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Target: 7000 km

That's the milestone Highways Minister Kamal Nath wants to cross every year for the next five years. That works out to a daily average of 20 km, more than double what the country has ever achieved. Is the minister serious?

K.R. Balasubramanyam | Print Edition: April 4, 2010

Back in 2004, when Kamal Nath was Minister for Commerce and Industry in the first term of the United Progressive Alliance (UPA), one feather in his cap was his ability to persuade Toyota to set up its global small car plant in Bangalore (the plant will be ready to begin commercial production by the end of the year). You would think that the Toyota top brass would be grateful to Nath for the opportunity.

Well, they might have been at one time but, today as Road Transport and Highways Minister, Nath has to hear some uncomfortable truths from the Japanese car maker. "Now they ask me: You told us to set it (the plant) up but where is the road and where is the port," shrugs Nath.

Nath's short point in an interview with BT ("I Have Brought in Accountability") is that the absence of a quality road and highway network impacts trade and manufacturing. "We talk about ports and airports but if you don't have port connectivity or airport connectivity, it doesn't fly. Roads impact agriculture, trade and industry," says Nath. Road traffic is growing at 7-10 per cent, and vehicle population at 12 per cent, a year. Yet, national highways make up a puny 2 per cent of the nation's road network although they carry 40 per cent of traffic.

THE LONG ROAD AHEAD

  • To do 7,000 km annually, work in progress of 20,000 km, worth Rs 2 lakh crore, is needed.
  • In the past five years just 7,680 km of highway has been built at an average of just 4.2 km per day.
That may have been the trigger for Nath coming out with all guns blazing after he took over as Highways Minister in May 2009. He set a target of building 35,000 km of national highways in five years leading up to March 31, 2014. That translates to 7,000 km a year, or 20 km a day on an average. "To do 7,000 km, we need to have 20,000 km of work in progress, which translates into Rs 2 lakh crore of work in progress. So my first challenge was to build the capacity to manage Rs 2 lakh crore of work in progress," Nath told BT.

How humungous that challenge is can be gauged from the fact that in the past five years just 7,680 km of national highway has been built, at an average of just 4.2 km per day. Of the 44 projects awarded since June 2008, only six have achieved financial closure. Even worse, the number of projects awarded in the current fiscal has been far below the target set by the National Highways Authority of India (NHAI). The NHAI had targeted to award 126 projects during 2009-10 and 92 projects during 2010-11 covering a length of about 12,000 km in each fiscal. In the first year, however, the target has been missed by a wide mark, just 36 projects involving 3,166 km being awarded as of February.

ONE KM OF A FOUR-LANE ROAD TAKES...

  • Rs 8-9 crore (including cost of land)
  • Rs 4.5-5 crore (without land cost)
  • 60 tonnes bitumen at Rs 26,000-Rs 32,600 per tonne plus taxes (price depends on grade)
  • 45 labourers, five persons for maintaining after completion
Nath, for his part, is confident about hitting 20 km per day by June 1. And he's doing his bit to kick-start investor interest and prod developers to execute projects faster. For instance, last month the minister announced that no matter how big a company is, if it has three projects on hand, all awaiting a financial closure, then it cannot bid for a fourth project of the NHAI.

At the time of this magazine going to press, IRB Infrastructure, HCC, KMC, IL&FS Transportation, Reliance Infrastructure, Sadbhav Engineering and, IVRCL were some of the firms that had not yet completed financial closure in three or more projects. Naturally, not everyone is happy. "It would be fair if such norms are linked to a company's net worth. After all, the capabilities of companies are different," argues Sudhir Hoshing, CEO (Road Business), Reliance Infrastructure.

Yet, the introduction of this clause may just be what was required to hasten the speed of highway development. The NHAI allows the winning contractor a period of four months to complete financial closure after signing the concession agreement, and an additional six months with a penalty. But if many NHAI projects are stuck, one of the reasons for that is lenders in many cases have found the bids quoted too aggressive. The Minister acknowledges the fact: "There were some indications that a few players were perhaps under-quoting the market and cornering projects but not delivering the required performance on the ground."

FEW MILESTONES TO REMEMBER SO FAR
YEARPROJECTS AWARDED KM AWARDEDKM ADDED KM PER DAY ACHIEVED
2009-10 (till Feb. 10)363,1662,4056.6
2008-0986432,2056.0
2007-08141,2341,6824.6
2006-07381,7346351.7
2005-061164,7407532.0
2004-05261,3052350.6
NHAI’s Year-wise achievements. Source: NHAI

Some contractors had evidently made aggressive bids to snap up projects, awarded on a build-operate-transfer (BOT) basis, by quoting either a negative grant or a low viability gap funding (VGF) figure for support from the NHAI. O.B. Raju, MD, GMR Highways, calls for the ministry's intervention to get long tenure funds for highway development. "Loans are available for a maximum tenure of 12-14 years whereas concessions are up to 25-30 years. The absence of a long-term credible finance mechanism makes longer concessions unattractive."

The new financial closure clause is expected to check reckless bids and divert developer attention from oncoming projects to focus on achieving closure in existing projects. "This new restriction will prevent a handful of contractors from hoarding a big chunk of projects, and speed up the projects awarded," hopes Chander S. Bansal, President, Maytas Infra.

Sections of contractors insist that they cannot in all cases take the blame for not completing financial closure. There are also land acquisition issues holding up the process. "The NHAI should call for bids for a project only after it has acquired 80 per cent of land. No lender will touch your road unless right of way is given," says a developer emphatically.

Even if the new clause does help to speed up the pace of highway development, Nath needs to follow this up with many more initiatives. "You cannot overnight jump to 20 km a day unless a whole lot of bottlenecks are cleared. I think we can reach that target over a reasonable period of time," says Vinayak Chatterjee, Chairman, Feedback Ventures, a consultancy firm. Senior government officials think the NHAI could do 7 km a day this year and slightly higher in the next, but it will take some time to leapfrog to 20 km a day. June 1 will tell whether the NHAI can walk the Highway Minister's talk.

— Additional reporting by Puja Mehra

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