Road to the end

A close look at the performance of PPP policy in the road sector is instructive. So far, 461 road segments have been taken up for upgrade under the National Highways Development Programme. The NHAI has tried to rope in private funds wherever possible, especially Phase II onwards. Nonetheless, the private sector has invested in only 99 projects.

Moreover, rare exceptions apart, PPPs have come up in economically better-off states that already have superior infrastructure. For example, Tamil Nadu, Andhra Pradesh, Gujarat and Maharashtra. States in dire need of infrastructure investment, such as Bihar, Orissa, Uttar Pradesh and Assam have attracted little or no private investment. The East-West corridor passes through poorer states. It has attracted only five PPPs covering just one-tenth of the entire length. In contrast, the North-South corridor, passing through richer states, has got 27 PPPs covering 35 per cent of the corridor.

The policy implications are obvious. Private investment can come only in commercially lucrative projects and where supporting infrastructure is already in place. Commercially risky projects do not attract private funds. For economic, political and governance related reasons projects in Bihar, UP and the Northeast are being perceived to be risky.

Still, the NHAI is trying to develop all of Phase III and V projects on BOT basis, regardless of their risk profile. Unsurprisingly, it has made little progress with respect to some states. Since January this year, only 10 new PPPs have been formed. There is need to identify commercially viable projects.

An inconsistent policy is also responsible for this poor performance. Unfortunately, PPP policy has been subjected to midway changes that have triggered litigation and delays. The insertion of Clause 3.5.2 in request for qualifications (RFQ) and its subsequent deletion is a case in point. Sixty projects worth about Rs 60,000 crore have been hit by this policy change. The clause was anti-competitive and discriminatory against Indian companies that have enough experience in the road sector but are relatively small.

Now, the ministry has imposed another odd condition. The new clause, 2.1.18, restricts companies to bid for only eight projects. Due to a liquidity crunch, there are already fewer investors around. This clause will further exclude some of those still willing to invest.

The government should undertake commercially unviable projects without delay. Infrastructure is too important to be left to only private initiatives. It is an effective countercyclical measure. Also, we need superior roads, ports, airports and railways to be able to achieve double-digit growth. Remember, creaky infrastructural bottlenecks had come to stymie the growth rate during the last two years.

Also, we need to improve the protracted and grossly wasteful delivery structure of publicly funded projects. Most projects are experiencing time and cost overruns. As per official figures, as many as 897 projects are running behind the schedule, imposing an additional cost of Rs 36,800 crore. The wastage is intolerable; it is comparable to the Rs 50,000-crore package being planned by the government! Even on the high priority East-West corridor, projects are running far behind the schedule. As a result, the World Bank has threatened to terminate the funding of several projects. Another $620 million is at stake.

Projects are held up because of delays in land acquisition, environmental clearances, shifting of utilities, and contract renegotiations due to flaws in the initial specifications.

Several measures can encourage private investment and improve the delivery system. Project feasibility reports need be prepared seriously so as to avoid later changes in design and alignments. Contracts should clearly spell out the obligation of the parties. Moreover, there should be an independent agency to adjudicate disputes between the government agencies and the concessionaires/contractors.

The writer teaches at the Delhi School of Economics

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