Road Infrastructure in India

Road Infrastructure in India

India has the second-largest road network in the world, spanning a total of 6.3 million kilometres (kms). 90% of all passenger traffic in India commutes via the nation’s road network, which carries 64.5% of all goods carried in the nation.

Road transportation has gradually increased over the years with improvement in connectivity between cities, towns and villages in the country.

National Highways (NH) account for 2% of the total road network and carry over 40% of total traffic.

100% Foreign Direct Investment (FDI) is allowed under the automatic route in the road and highways sector.

India has a well-developed framework for Public-Private- Partnerships (PPP) in the highway sector.

The highways sector in India has been at the forefront of performance and innovation. The government has successfully rolled out over 60 road projects in India worth over $10 bn based on the Model (HAM). HAM has balanced risk appropriately between private and public partners and boosted PPP activity in the sector.

Asset recycling, through the toll-operate-transfer (ToT) model, has been taken up by the National Highways Authority of India (NHAI) for 100 highways.

As one of the biggest reforms in the road transportation industry in India, the NHAI has gone ‘Fully Digital’, with the launch of a unique cloud-based and Artificial Intelligence-powered Big Data Analytics platform – Data Lake and Project Management Software.

Government Initiatives

Some of the recent Government initiatives are as follows

• NHAI plans to construct 25,000 kilometres of national highways in 2022-23 at a pace of 50 km per day.

• India’s Gati Shakti Program has consolidated a list of 81 high impact projects, out of which road infrastructure projects were the top priority.

• The Indian government launched Gati Shakti- National Master Plan, which will help lead a holistic and integrated development of infrastructure generating immense employment opportunities in the country.

• In October 2021, the government issued a notice related to concessions under the Vehicle Scrapping Policy (effective from April 2022) to encourage vehicle owners towards discarding old vehicles which have higher fuel consumption costs.

• In October 2021, the government announced a plan to install charging stations every 40 to 60 kilometres on national highways to strengthen wayside amenities.

• The Bharatmala Pariyojana was launched with the primary focus on optimizing the efficiency of the movement of goods and people across the country. A network of 35 Multimodal Logistics Parks is planned to be developed as part of Bharatmala Pariyojana.

• Launch of Bharat New Car Assessment Programme. Bharat NCAP rating will provide consumers an indication of the level of protection offered to the occupants.

Private Sector Participation

With a view to attract private investment in road development, maintenance and operation, National Highways Act (NH Act) 1956 was amended in June 1995.

In terms of these amendments, the private persons can invest in the NH projects, levy, collect and retain fee from users and is empowered to regulate traffic on such highways in terms of provisions of Motor Vehicle Act, 1988.

Types of Public Private Partnership

While there are a number of forms of Public Private Partnership, the common forms that are popular in India and have been used for development of National Highways are

• Build Operate and Transfer (BOT) Toll basis.

• Build Operate and Transfer (BOT) Annuity basis.

• Hybrid Annuity Model (HAM)

• Special Purpose Vehicle (SPV) basis

Special Purpose Vehicle

The NHAI has also formed a Special Purpose Vehicle (SPV) for funding road projects.

SPVs are separate legal entities formed under the Companies Act, 1956.

It involves very less cash support from the NHAI in the form of equity/debt; rest of the funds comes from Ports/ Financial Institutions/beneficiary organisations in the form of equities/debt.

The amount spent on developments of roads/highways is to be recovered in prescribed concession period by way of collection of toll fee by SPV.

Advantages

Involving the private sector leads to greater efficiency.

The private sector has more flexible procurement and decision-making procedures and therefore, it can speed up implementation efforts.

Better quality since the concessionaire (private sector) is to maintain the road for the period of concession.

Early completion of the project, since the concessionaire could save interest and earn early toll (in the case of BOT project) / additional annuity instalments (in the case of Annuity project).

No cost overrun (price escalation).

The Client (Government/NHAI) does not have the burden of maintaining the highways.

Issues impacting PPPs in the highway projects and suggestions

Aggressive bidding: There has been evidence of aggressive bidding in multiple instances. This might be as a result of the pre-qualification criteria, which violated well-established international norms by making a large number of applicants eligible for pre-qualification. The current system needs to be thoroughly examined in order to guard against project failure due to disorganised, aggressive, or unsustainable bids.

Land Acquisition and environmental clearances: Projects have a history of being awarded before the necessary land and clearances are obtained. This has caused stress for banks and developers, as well as a delay in project cash flows. To guarantee strict adherence to the conditions outlined in the concession agreements, such as the availability of 80% of the land and environmental clearance on or before the designated date, the road agencies must expedite the land acquisition and approval process within their respective organisations.

Over-leveraged balance sheets and downward traffic trend

Research indicates that thirty to forty highway development companies receive over seventy percent of the projects awarded in the transportation sector. These companies’ appetites have been sated as a result, and the majority of them have highly leveraged balance sheets and little to no remaining financial capacity to engage in new projects.

The problem has been further compounded due to the recent downward trend in the traffic revenues, thereby making several of the projects financially unviable on DBFOT model.

After extensive stakeholder consultation, a new Model Concession Agreement for Annuity Projects has been developed to address the aforementioned issues.

Bharatmala Pariyojana Project

With the goal of bridging critical infrastructure gaps through effective interventions like the development of economic corridors, inter corridors and feeder routes, national corridor efficiency improvement, border and international connectivity roads, coastal and port connectivity roads, and green-field motorways, Bharatmala Pariyojana is a new umbrella programme for the highways sector.

Key Features

Improving the quality of roads- The initiative was started in order to introduce well-maintained and advanced roads as a new wave of development for the country. Under this project, the construction of roads, in all parts of the nation will be undertaken.

Total road construction- The government and the ministry intend to work towards completing the 34,800 km of new roads as outlined in the scheme draft.

Integrated scheme- The Bharatmala is the name that is given to the road development and it will include many other related schemes as well. With the completion of all the schemes, the overall success of the scheme will be guaranteed.

Total tenure of the program-The goal of the central government is to complete the programme in five years. Thus, all is set for finishing the first phase before the end of 2022.

Segmentation in phases- The scheme will be split into seven distinct phases due to its sheer size and scope. As of now, the first phase in under construction.

Constriction on a daily basis- To finish the first phase in time, the respective department has made efforts of constructing at least 18 km of path on a daily basis. Ongoing efforts are being made to increase it to 30 km/ day in order to beat the clock.

Different categories of road construction- The official scheme draft has made it clear that different types of road construction will be done in order to improve connectivity.

Multi-source of finding- One source will not be enough for funding a mammoth project. Thus, the government will have to depend on other sources for generating adequate money to meet the expenses.

Highlights of Bharatmala Pariyojana Bharatmala Pariyojana

Improvement in efficiency of existing corridors through development of Multimodal Logistics Parks and elimination of choke point

Enhance focus on improving connectivity in North East and leveraging synergies with Inland Waterways

Emphasis on use of technology & scientific planning for Project Preparation and Asset Monitoring

Improving connectivity in the North East