J N Singh, Member (Finance), National Highways Authority of India (NHAI), chats with Shashidhar Nanjundaiah about factors governing lukewarm completion performance, restructuring, BOT Annuity (revised), changing road safety norms, and more.
Last year the road sector underperformed and now the Prime Minister has asked to speed up the progress of construction and widening of roads. How does NHAI plan to do this?
To know how we did last year, we will have to look at what was awarded in 2008-09 which would have ideally been been completed in 2010-11. We had very little on the platter in 2008-09, about 643.1 km. That is why we completed only 70-80 km. This year we expect to do 2,500 km, but the maximum push will happen from 2012-13 onwards, with around 3,000 km and then 5,000 km in 2013-14 actually being constructed.
This has happened because the awarding process in effect, started on a larger scale only after 2009-10. In 2009-10, 3,360 km were awarded, while more than 5,000 were given last year. And this year we expect about 7,300 km. So, there was tremendous amount of activity on the ground last year with the highest number awarded, and the highest amount of financial expenÂditure in the field.
What about completed roads?
The number of completed kilometres was low, becÂause it normally takes about two and a half to three years for completion from the date it's awarded. But there has been significant growth last year as well in terms of overall physical and financial activity. And it can be expected to rise in the near future because the projects awarded will bigger.
There is a new Annuity Model been proposed for the awarding process. What is its status and are you going to mandate it?
The revised annuity has not yet been framed or put forward. We follow the annuity norms originally accÂepted by the Government of India. There are three-one, the BOT (Toll), the BOT (Annuity) as it exists, and the third is the earlier EPC Model, which is likely to see some modification.
How is the Model Concession Agreement being revised right now working out?
It is working well. Two things have happened: one, the macro-economic situation improved after this 2008-09 crisis; and secondly, B K Chaturvedi Committee recommendations, were quite investor-friendly. The concessionaire felt comfortable regarding the exit clause and other clauses such as conflict of interest etc.
Did that put NHAI at more risk?
No, not in the long term. We also recognise that there are different types of players in the market. One would be purely OMT-we see many players already existing and others coming in. And there are pure developers, developer-contractor etc. There is a sepÂaration of job between both of them. Since people are doing what they specialise in, we feel it is positive. We are certainly seeing more investor interest. More than that, recent bids are showing a significant amount of competition.
So, has competition actually increased after new MCA has come into force?
It is not the only factor. The country's healthier macro-economic situation, and the trend of continuous growth in road traffic are others. Another phenomenon is that small players are growing in size, and erstwhile regional players, some EPC players, are now emerging as national level bidding for projects upto Rs 1,500 crore under PPP.
EPC contractors are becoming devÂelopers because as they grow financially, banks trust them with loans. So small players have become middle sized and the middle sized ones have become bigger. Earlier, we hardly had only four or five big players, now there are many players who can bid for projects upto Rs 3,000 crore. Bigger players have started beating timelines, resulting in bonuses and toll collection begins early, as well as financier confidence.
Has the time overrun come down in our road projects over the past few years?
I would certainly say so. The basic time and cost overrun has improved with the change in the mode of execution. When it was an EPC or an item rate contract, the contractor had no incentive to complete it on time. Now, as there are two contracts running parallel, we find that the BOT player is more aggressive, working literally 24 hours a day. Despite this if there is any time overrun, it is largely because NHAI has not been able to provide land at that stretch because of factors that are at times beyond NHAI's control.
Is there a delay in the restructuring of NHAI?
No. We have put Chief General Managers (CGMs) in practically all the state capitals, and Project Directors are also in place. But the appointment of a CGM has been very important. He or she liaises for us at the state capitals with state level secretaries and is working in a much more efficient fashion than what was being done from the headquarters. A significant amount of financial and administrative powers have been shifted to him. At the same time, we would like to have a common policy throughout the country so there has to be some cenÂtralisation and decentralisation.
How else can the CGM be empowered?
The CGM can change project scope up to 5 per cent from the MCA during construction stage, change people within his own jurisdiction, manage certain admÂinistrative and financial controls and the execution of the project. We would like to empower him/her more-for example, a couple of percentage points more than current.
What is the CGM's involvement in land acquisition? Has it helped?
Land acquisition is basically done by the state government and authorities at the level of the Collector, Additional Collectors or Deputy Collectors. But, the CGM on the ground has the whole state-level picture. He can liaise if there is any problem with the Collector, the state level Revenue Secretary and Chief Secretary. He acts as a medium between the Head Office and the field. He can coordinate the land acquisition activity very significantly at the state headquarters. We believe it has certainly helped.
Now that they are empowered, does training follow?
They are trained in different modules and their training is continuously upgraded. They are fairly senior, equivalent to Chief Engineers of the state, so they are able to manage issues at a high level.
One concern in our country like ours is regarding toll roads. Where do you see this going especially on PPP?
We cannot wish away toll roads. If we want to leverage the money we have and build good roads early stretching across the length and breadth of the country, the PPP mode is unavoidable. For example NHAI's total budgetary resources in 2012-13 would be around
Rs 12,000 crore. Even if the land acquisition cost is borne by somebody else, only 1,200 km can be built with this degree of investment. To build 7,000-8,000 km we are leveraging Rs 55,000-60,000 crore every year. So it has to be different from the way that the US built its Interstate Highways on its own resources.
With the L1 system, safety norms are often compromised to keep a project under budget. What do you manage that?
It's quite a tricky situation. Absolute road safety is difficult. But we keep emphasising that, corners do not have to be cut to ensure road safety. Our Road Safety Consultants examine the various aspects, project by project and if there is any major default, we try to rebuild at least the road safety aspect. We have also appointed a CGM for road safety.
Will road safety be an NHAI certification or your consultants'?
The consultant works on the behalf of NHAI. He is an independent consultant and will certify what is safe; roads to be constructed and existing ones.