Walking off the highway

GMR Infrastructure’s move to exit from a contract for six-laning of a 555-km national highway stretch from Kishangarh in Rajasthan to Ahmedabad — and the GVK Group reportedly planning the same vis-à-vis a 330-km project connecting Shivpuri and Dewas in Madhya Pradesh — is a major blow to India’s ambitious plans of road building through the public-private-partnership (PPP) route. The blame here lies primarily with the Government, though it is true that in many cases, overleveraged balance sheets and inability to secure finance may have prompted the promoters themselves to wriggle out of projects. Aggressive bidding would only have further compounded matters: GMR offered to pay the National Highways Authority of India (NHAI) an annual premium of Rs 636 crore for 26 years to win the country’s single largest highway contract worth Rs 7,500 crore.

All this does not still translate into a case against PPPs in highways per se . The basic idea — of getting private players to finance, develop and operate entire stretches, besides collecting toll from users during the period for which they have bagged concessions — makes sense for a country where the Government does not have the resources to invest in the much-needed road infrastructure. But the success of such a programme, which has never been attempted on this scale anywhere before, also depends on the Government undertaking the necessary preparatory work. That mainly entails handing over unencumbered land to the developer and making sure the requisite environmental and forest clearances are in place. In both the above-mentioned projects, the bidding took place without these statutory approvals coming through, thereby offering the promoters just the alibi to issue notices to NHAI for terminating their concession agreements. And this may only be the start, given that as many as 20 major projects, each costing over Rs 1,000 crore, are now stuck due to delays in environmental and forest clearances.             

So, what next? Well, the Government should, for the time being, go back to the old model of directly funding the building of highways and bidding out the associated EPC (engineering, procurement and construction) contracts. Unlike private developers struggling to raise money, NHAI has enough funds from its tax-free bond issuances, amounting to Rs 10,000 crore in 2011-12 alone. This, if anything, would keep the highway construction programme going and inject some liquidity into the system. Simultaneously, the Government must act fast on untangling the regulatory thicket involving its own myriad arms, from Environment and Forests to Defence. Private developers can be expected to take on project risks arising from traffic or toll projections, but not uncertainties over receiving nods for removing boulders or clearing the odd roadside tree plantation patch. These issues need to be resolved at the earliest so that, at some point, the private sector feels emboldened to invest in PPP projects again. Right now, it lacks both the cash and the appetite.  

COMMENT NOW