Union Minister for Road Transport, Highways and Shipping Nitin Gadkari has questioned the wisdom of inviting tenders for highway projects before acquisition of land.
Addressing the India PPP Summit 2014, organized by the Federation of Indian Chambers of Commerce and Industry in New Delhi on July 23rd, Gadkari said the private sector was to be partly blamed for participating in the tendering process in the absence of land and forest clearances. He assured that the grey areas pertaining to road projects would be resolved before August 15th.
Gadkari proposes to convene a meeting with construction companies and banks soon during which he will stress on the need to reduce the Non Performing Assets on account of road projects.
Speaking about the measures being initiated by his Ministry to bring down time and cost overruns in case of road projects, Gadkari said Detailed Project Reports for 300 new projects would be prepared in advance to cut down on the vetting time and a 10-year shelf of projects created alongside to reduce time overruns which led to cost escalations and affected the commercial viability of projects.
Expressing similar views at the event, Finance Secretary Dr. Arvind Mayaram underlined the need for bidding out projects only after all statutory clearances were available. He said there were no problems with the bidding process itself but they came up due to vigorous bidding by the private sector which overestimates its capacity and is unable assess the project potential on a 30-year basis.
Dr. Mayaram also brought up the issue of over exposure of companies in project construction and pointed out that 12 to 14 companies repeatedly placed bid for projects stretching their resources thin. Considering the portfolio of infrastructure projects was worth $ 500 million, he said, there was a strong case for creation of joint ventures even with foreign companies.
Dr. Mayaram called for definition of a stressed project, identification of the cause for stalling of projects and a methodology for stress assessment and risk apportionment. The budget proposal on 3P India would look at regulation, financial structure, stress, management of contracts and capacity building on the part of both the private sector and the government, he said.
Senior Vice President of FICCI Dr. Jyotsna Suri said that one of the key challenges faced in promoting infrastructure projects was how to put in place an appropriate policy and institutional and legal framework. The inadequacy of well-performing institutions could cause protracted negotiations between public and private partners, tardiness in reaching financial closure and consequent delays in many projects, she said, adding that equitable distribution of risks and rewards between the partners with clear rules of engagement could help forge a ‘win-win’ partnership.
Dr. Suri suggested adoption of the BOT annuity concession model for commercially unviable highway projects that had uncertain revenue stream from toll collections. In the annuity concession model, private investors are able to recover their costs through series of fixed and periodical (annual) payments from the government spread over the concession period rather than expecting to recover the costs from proceeds of toll collection. The model is considered more attractive than the BOT (Toll) model from the perspective of private investors.