News
Thursday, August 06, 2015
^ Top

Vinayak Chatterjee: Whither infra investments?

Government has Undertaken Number of Steps to Improve Ease of Doing
Business: Sitharaman

PE funds invest Rs 11,180 crore in realty projects, up from Rs 4,002 crore
a year ago: Cushman & Wakefield

Kelkar panel on PPP might push to revive 3P India plans

Govt to award Rs 20,500-crore expressway projects in FY16

Backlogs weigh down tribunals as settlements take years to conclude

Toll-operate-transfer: Private tolls to fund new roads

Infrastructure loans outpace non-food credit
Vinayak Chatterjee: Whither infra investments?
The Economic Times,
August 6, 2015
The absence of data on infrastructure investment is untenable. An appropriate
government department needs to take ownership
Macroeconomists revel in delivering homilies clothed in permutations and combinations
of gross domestic product (GDP), inflation, forex reserves and value of the rupee, deficit
modelling, export-import trends, credit off-take and interest rates.
However, the key that is expected to open the door to economic recovery is infrastructure
investments. In the short-term, there is a clearly articulated policy of public expendituredriven, infra-investment-based stimulus. It is thus quite surprising that no
macroeconomy commentator has yet been critical of the one vital missing statistic that
should reveal where the economy is headed - viz Gross Capital Formation in
Infrastructure (GCFI), most often expressed as a percentage of the GDP.
It was around 2005 that this columnist started badgering policy and economic czars in
New Delhi to concentrate on this statistic, and to collate and publish it and use it as an
important indicator to judge the direction of the economy. Persistent reminders
succeeded in finally catching the attention of Montek Singh Ahluwalia, and the 11th Plan
onwards (2007), GCFI came to be included in any discussion, plan or impact-evaluation
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of the infrastructure sector led by the then Planning Commission. (INVESTMENTS IN
INFRASTRUCTURE)
However, much of the energy on this crucial statistic appears to have been dissipated, as
can be seen from the table above. Again we have no clue whatsoever of infra investments
- sectoral and overall - in the last three years.
If the five-year planning process were still around, we would have been well into the
fourth year, having completed three years from April 1, 2012 to March 31, 2015. But ask
any economic mandarin how well we are doing in terms of investments in various infra
sectors or even as a percentage of the GDP, or as a percentage of public-privatepartnership (PPP) to total investments, and all you get is a glassy look. That is
disconcerting, considering that the broad economic norm is that a country like ours, at
this juncture of the development cycle, needs to put in eight per cent to 10 per cent of its
GDP in infrastructure. So, GCFI becomes as important a statistic as GDP, and needs to
be taken as seriously.
So, if infra investments are the fulcrum on which the India story is to turn, surely we
cannot operate in a statistical vaccum. This is not to suggest that only a "revived"
Planning Commission can do this. It is simply a job of collating information in a rigorous
and regular manner and using it for appraisal, analysis and (hopefully!) deriving policy
measures. Different wings of the government of India have the calibre and expertise to
do it - be it the NITI Aayog, Ministry of Programme Implemen-tation and Statistics or
the Department of Economic Affairs in the finance ministry. But somebody in the system
has to take ownership.
In any case, infra targets and their evaluation require recasting for the following two
reasons.
One, targets have morphed. Plans for renewable energy, railways, highways, water
resources, transmission and distribution et al are quite different now from the time when
the 12th Plan was being drawn up. New targets, reflecting current realities and the
priorities of the government of the day need to be represented in a fresh format.
Two, with the fading away of the five-yearly planning cycle, a new time frame needs to be
adopted. A practical period for target-setting could possibly be the term of the present
government, that is 2014-2019.
Whatever the chosen targets and the investment period under the scanner, it should be
worked upon immediately. Otherwise decisions related to the infrastructure sector would
only be as focused and purposeful as the old allegory of a blind man in a dark room
looking for a black cat that is not there.
^ Top
Government has Undertaken Number of Steps to Improve Ease of Doing
Business: Sitharaman
The Economic Times,
August 6, 2015
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Asserting that the Centre has undertaken a number of steps to improve ease of doing
business in India, Minister of State for Commerce and Industry Nirmala Sitharaman has
said that the ministries and state governments have been advised to simplify and
rationalize the regulatory environment through business process reengineering and use
of information technology amongst the other important steps.
"These measures are expected to increase FDI, which complements and supplements
domestic investment. Domestic companies are benefited through FDI, by way of
enhanced access to supplementary capital and state-of-art-technologies; exposure to
global managerial practices and opportunities of integration into global markets
resulting into accelerated domestic growth of the country. Further, as FDI is largely a
matter of private business decisions, global investors normally take time to assess a new
policy and its implications in the context of a particular market before making
investment,” she said in a written reply in Rajya Sabha today.
Stating that India has one of the most liberalized FDI policy regimes in the world,
Sitharaman said: "Government has put in place an investor-friendly policy on FDI, under
which FDI, up to 100 percent, is permitted, under the automatic route, in most
sectors/activities. Significant changes have been made in the FDI policy regime from
time to time, to ensure that India remains increasingly attractive and Investor-friendly."
The Minister of State for Commerce and Industry further said in the light of the
importance of foreign direct investments for economic growth and development, the
government announced key FDI reforms in the defence and railways sectors.
"The entire range of rail infrastructure was opened to 100 percent FDI under the
automatic route, and in defence, sectoral cap was raised to 49 percent. To boost
infrastructure creation and to bring pragmatism in the policy, the Government reviewed
the FDI policy in the construction development sector also by creating easy exit norms,
rationalizing area restrictions and providing due emphasis to affordable housing," said
Sitharaman.
"To give impetus to the medical devices sector, a carve out was created in FDI policy on
the pharmaceutical sector and now 100 percent FDI under automatic route is permitted.
The Government, in order to expand insurance cover to its large population and to
provide required capital to insurance companies, raised the FDI limit in the sector to 49
percent. Pension sector has also been opened to foreign direct investment up to the same
limit," she added.
Sitharaman further said the FDI policy provisions pertaining to NRI investment have
also been clarified by providing that for the purposes of FDI policy, investment by NRIs
on non-repatriation basis under Schedule 4 of FEMA (Transfer or Issue of Security by
Persons Resident Outside India) Regulations will be deemed to be domestic investment
at par with the investment made by residents.
^ Top
PE funds invest Rs 11,180 crore in realty projects, up from Rs 4,002 crore a year
ago: Cushman & Wakefield
The Economic Times,
August 6, 2015
News
Private equity funds almost tripled their investments in India's real estate sector in the
first six months of 2015 even as cash-strapped builders rushed to raise money to
complete existing projects.
Private equity funds invested Rs 11,180 crore in the country's commercial and residential
real estate in the first half, up from Rs 4,002 crore a year ago, according to data from real
estate consultants Cushman & Wakefield. "While PE investments in real estate sector
have been rising steadily on year-on-year basis, funds are taking calculated risk and
mainly investing in those projects where there is proper clarity on cash flow," said Sanjay
Dutt, executive managing director, South Asia, at Cushman & Wakefield. Commercial
office sector received investments worth Rs 4,528 crore in the first half while the
residential sector got Rs 6,328 crore.
Anckur Srivasttava, chairman of GenReal Property Advisers, said, "Much of the money is
going for last mile funding where developers are seeking funds to complete pending
projects. The developer also uses some part of this money to acquire additional land or
secure approvals. These deals are usually happening in those pockets in different cities
where sales are still happening."
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Indian real estate sector has been under stress due to slow sales of residential properties
across major cities in the country. At the same time, banks, faced with rising bad loans,
have become cautious about lending to the sector even as several real estate firms
struggle to service their debt.
According to the property advisory firm Knight Frank, there have been 40 per cent drop
in new residential project launches and 20 per cent dip in home sales in the last one year.
The worst hit is the property market in the National Capital Region of Delhi, where new
launches have dropped by 68 per cent in the first half of 2015.
Across the country, total unsold inventory stands at 7,06,900 units, which will take over
three years to sell. Xander, Milestone Capital Advisors, Indiareit Fund Advisors, ASK
and Blackstone are among the funds that committed big buck to the Indian real estate
sector.
According to data from VCCircle Edge, Blackstone Real Estate Partners recently invested
$165.8million to buy Vikhroli Corporate Park; Ozone Urbana Infra Developers raised
$94.2 million from Piramal Fund Management; and Assetz Property and Homes LLP
raised $116 million from Equis Fund Group. "Today, NBFCs are funding buying of land
and also investing in projects they have got all approvals, which was earlier the domain
of structured finance and mezzanine finance players," said Amit Bhagat, managing
director of Ask Property Investment Advisors, which invests in residential projects.
Nitin Goel, managing partner for real estate investments at Milestone Capital, said,
"Overall there is a lot of money chasing the real estate sector both in commercial and
residential segment.
We are looking to invest in projects that are close to completion." The investment trend
is likely to continue owing to improved macro-economic factors such as the decline in
twin deficits (fiscal and current account), controlled inflation which is well within RBI
comfort zone, primarily owing to low crude oil prices which are anticipated to remain
low at least for the foreseeable future.
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Kelkar panel on PPP might push to revive 3P India plans
Business Standard,
August 6, 2015
Committee to also suggest showcasing success stories, better dispute redressal
A panel, headed by former finance secretary Vijay Kelkar, and tasked with examining
and suggesting reforms for the public-private partnership (PPP) model in infrastructure
projects, might recommend the reviving of plans to launch a permanent advisory body
called 3P India, Business Standard has learnt.
The 10-member committee, constituted on May 26, has till end-August to submit its
report. It is also likely to recommend the need for better pitching to private sector
investors of the success stories in PPP, especially in roadways and ports. It might also
recommend ways to improve dispute redressal mechanisms through better exit models
for investors.
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Senior officials who are aware of the deliberations of the Kelkar committee on PPP, said
if 3P India is set up as proposed in the 2014-15 Budget by Finance Minister Arun Jaitley,
it can serve as an advisory body with a longer-term mandate to review, examine, and
suggest reforms and changes in the PPP model, as compared to panels with short-term
terms of reference like the committee itself.
3P THRUST

Panel on reviving PPP headed by Vijay
Kelkar; has time till end-August to submit
recommendations

3P India was announced by the finance
minister in FY15 Budget as an advisory
body/think-tank for PPP

Officials say Cabinet never took up 3P India
proposal last year

Panel might say that setting 3P India will
create much-needed infra advisory body

Suggestions might also be on pitching
India’s PPP success stories across sectors

Streamlined PPP model, better dispute
mechanism to again attract private players
“Discussions in the panel have, among other topics, centred on the need for 3P India. It
could be a ‘centre for excellence’ for PPP projects which could hire the best talent from
finance, infrastructure, government, private sector and academia to study global-best
practices, review current contractual arrangements of such partnerships, and work upon
improving the PPP model for infrastructure financing,” a senior official said.
Presenting his first Budget, Jaitley had said last year: “PPPs have delivered some of the
iconic infrastructure like airports, ports and highways, which are seen as models for
development globally. But we have also seen the weaknesses of the PPP framework, the
rigidities in contractual arrangements, the need to develop more nuanced and
sophisticated models of contracting and develop quick dispute redressal mechanism. An
institution to provide support to mainstreaming PPPs called 3P India will be set up with
a corpus of Rs 500 crore.”
According to reports, 3P India was likely to be a non-profit company on the lines of the
National Skill Development Corporation, without regulatory power, but with the
mandate to look at a whole gamut of issues obstructing the growth of PPPs in India such
as model concessionaire agreements, bidding process, dispute resolution mechanism. It
was said the government would have a 49 per cent stake in the body.
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A National Investment and Infrastructure Fund (NIIF), with a similar stake by the
Centre, was notified last week but with the intention of funding pro-jects rather than
advising on these.
For 3P India, a Cabinet note was prepared and sent for the Union Cabinet’s approval.
But for reasons unknown to them, it was never taken up at the top level and hence, the
proposed Rs 500 crore was not released, officials say.
The Kelkar panel, officially called the Committee on Revisiting & Revitalising the PPP
Model of Infrastructure Development, was tasked with reviewing PPP policy, analysing
the risks involved in PPP projects in different sectors and the existing framework of
sharing of such risks, suggesting an optimal risk-sharing mechanism between private
investors and the government, and suggesting measures to improve capacity building in
government for effective implementation of the PPP projects.
Apart from Kelkar, the panel comprises Rajasthan Chief Secretary C S Rajan, and
Managing Director of IIFCL S B Nayar, among others. From the central government, a
joint secretary each from the Roadways Ministry and the Finance Ministry are part of the
panel. Sources confirmed that the meetings of the panel were still underway and hence
no recommendation had been firmed up yet.
"The panel will have more meetings. There is also a need to pitch the success stories in
PPP and dispel the uncertainties s surrounding the model and infrastructure in general.
The Centre needs to talk more about the implemented PPP projects, like in the roads and
port sectors. The existing perception has been built around the failures, like in some
power and metro rail projects," the official said.
The efforts to suggest a revitalisation of PPP comes at a time when the government's
focus is on increased public spending in infrastructure to boost economic growth, at a
time of weakened corporate sector balance sheets. This year, the central government is
likely to spend an additional Rs 70,000 crore in capital expenditure. In fact, the capital
spending for the April-September 2015 could be the highest ever, when compared with
similar periods in past financial year.
It is believed that a streamlined PPP model, with more realistic contractual
arrangements and better dispute mechanism with exit provisions will once again attract
more private players.
^ Top
Govt to award Rs 20,500-crore expressway projects in FY16
Business Standard,
August 6, 2015
The government has decided to award three expressway projects with a total length of
over 500 km, entailing an estimated investment of R20,500 crore, this fiscal.
The government has already invited bids for the 135-km EPE and 27-km Delhi-Dasna
stretches. Bids for these two projects would be opened within a fortnight.
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The government has decided to award three expressway projects with a total length of
over 500 km, entailing an estimated investment of R20,500 crore, this fiscal. This
includes the R7,558-crore Eastern Peripheral Expressway (EPE), which is being built
under the engineering procurement and construction (EPC) model. In case of other
projects, either the PPP and PPP annuity (hybrid) model, where the government will
have 40% equity, will be employed.
At a recent high-level meeting in the road transport and highways ministry, a decision to
build expressway stretches connecting Vadodara-Mumbai and Dasna-Meerut sections
has been taken, sources told FE. For the Dasna-Meerut section, bids would be invited
within a month, but it might require a few months more for the launch of the bidding for
the first phase of the Vadodara-Mumbai section, as land acquisition for the proposed
274-km stretch is yet to be fully completed.
The government has already invited bids for the 135-km EPE and 27-km Delhi-Dasna
stretches. Bids for these two projects would be opened within a fortnight.
While the road ministry has already announced plan to build the EPE project through
the EPC route, where all expenses would be borne by the government, the Delhi-Dasna
and Dasna-Meerut stretchs would likely be built under the annuity model, where the
government would pay 40% of the equity. However, the government proposed to build
the Vadodara-Mumbai stretch through the build-operate-transfer (BOT) model, hoping
that there would be larger investors’ interest as the stretch would see huge traffic.
The previous UPA government had in 2008-09 planned to build 18,000 km of
expressways in the country. A decision to build 1,000 km of expressways in seven
stretches was also taken by the Congress-led dispensation.
“Land acquisition is the biggest problem. This is precisely why we are trying to trudge
cautiously. The entire 1,000 km is not possible soon because of the problem in
acquisition of land. At the same time, we do not want time and cost overrun. The
targeted 500-km stretch would be completed within 30 months after awarding the
projects,” the official said.
^ Top
Backlogs weigh down tribunals as settlements take years to conclude
The Indian Express,
August 6, 2015
In the CESTAT the number of pending cases as per finance ministry data is 97,672 as on
May 31, 2015.
Last week the finance ministry had shortlisted one of its senior officers to join as a
member in the Securities Appellate Tribunal (SAT). The highly unusual move is a pointer
to the discomfort within the government of the goings on in the various tribunals
especially in the financial sector.
Each of the tribunals have either run up a huge backlog of cases because of which
settlement takes more than five to six years, or have been questioned about the quality of
orders with one case inviting a Central Bureau of Investigation (CBI) probe.
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Several of them are running without the full complement of members, judicial and
technical. These include other than SAT, the six benches of Customs and Central Excise
Appellate Tribunal and the 36 Debt Recovery Tribunals (DRTs). The massive backlog of
cases has huge revenue implications for the ministry. In July the CBI had asked the
Centre for the papers related to the DLF case. The case was filed by DLF in the tribunal
appealing against a three-year ban imposed on the real estate firm by Sebi in an order
issued in October 2014. The order was reversed by the tribunal through a 2-1 majority in
March this year. The dissenting note surprisingly came from the presiding officer of the
tribunal, Justice JP Devadhar. While Sebi has made an appeal against the order to the
Supreme Court, the government is keen to ensure that the tribunals are able to pass
orders that stand the test of law in the higher courts.
year widIn the CESTAT the number of pending cases as per finance ministry data is
97,672 as on May 31, 2015. The total revenue implication of these cases is Rs 1,31,380
crore or a fifth of the total indirect tax receipts for 2015-16. Ironically, the CESTATs were
set up to cut down pendency of revenue-related court cases. Finance ministry data shows
that there are just 18,624 cases pending in the regular courts including the Supreme
Court or just a fifth of the numbers pending in CESTAT. The tax implication of those
cases is Rs 31,968 crore. Another report shows that the rate of disposal of cases in 2014
was 13,612. This means the average delay in getting a case cleared in CESTAT is about
five years.
There is an equally huge delay in the DRTs and their appellate bodies— the debt recovery
appellate tribunals. A Cabinet note to set up six more of them in December 2014 had
noted that the number of pending cases in these tribunals has crossed 50,000. The latest
data on the amount pending through these cases is Rs 14,38,725 crore as on March 31,
2013, or close to 3 per cent of the total investments made by the banking sector. All these
have a bearing on the health of the financial sector. Shankh Sengputa, partner at Trilegal,
a corporate law firm, says that considering the case load, some delay in judgments is
expected, “although, the delays are also on account of litigants deliberately prolonging
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the proceedings”. Abhishek Jain, partner at EY agreed that the “majority time of the
benches is spent on deciding stay applications”. According to him, the pile up is typically
because of frequent adjournments by litigants and department representatives, delays in
submission of documents and the frequent transfers of the judges. Sengupta says, “There
is a shortage of judicial members in CESTAT as their appointments have not happened
in time. While there was a proposal to create additional benches in other states, there has
been no development with respect to such proposal.”
For instance two years ago the government cleared a proposal for a new bench of
CESTAT in Allahabad among six such benches in several cities. The case ran up to a
division bench of the Allahabad High Court which had to issue directions to the Central
government to make the bench operational by July this year. Another reason for the rise
in pendency is because of the circular line of awards. Parties approach the tribunals and
at times anticipating an adverse order, obtain a stay from a higher court. Finance
ministry data shows that at the end of May 2015, total stays granted by CESTAT was
4,647. The month had begun with a backlog of 4,902.
A finance ministry rule states that a member can serve in a tribunal only if she/ he has
not practiced before the same forum. While the SAT, as of now, has no commensurate
backlog, the interest taken by CBI in the DLF case shows how judgments leave room for
interpretation. Jain of EY said the benches could fix a timeline for cases “with negative
implications in case of breach and limiting the number of adjournments to ensure no
artificial delays are caused”.
One of the options is to prioritise cases based on the gravity of issues involved. But this
requires deeper understanding of pertinent issues. Rahul Mitra, national head for
litigation and dispute resolution for transfer pricing and direct taxes at KPMG, India
agrees. “For specialised matters, like transfer pricing, being concerned with economics,
rather than interpretation of law, the government may consider appointing subject
matter specialists as tribunal members or at least as expert witnesses/ amicus curie, for
optimal and expeditious disposal of cases”.
The implications are huge. While the time lines for cases pending in DRT are relatively
recent, since they came up later, in the CESTAT there are cases pending for nearly three
decades. There are 413 cases pending in these forums from before the year 2000. The
oldest case dates back to 1988 in Delhi CESTAT.
The delays are defeating the very reasons why these tribunals were set up-fast-track
courts. Sengupta of Trilegal suggests imposing costs or taking strict action against
parties who “attempt to delay the matters by filing frivolous applications and seeking
unnecessary adjournments”. The government has already moved some distance on this.
Finance minister Arun Jaitley has made it mandatory for litigants to deposit a
percentage of the tax dues with the government as the precondition for appearing before
the CESTAT. Some innovative measures are required for dragging cases in DRT too.
^ Top
Infrastructure loans outpace non-food credit
FE Bureau,
August 6, 2015
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LOANS to the troubled infrastructure sector grew at a faster pace than the overall nonfood credit growth of banks in June, data from the Reserve Bank of India show.
Outstanding loan disbursals to infrastructure companies stood at Rs 9.3 lakh crore, an
increase of 8.9% from a year ago. Non-food credit growth slowed to 7.7% in June with
loan disbursals to most sectors slowing sharply. Within infrastructure, loans disbursed to
power companies increased the most — by 13.1% — to an outstanding Rs 5.73 lakh crore.
Loan disbursals to iron and steel companies grew 7.1% in June to an outstanding Rs 2.85
lakh crore. This is the second sector that saw the highest growth in disbursals after
infrastructure.
According to bankers, growth in loan disbursals has been largely due to demand for
refinancing and working capital requirements. “The growth in the corporate book is
partly working capital and partly regular funding to highly-rated corporates, including
PSUs. In fact, the current demand is only from the highly-rated private sector and public
sector entities,” Chanda Kochhar, MD & CEO of ICICI Bank, had said last week. Further,
growth in disbursals to infrastructure, and iron & steel companies could continue to be
healthy even in the coming months as many companies, such as Adani Power,
Electrosteel Steels and Bhushan Steel, have all sought the 5/25 scheme of the Reserve
Bank of India.
Under this scheme, banks can extend loans for up to 25 years with the option of
refinancing them every five years either themselves or by roping in new lenders.
Loan disbursals to most sectors, such as petroleum, coal products and nuclear fuels,
fertilisers and mining and chemicals, shrank year-on-year, the RBI data showed.
Keeping with the recent trend, retail loans outpaced growth in corporate loans by
growing 16.5% in June, led by increase in unsecured lending. Credit card outstandings
surged 22.6% to Rs 32,900 crore. Auto loans also grew at a healthy pace of 16.2%.
Education loans registered the slowest growth within retail loans, expanding by just 5.6%
on year.
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Toll-operate-transfer: Private tolls to fund new roads
As per toll collection data available with the National Highways Authority of India
(NHAI), over 40 per cent of toll projects are currently generating more than 10 per cent
of the project completion cost annually.
Under the model, already constructed stretches of national highways will be bid out to
the private sector, helping moblise income.
In an attempt at monetising completed stretches of public funded national highways, the
Ministry of Road, Transport and Highways (MoRTH) has prepared a roadmap to bid
them out to private investors and thereby mobilise additional resources for constructing
new highways across the country.
As a step in this direction, the ministry has identified 104 toll roads from where it is
currently earning toll revenue. “The government is assessing the interest of the private
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sector in toll road assets. The objective is to award these toll roads to private sector
entities for operations and maintenance for a fixed period in lieu of an upfront fee (under
the toll-operate-transfer or TOT model),” said a senior official in the ministry, who did
not wish to be identified. A meeting between ministry officials and stakeholders was held
at the end of last month on the issue.
Under the TOT model, stretches of national highway already constructed by the NHAI or
a concessionaire will be bid out to the private sector. The NHAI can securitise the toll
receivables by collecting upfront the concession fee. The private party (infrastructure
developers, private equity, institutional investors like pension, wealth funds) will operate
and collect toll on the stretch during the concession period.
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The ministry has shortlisted close to half a dozen highway projects for illustrating the
potential of such investments. These stretches can be good investment prospects for
investors on account of other infrastructural developments around these stretches. The
Chittorgarh Bypass, for instance, ministry officials say, is an attractive investment
opportunity due to the ongoing development of India’s second Nuclear Fuel Complex
(NFC) at Rawatbhata town in Chittorgarh district.
The other sections include the Bhadarak-Balasur highway near the Dhamra port where
the Adani Group has planned capacity expansion of Rs 7,000 crore in Phase-II; the
Hazaribagh-Ranchi stretch where an integrated greenfield steel plant is to be set up by
the Steel Authority of India Limited (SAIL); the AP Karnataka border-Devanhalli section
where the Devanhalli tech park is under development and is scheduled to be completed
by 2020; the Visakhapatnam-Champavati highway near which a logistic park and free
trade warehousing zone in being developed in Visakhapatnam.
Manish Agarwal, leader, capital projects and infrastructure, PwC India, said, “There are
broadly two benefits of bidding out highway projects on toll, operate, transfer basis. To
the extent that there are potential leakages in government toll collection system,
entrusting operations to a private sector player will plug gaps and make it transparent.
Besides, it will help the government to securitise future cash inflows and utilise it for
creating new assets.”
“The TOT model has been designed to create an opportunity for the private sector to
invest in low risk assets and at the same time provide for efficient operations and
maintenance of highways by the private sector, check pilferage of toll revenue and
channelise capital inflows for creating new road infrastructure,” the ministry official
said.
As per toll collection data available with the National Highways Authority of India
(NHAI), over 40 per cent of toll projects are currently generating more than 10 per cent
of the project completion cost annually. Of the total of 104 projects, 44 projects are
generating 42 per cent of the project completion cost annually through toll, 34 projects
accounting for 33 per cent of the project completion cost annually and 24 projects
generating 23 per cent of project completion cost.
The TOT model has already been put to test elsewhere around the world. A consortium
of Macquarie-Cintra has invested $1.83 billion in the Chicago Skyway for a concession
period of 99 years. Other projects where the model has been implemented successfully
include the Puerto Rico Highway PR-22, where a consortium of Goldman Sachs-Abertis
has invested $1.43 billion for a period of 40 years, the Penang Bridge in Malaysia where
United Engineers Malaysia Berhad has invested $204 million (the concession period has
been extended to 45 years from 25 years) and the Indiana Toll Road where a consortium
of Macquarie-Cintra has invested $3.8 billion for a period of 75 years.
“We are holding consultations with stakeholders and deliberating on how to define the
scope of the concessionaire, what should be the eligibility criteria so as to rope in new
investors, the duration of the concession period and who would be responsible for future
capacity augmentation,” said the official.
While the concessionaire will be responsible for complete operations and maintenance of
the awarded section, the ministry is yet to freeze the list of activities that would form part
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of the concessionaire’s obligation — toll collection (toll plaza operations, use of
technology, safety compliance)/ regular maintenance (prompt repair of potholes, cracks,
drains, joints)/ major maintenance (re-laying of the road, strengthening and
rehabilitation, refurbishing of the tolling system as and when required).
The ministry is also in the process of determining the eligibility and how to reduce the
barrier for new entrants and investors. They are examining whether experience in
maintaining and operating toll roads or track record of minimum service levels or use of
advanced tolling technologies or experience in major maintenance, experience in road
construction should form part of credentials. Discussions have been held to deliberate if
debt coverage ratio, debt raising capabilities, debt/equity ratio or experience in past
transactions of similar size should be used to determine financial health and capability of
the interested party. Debate is also includes duration of the concession period.
“Globally we have seen long term concession period, however, we need to decide what
will be appropriate in Indian context — short-term of less than 25 years, mid-term of 2535 years, long-term of more than 35 years. We have to see if concession period be
uniform across all bids,” said another official.
Discussion are also on whether to undertake project by project bid or award a portfolio of
projects in a bid, the minimum size of the portfolio in that case and if the portfolio
should have contiguous toll roads or geographically spread toll roads. In addition, there
needs to be discussion on the proposed termination payment clause.
An important consideration that is also being discussed internally is on the subject of
capacity augmentation. As per the broad contours of the TOT model, capacity
augmentation should be undertaken once the average traffic in any year exceeds target
traffic. Two options are being considered — the augmentation can be taken up by the
authority under engineering, procurement and construction (EPC) contract and
additional revenue post augmentation can be shared in fixed proportion between
concessionaire and authority. Alternately, the concessionaire can take up the
augmentation in which case, land acquisition and approvals will be done by the
authority. The concession period can be extended to account for the fresh investment.
Operations and maintenance of the augmented road, however, lies with the
concessionaire in both the options
A big push in the roads sector is key to the NDA government’s infrastructure focus,
wherein it has drawn up an ambitious target to award highway projects worth Rs 3.5
lakh crore. As many as 1,231 projects measuring 37,000 km have been firmed up for
award by the ministry over the next two years.
The government has given its nod to the Bharat Mala project aimed at developing 6,000
km of new roads in border areas at an estimated cost of Rs 76,000 crore. Another 2,500
km of roads to connect religious and tourism centres in mountainous terrain is expected
to come up at an estimated cost of Rs 51,000 crore. Also, world-class highways will be
developed to connect 123 of the 676 district headquarters in the country at an estimated
cost of Rs 96,000 crore.
The government has allocated Rs 42,913 crore for the highways sector in the Budget for
the current fiscal, up from Rs 28,881 crore in 2014-15, to ensure greater participation in
road building in absence of private investment. But with mega projects in the pipeline,
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the government has also been exploring different terms of engagement to lure in the
private sector in investing in road projects.
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