Govt looking to revive the Public-Private-Partnership (PPP) model for road infra projects

The Central Road Transport ministry has decided to abandon the Build-Operate-Transfer (BOT) model for awarding 5,000 km of road projects for the rest of the financial year 2013-14. This decision was taken following the poor response evinced by private players to this model.

Over-reliance on EPC not feasible:

This setback has put the Public-Private-Partnership (PPP) model proposed by the government for road infrastructure development projects in limbo. The government has come up with an alternative for the PPP model, which is the EPC (Engineering, Procurement and Construction) model. However, with the government’s resources being limited, over-reliance on the EPC model for building highways is not a feasible option for restoration of growth in the sector. This is because this model depends entirely on government funding.

Lesser roads would impact productivity growth:

Considering that good quality roads are essential for efficient supply chain and logistics, the lack of goods roads could dent India’s productivity growth. As a result, the country’s long-term growth prospects could be affected. Lesser road-building would have an direct impact on lessening of construction jobs. This could create an adverse impact on the economy as construction jobs have played an important role in increasing minimum wages and thereby reducing poverty.

NHAI also to be blamed:

The government has already expressed its openness with regards to inviting bids for roads projects as per the PPP model, in the financial year 2014-15. However, it needs to geer up for this challenge by getting its act right. The National Highways Authority of India (NHAI) is also to be blamed for the delay in projects. They have failed in discharging their responsibility on three fronts namely, making land available, getting official clearances as well as completing the due processes for the smooth progress of the projects. In many cases, there has been a time lag of upto five years between awarding the project and starting work on it.

Very few private players ready to bid:

It is also essential that the NHAI is able to eliminate the outlying bids. These include those that have been guilty of irrational exuberance along with unrealistic cost assessments. In this regard, the private sector is also responsible for the current state of affairs. Currently, very few bidders would want to enter the fray as many of their predecessors have incurred loses. This is due to the fact that they had taken an over-optimistic view of future traffic flows at a time when the economy was booming.

Rescheduling premium payable an alternative:

However, there is an alternative to this imbroglio. Considering that rebidding of stalled projects would result in inordinate delay, an alternative would be to rework and reschedule the premium payable on traffic and revenue that has been clocked. However, it is imperative that an adequate return on capital is garnered, prior to this. However, this process violates the genuinity of the bidding process. Especially at a time when the government is being confronted by various cases of corruption, this move would boomerang on the government. It could be accused of showing favouritism by renegotiating schedules, thereby luring bidders to renegotiate at a later date.

Govt appointed regulator needed:

Considering that private investment in infrastructure is a necessity, it is imperative that the government appoints a regulator to be in charge of awarding road projects. This will facilitate the selection of good private players to be entrusted with road projects, who are earnest in completing the project in an effective manner, with minimum delay. This will also negate the influence of those players looking only for private gains out of such projects.