With private developers wary of investing in highway projects, which are marred by inordinate delay in environmental clearances resulting in heavy cost escalation, the Centre is now considering borrowing money directly from the public sector banks to get the ball rolling.
Over 26 highway projects, which have been awarded under the Build-Operate-Transfer (BOT mode) in the last two years have not made much progress. The Government is now working on slowly shifting these projects from the existing Public-Private Partnership (PPP) mode to Engineering, Procurement and Construction (EPC) mode.
Under the EPC mode, the financial risks are on the Government and performance obligation is on the player bidding for the project. In such case, the private player only builds at the bid price but does not undertake any financial risk.
According to the official, under the BOT mode, the Ministry pays an interest to the tune of 15-18 per cent to the developer/lender, which is much more than what it would cost them to take loans directly, which would be about nine per cent.
The newly formed NDA Government is focusing its energies into finding ways to fund the stalled projects.
“The Minister (Nitin Gadkari) had a long brainstorming session with the officials to find ways to expedite the existing projects, which have been lying stagnant for want of funds as private players are afraid of investing,” said an official from the Ministry of Roads, Transport and Highways (MoRTH).
“While converting the existing projects from the BOT mode to the EPC mode, where the financial onus of building and land procurement is on the Government was the obvious option, the other idea was that the Government takes loans at 9 per cent interest directly from the banks to fund projects,” said the official.
As far as attracting private investment in the road sector is concerned, the previous Government had taken up the policy initiative of providing capital grant of 40 per cent of the project cost to enhance viability and 100 per cent tax exemption in any consecutive 10 years out of 20 years. BOT project entrepreneurs were also allowed to collect and retain the amounts from tolls on selected stretches.
“As of now, the Ministry has decided to convert maximum number of projects to EPC, which will be funded from our own coffers. We are hoping to start inviting bids by next month,” said the official.
“We will start taking up projects on priority under EPC mode. We are scheduled to have meetings all of next week to discuss the order of importance. We will fund as many projects as we can as it will only expedite construction,” he said.
So far, the Road Transport and Highways Ministry was following the recommendations of the BK Chaturvedi committee report, on executing road projects. Under their proposals, BOT(Toll) must be tried first, followed by BOT (Annuity) and then EPC, depending on the traffic density along the project stretch.
In 2012-13, the Government managed to award projects amounting to just 1,116 km, and 13 of the 22 PPP projects put on the block could not find any taker. This year, the Ministry awarded only 1,436 km, out of which private developers have bid for only two PPP projects amounting to less than twenty per cent. The rest were given out under EPC mode.