Home Articles New The Highway Potential: The Bharatmala Angle and New Hybrid Annuity Model

The Highway Potential: The Bharatmala Angle and New Hybrid Annuity Model

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infrastructure-transport

According to World Bank estimates, in the year 2008 developing countries made investment of around $ 500 billion a year in new infrastructure-transport, power, water, sanitation, telecommunication, irrigation and so on equal to 20 per cent of GDP but the need for infrastructure investment is still large. In developing countries one billion people still lack access to clean water, two billion people lack access to sanitation and electric power and adequate transport facilities are still lacking in developing countries.

It needs to be emphasized that good quality infrastructure is important not only for faster economic growth but also to ensure inclusive growth. By inclusive growth we mean that benefits of growth are shared by the majority of the people of a country. Thus the inclusive growth will lead to the alleviation of poverty and reduction in income inequality in the country. The infrastructure is important for faster economic growth and alleviation of poverty in the country.

The adequate infrastructure in the form of road and railway transport system, ports, power, airports and their efficient working is also needed for integration of the Indian economy with other economies of the world. It is worthwhile to mention some distinctive features of infrastructure – First, the building of infrastructure requires large and lumpy investment and they contribute to output, after a long time that is their gestation period is quite long. Second, due to large overhead capital and lumpy investment, the significant economies of scale are found in most of them. Due to the significant economies of scale found in many infrastructure services, they have the characteristics of natural money. The third important feature of infrastructure facilities is they create externalities. Therefore, these infrastructural facilities are either built or run by the government and public sector enterprises or if private sector is permitted to make investment in them and run them, they need to be regulated by the government, so that they should not exploit the consumers. Lack of adequate infrastructure not only holds lack economic development, it also causes additional costs in terms of time, effort and money of the people for accessing essential social services such as healthcare and education.

With with large investment in infrastructure during the last decade (2003-04 to 2013-14) India has become the second fastest growing economy of the world but in the two years (2012- March 2014) economic growth slowed down and this has been mainly due to the stalled infrastructure projects which held back economic development. It is therefore urgently needed that infrastructure projects be given environment clearance quickly and investment in them be speeded up if the Indian economy is to be brought back on the fast growth trajectory.

In the next five years, the government plans to build 83,677 kilometres (km) of roads by spending a staggering Rs7 lakh crore ($108 billion). This is the largest-ever outlay for road construction in India and the length of the proposed roads is more than twice the Earth’s circumference (around 40,000km). In all, India has about 96,260km of national highways, while the total length of all roads is about 3.3 million km.

The plan includes the Bharatmala Pariyojana, involving an extensive highway network of 34,800km connecting India’s western border to the eastern one, with a likely investment of Rs5,35,000 crore. Another Rs157,000 crore will go towards building 48,877km of roads by the state-run National Highway Authority of India (NHAI) and the ministry of road transport and highways.

The National Highway Importance: Bharatmala Move

The government’s ambitious highway development plan has the potential to add 3% to the nation’s gross domestic product (GDP) and provide 10 million jobs, road transport and highways said minister Nitin Gadkari. The construction industry, including cement and equipment companies, will grow 100% to meet the demands for the Bharatmala scheme, projects for which will be awarded next year.  This was in the october month of 2017. A lot has happened since then.

The National Highways (NHs) with a total length of 92,851 km serve as the arterial network of the country. The development of National Highways is the responsibility of the Central Government which has been mandated to upgrade and strengthen a total of 54,478 km of NHs, through various phases of the National Highways Development Project (NHDP). A total length of around 22,000 km has been completed till March 2014. There are some difficulties in the way of developing national highways due to acquisition of land from the owners from which national highways have to pass through. In India a special effort is needed to speed up road connectivity in Jammu and Kashmir, North East and other special category States. A good start had been made in the development of roads in North East in the Eleventh Five Year Plan and is proposed to be pursued with greater vigour in the 12th Plan in which enhanced connectivity of North East has been given a high priority. Furthermore, the construction of roads and upgradation of national highways (NHs) in the districts affected by Left-Wing extremism in Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha and Uttar Pradesh have been taken up for inclusive growth of these areas.

Bharatmala Pariyojana is a new umbrella program for the highways sector that focuses on optimizing efficiency of freight and passenger movement across the country by bridging critical infrastructure gaps through effective interventions like development of Economic Corridors, Inter Corridors and Feeder Routes, National Corridor Efficiency Improvement, Border and International connectivity roads, Coastal and Port connectivity roads and Greenfield expressways.

The announcement of the mammoth scheme was done by Shri Nitin Gadkari, in the presence of the Prime Minister Shri Narendra Modi. The implementation of a pan-nation scheme to improve the road network was the idea of the PM. All key aspects of the scheme will be managed by the Road Transport and Highways Ministry of the country.

Key Features of The Scheme

Improving the quality of roads – The launch of the scheme has been done for bring a new wave of development in the nation in the form of well-maintained and developed roads. Under this project, the construction of roads, in all parts of the nation will be undertaken.

Total road construction – As per the draft of the scheme, government and the ministry will strive to complete new roads, which will add up to a whopping 34, 800 kms.

Integrated scheme – The Bharatmala is the name that is given to the road development and it will include many other related schemes as well. With the completion of all the schemes, the overall success of the scheme will be guaranteed.

Total tenure of the program -The central government has the plans of finishing the scheme within a span of five years. Thus, all is set for finishing the first phase before the end of 2022.

Segmentation in phases – Due to the sheer magnitude and spread of the scheme, it will be divided into seven distinct phases. As of now, the first phase in under construction.

Constriction on a daily basis – To finish the first phase in time, the respective department has made efforts of constructing at least 18 km of path on a daily basis. To beat the clock, continued efforts are being made to raise it to 30 km/day.

Different categories of road construction – It has been highlighted in the official draft of the scheme that to provide better connectivity, the construction of various categories of roads will be undertaken.

Multi-source of finding – One source will not be enough for funding a mammoth project. Thus, the government will have to depend on other sources for generating adequate money to meet the expenses.

Bharatmala Project Category

Economic Corridor – As per the guidelines of the road construction project, the construction of 9000kms of Economic Corridors will be undertaken by the central government.

Feeder Route or Inter Corridor – The total length of the roads, which fall under the Feeder Route or Inter Corridor category, is a whopping 6000kms.

National Corridor Efficiency Improvement – 5000kms of roads, constructed under the scheme will fall in the category of National Corridor for the better connection between roads.

Border Road and International Connectivity – Connecting the cities and remote areas, which are situated in the border regions, the project has kept provision for constructing 2000kms roads that fall in the Border Road or International Connectivity category.

Port Connectivity and Coastal Road – To connect the areas that are dotted along the shorelines and important ports, the central government has ordered the construction of 2000km of roads.

Green Field Expressway – The main stress will be given on the construction and development of Green Field Expressway for better management of traffic and freight.

Balance NHDP Works – Under the last segment, the project will see a construction and maintenance of about 10,000kms of new roads.

The standout features of the project

Government has granted approval for the implementation of the 24,800 km Bharatmala Expressway project for over a period of five years from 2017-18 to 2021-22. Conceptualised for the development of highways across India, the project seeks to include the development of border roads, international connectivity roads, coastal roads, port connectivity roads and ring roads measuring up to 65,000 km. Some of its key features are:

The development in the highway is expected to ensure the smooth functioning of the traffic. Moreover, the project seeks to bridge certain infrastructural gaps in the country.

Some of the 44 new economic corridors under the project include Mumbai-Kolkata, Mumbai-Kanyakumari, Amritsar-Jamnagar, Agra- Mumbai, Pune-Vijaywada, Raipur-Dhanbad, Ludhiana-Ajmer, Surat-Nagpur, Hyderabad-Panaji, Jaipur-Indore, Solapur-Nagpur, Sagar-Varanasi, Raipur-Vishakhapatnam, Delhi-Lucknow, Chennai-Madurai, Delhi-Kanpur, Sagar-Lucknow and Sambalpur-Ranchi.

Highways Minister Nitin Gadkari said that the National Highways Authority of India (NHAI) will raise a sum of Rs 62,000 crore with the help of various instruments and sources. It will raise 10,000 crores through Bharatmala Taxable Bonds. So far, a sum of Rs 41,170 crore has been raised by NHAI.

The ICRA said in a statement last year, “The estimated share of private sector investment for the programme is Rs 1.06 lakh crore while the expected funding through the monetisation of assets by the toll-operate-transfer (TOT) route is estimated at Rs 0.34 lakh crore.”

The second phase of Bharatmala project includes Varanasi-Ranchi-Kolkata, Indore-Mumbai, Bengaluru-Pune and Chennai-Trichy.

Upon completion, 70 to 80 per cent of the freight will move along the National Highways as against the current 40 per cent.

Minister of Road Transport and Highways of India Nitin Gadkari on October 25, 2017, said in a tweet: “BharatMala program includes development of 44 Economic Corridors, 66 Inter Corridor Routes & 116 Feeder Routes.”

 

 

Bharatmala 2.0: Focus on expressways and addition of 4000 km greenfield roads

The next phase of highway developmentin India will focus on building expressways which allow uninterrupted traffic flow. Under the second phase of Bharatmala, the government has proposed to build nearly 3,000 km of expressways, including Varanasi-Ranchi-Kolkata, IndoreMumbai, Bengaluru-Pune and Chennai-Trichy. The National Highways Authority of India (NHAI), which has been tasked with implementing the flagship highway development programme, has invited bids for undertaking project preparation so that projects are ready as soon as the work for the first phase are bid out. “It took us about two years to prepare detailed project reports (DPRs) for phase one of Bharatmala. Undertaking DPR preparation for the next lot of projects will help save time and the focus is on preparing high quality detailed reports for faster execution,” a highway ministry official said. Poor DPRs have been one of the reasons behind delay in execution of highway projects and the government often ends up incorporating supplementary works, which pushes the cost. Barring a couple of identified stretches, all others will have greenfield alignment, which means these will be new roads. This is aimed at reducing distance and travel time as well. The government has notified higher speed limit for cars at a maximum of 120 kmph on expressways. Till now, highway construction has largely seen expansion and widening of existing roads. Some of the identified greenfield highways include Patna-Rourkela, Jhansi-Raipur, Solapur-Belgaum, Bengaluru-Kadappa-Vijayawada, GorakhpurBareilly and Varanasi-Gorakhpur.

Sources said that the target date for rolling out these roads totalling around 4,000 km under the Bharatmala phase-II would be 2024 Recommended By Colombia.

Considering that forest and wildlife clearances hold up projects for years, the NHAI has asked the consultants to avoid road alignments through national parks and wildlife sanctuaries, “even if it requires taking a longer route/ bypass”. Similarly, the consultants have been advised to incorporate provision of separation of local traffic, especially for vulnerable road users (VRUs), for longitudinal movements and crossing facilities through viaduct(s) located at convenient walking distance. Pedestrians, cyclists and motorcyclists fall under the vulnerable road users. A mix of both slow moving and high speed traffic is one of the main reasons of road accidents in the country.

Highway potential

India has the one of largest road network across the world, spanning over a total of 5.5 million km. This road network transports 64.5 per cent of all goods in the country and 90 per cent of India’s total passenger traffic uses road network to commute. Road transportation has gradually increased over the years with the improvement in connectivity between cities, towns and villages in the country. The Indian roads carry almost 90 per cent of the country’s passenger traffic. In India sales of automobiles and movement of freight by roads is growing at a rapid rate.

The construction of highways reached 9,829 km during FY18 which was constructed at an average of 26.93 km per day. The Government of India has set a target for construction of 10,000 km national highway in FY19. During April-June 2018 a total of length of 2,345 km of national highways was constructed. Total length of roads constructed under Prime Minister’s Gram Sadak Yojana (PMGSY) was 47,447 km in 2017-18.

The construction of highways reached 9,829 km during FY18 which was constructed at an average of 26.93 km per day. The Government of India has set a target for construction of 10,000 km national highway in FY19. During April-June 2018 a total of length of 2,345 km of national highways was constructed.

Total length of roads constructed under Prime Minister’s Gram Sadak Yojana (PMGSY) was 47,447 km in 2017-18.

The Union Minister of State for Road, Transport and Shipping has stated that the Government aims to boost corporate investment in roads and shipping sector, along with introducing business-friendly strategies that will balance profitability with effective project execution. According to data released by the Department of Industrial Policy and Promotion (DIPP), construction development including Townships, housing, built-up infrastructure and construction-development projects attracted Foreign Direct Investment (FDI) worth US$ 24.87 billion between April 2000 and June 2018. The government, through a series of initiatives, is working on policies to attract significant investor interest. A total of 200,000 km national highways are expected to be completed by 2022.

The Ministry of Road Transport and Highways has fixed an overall target to award 15,000 km projects and construction of 10,000 km national highways in FY19. A total of about 295 major projects including bridges and roads are expected to be completed during the same period.

New hybrid annuity model (HAM)

The construction of highways in India is done mainly by two agencies- National Highway Authority of India (NHAI) and Ministry of Road Transport and Highways. NHAI is an autonomous agency of Indian government which is responsible for construction and management of National Highways. According to the ministry “all agencies responsible for highway construction built 2,345 km of roads in the first three months of the current financial year, compared with 2,260 km in the corresponding period last year.” NHAI has achieved the construction pace of 8.3 km a day from just 1.8 km a day in the corresponding period last year. Te contracts awarded by NHAI and the ministry of roads transport and highways saw a whopping 47 percent compound annual growth in last four years while execution of road contracts witnessed 23 percent compound annual growth.

The rate of highway construction touched almost 27 km per day in the period of April to June this year, as against 25 km per day in the same period last year. This is due to innovative solutions the government came up with to spur the pace of construction activity. A large number of stalled projects were blocking infrastructure projects and at the same time adding to NPAs of the banking system. To overcome this problem, the Modi government brought what is called the hybrid annuity model (HAM) in 2015. Under the HAM, the government will pay 40% of the project costs to the developer in the first five years through annual payments (annuity). The remaining payment will be made on the basis of the assets created and the performance of the developer. In this model there will be a toll right for the developer, while revenue collection would be the responsibility of NHAI. The advantage of HAM is that it gives money to the developer to start the project and the financial risk is shared between both.

The pickup in NHAI’s pace of construction is mainly due to the new hybrid annuity model (HAM). Earlier, there were two main models of highways construction in India- the Engineering, Procurement and Construction (EPC) Model and Public-Private Partnership (PPP) model. In the EPC model, the government bears almost all the costs of the project and is responsible for operations and implementation. The difficulty of this model is the high financial burden for the government. On the other hand in the PPP model, a road developer constructs the road and is allowed to recover his investment through toll collection. In the PPP model, the developers hardly ever delivered on time. However, due to HAM model, the midsized companies which got most of the contracts saw their order books being three to four times of revenues. There are also concerns over timely execution of awarded projects. So, the government is expected to shift back to EPC model where government bears most of the project costs and is responsible for operations and implementation despite the financial burden involved in it.

Conclusion

India’s road sector began recovering only recently from years of stagnation. Between 2012 and 2014, the government could only award 5,000km of road projects. The government has been constructing only 25km a days so far, totalling around 8,200km in the last financial year. Given that performance, building 16,700km of roads every year for the next five years to meet the 83,677km target won’t be easy for the government. However, the 2.0 Bharatmala project has provided a new impetus.

Info and Image source

  • india.gov.in/
  • india.com
  • timesofindia.
  • ibef.org/
  • rightlog.in
  • economictimes.
  • weforum.org/
  • economicsdiscussion.net

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