Budget 2021

Red signal for bad roads

Our Bureau New Delhi | Updated on July 09, 2014

The Economic Survey has reiterated the need to allow developers to exit road projects.

Toll rates must be lowered if users do not get quality service

Imagine having to pay lower toll rates for bad roads; that’s something the Economic Survey 2013-14 is suggesting. The survey talks about the need to evolve contract mechanisms to have lower toll rates in case users do not get the requisite quality of service.

Going by international practice, concepts such as ‘traffic trigger’ and ‘re-equilibrium discount’ could be examined to see whether they can be applied to address some of the problems of the Indian road sector, said the Survey.

Tracking performance

“The ‘re-equilibrium discount’ is used to reduce tariff when performance parameters are not being met. A table of discounts is pre-defined in the contract. The discounts represent the resources that are not invested as a result of a failure to meet performance parameters.” In India’s toll roads, such concerns have usually been addressed by political interference or by legal interventions.

The Survey has also commented on the need to look at the level of tolls being levied. “…toll should have correlation with users’ capacity to pay as well as reasonable payback for the financing entities,” it said. A ‘traffic trigger’ clause in the contract implies that if a certain volume of identified traffic is reached, the developer is obligated to increase the roadway’s capacity in order to maintain a minimum level of service for users.

The Survey also stresses on the need to have a regulatory body in the highways sector. An independent organisation with specialised expertise in contracting is required, it said.

Proposal to exit projects

At a time when the Roads Ministry is considering a proposal to allow developers to exit the road sector, the Economic Survey has reiterated the need to allow developers to exit road projects.

At present, there are limits on the extent to which road developers can exit projects. This issue had been flagged by the earlier Economic Survey as well. “Of late, financing of road projects has also run into difficulty as leveraged companies implementing road projects are unable to raise more debt in the absence of fresh equity. In the current market conditions, these firms are unable to raise new equity,” stated the Survey.

Published on July 09, 2014

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