Governance Now, Dec 1-15, 2011
The national highway authority of India NHAI) is a classic case of what happens when a well-meaning minister takes charge. In less than a year after CP Joshi was appointed minister for road transport and highways, the gloom over the authority’s financial health has lifted.
Over a year ago, a planning commission “issues paper” (prepared by Gajendra Haldea, advisor to the deputy chairman of planning commission) had warned of an impending sub-prime-like crisis of our own because of a huge financial risk the PPP model of building roads had caused during his predecessor Kamal Nath’s regime (See our cover story, ‘Wrong road, Kamal’, August 1-15, 2010). Huge concessions to the private partners in the PPP, the issues paper had pointed out, meant an additional borrowing of `30,000 crore to repay NHAI’s existing debts and had warned that it might not be possible to take up anymore road building projects after April 2011 because of the terrible policies being followed.
One of those policies meant that the NHAI would provide 40 percent of the total project cost to the concessionaire by way of viability gap funding (VGF). The policy remains in place. But Joshi has made it irrelevant. Instead of seeking VGF, the concessionaires are now offering “premium” to the NHAI! In the past few months, NHAI has signed 13 contracts in which the concessionaires have committed to paying more than `1,600 crore as annual premium for the next 25 years. What’s more, the premium will go up by five percent every year automatically.
Joshi talks about this dramatic turnaround story and more in an interview with Prasanna Mohanty and Yash Vardhan Shukla:
From building merely six to seven kilometers of roads a day for years, NHAI is now claiming to be building 10 km of roads a day on average for the past few months. How did this change happen?
Let us be very honest. It was because of the recession in 2006-7 and 2007-8, that my ministry couldn’t award contracts to build roads in sufficient numbers then. The economy was such that the entrepreneurs were not coming forward. Then the government asked BK Chaturvedi, a member of the planning commission, to look into the matter and he recommended certain things (which we followed). After that the entrepreneurs started responding.
So, initially, in 2006-7 and 2007-8 the total award was for less than 1,000 km of roads per year. Once a contract is awarded, the project takes roughly three to four years to complete. So, the impact of 2006-7 and 2007-8 was felt in 2009-10 and 2010-11. Since the award was less the construction was on the lower side. This was one of the reasons.
In the meanwhile, the entire economy changed. Then we started getting response. Now we are in a position to say that if we award contracts for about 7,300 km every year for three consecutive years then we will achieve the target of 20 km of roads per day. By the next general elections, in 2014, we will be able to achieve this. This year we will exceed awarding contracts for 7,300 km. The trend is significant and we are getting a good response.
What were BK Chaturvedi’s recommendations?One of the recommendations was to provide VGF to the concessionaires right away, at the award stage and in one go, so that funds are available with the concessionaires. Earlier we used to give VGF at a later stage and in two parts. The report said since there was a financial problem, we should give whatever VGF has to be given, subject to a maximum of 40 percent of the total project cost, at the beginning and in one go. Secondly, a rider was put that the maximum cost of the road should not exceed `10 crore per km. This was meant to check cost escalation which could change the entire economy of the project.
Given the encouraging trend, will NHAI continue shelling out viability fund to the concessionaires?
The rule is very much there but after the e-tendering and open and transparent competition, the entrepreneurs are making their own financial calculations and are now saying that they will be able to build the roads without the government help. If you restrict bidding you give elbow room for manipulation. If you throw it open, as we have done now, a large number of entrepreneurs participate and there is competition. And because of the competition, now we don’t have to give money by way of VGF. On the contrary, we are getting premium.
Will you please explain it?Assume that `100 is needed to build one km of road. In our existing PPP model, the concessionaire will arrange for `60 from the financial institutions on his own and get an aid of `40 from the government. After we opened the bidding, the bidders are saying that we don’t need `40 from the government. We will collect the entire sum of `100 from the financial institutions and after completing the project we will give you money from the toll tax we will be collecting.
For example, we have awarded a contract for building a 556 km road connecting Kishangarh in Rajasthan with Ahmadabad via Udaipur. The private company (GMR) that got the contract under the PPP has offered us `636 crore per annum for the next 25 years, with a provision of a five percent annual hike. We asked them to go ahead.
Like this, we have already awarded 13 contracts for various stretches of the national highways (see box) for which we will be getting more than `1,600 crore per annum for the next 25 years.
How did this remarkable turnaround, from NHAI giving VGF to builders to actually receiving premium from them, happen?This could be achieved through the intervention of e-tendering. Now we have a transparent bidding system. After taking charge of the ministry, I introduced this intervention and threw the bidding open for everyone. The e-tendering, which has now been made mandatory for every project, was started from March onwards. It has changed the scenario dramatically. While earlier NHAI used to get three to four bidders for each project now the number has now gone beyond 25.
This would mean that transparency in bidding and awarding contracts did the trick for the NHAI. What else did you do to bring transparency to the functioning of NHAI?Yes, that’s right. We introduced e-procurement simultaneously. We have also provided a user-friendly platform on Facebook for the users where they can raise issues relating to the road. My officials will address the complaint because in the BOT (build-operate-transfer) model it is the job of the concessionaire to maintain a uniform standard of road for a certain period. If you are paying for using the road, you have a right to proper road.
We are into two more interventions. Both are in the pilot stage. In one, the vehicles will carry a tag on their window pans, which will be captured on camera while passing through a toll plaza without stopping on the way and money will be directly charged from the bank account of the vehicle owner. We are working out the modalities as it will require a dedicated server and a tie-up with the banks for direct transfer of money.
Secondly, we are making arrangements with Google Earth to show alignment of the road so that sitting here I can see the road and figure out if it needs a deviation in its alignment or problems of the people are being addressed. When roads are built people complain about losing their shops or other properties. You have two options here: either you send officials to the spot or see it on Google Earth. We may make (the latter) an essential part of the detailed project report (DPR).
We are giving more space to IT so that we become more transparent and there is better accountability.
Road safety is a major issue. What is NHAI doing to address this problem?We are very keen to ensure road safety. We have already constituted three or four groups to study the problem. They have sent their reports and we are now studying them. Our roads are indeed very accident prone. We have a very high rate of casualty – about 4,00,000 a year.
You are also providing ambulances and pick-up vans on the highways.The contracts provide for ambulances and pick-up vans after a gap of 50 km but this is not commonly known and hence not followed by the concessionaires. We will launch a publicity campaign to spread awareness. We have asked the concessionaires to honour the agreement and display details like the vehicle number (of ambulance and pick-up van), the distance at which it is parked and telephone numbers (of the drivers) at the toll plazas for the convenience of the users.
We have introduced another IT intervention. One can now register vehicles online and get a driving licence anywhere in the country. All the data will be available centrally. Sitting here, a policeman can get all the details without having to approach the state government.
What is being done to address the problems being faced in certain areas like the northeast and the Maoist-affected areas?In the northeast, our main problem is landslides which cut down the working time. In the Maoist-affected areas, poor security and threat of extortion keep the contractors away. Nobody comes forward to build the roads. Therefore, we take the help of the Border Road Organisation. We are talking to the states to overcome the problems. It is helping but my worry is the slow pace of improvement.
What about land acquisition problem?This is not much of a problem because we don’t require much land. We are liberal and rational about providing compensations. The only problem areas are Kerala and West Bengal because of their commitments to the encroachers. We are discussing with them. If the states want to compensate the encroachers let them do it. We have no problem if the state governments pay for it.
NHAI is beset with many scams – from irregularities in awarding contracts to poor construction and premature collection of toll tax. How are you dealing with these matters?We are making everything transparent, which will take care of everything. Scams happen only when bidding is restricted or the process is influenced in any way. But we are making everything public.
Do you think NHAI requires a regulator?It is our misfortune that we keep creating more institutions. The real problem is that the institutions that have already been envisaged are not working properly. If judiciary delivers judgments on time it will work as a deterrent. If the cases are pending, how will the Lokpal help? If one institution is not delivering, what will another do? If all our institutions work properly, everything will be alright. n
prasanna@governancenow.com
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