feel that good governance will further improve the current regulatory regime, resulting in good growth for the road sector.¨

"In case of EPC projects, substantial variation has been observed in the scope and quantities from what was envisaged during the bidding stage.¨

– Rahul Kamat