› How the Roads & Highways sector might save the economy

By Pankaj Vatsa, Executive Director - Highways, Buildings and Aviation, Management

88% of the target met for highway construction!! Minister of Transport announced that NHAI  has completed 3979 km of NH construction in FY 19-20. When there has not been lot to cheer about in recent times, highway sector performance is worth appreciating. Even, during the lockdown from March 24th, highway projects were the first to take off as soon as relaxation was given in Lockdown 2. Optimum productivity is yet to be reached but it is gathering pace. 

Although before Covid 19, lot of questions were being raised on NHAI financial health as well as performance. So much so newspapers reported that NHAI shall not take up construction projects in future. Further, newspapers reported:

“In this fiscal, the NHAI’s total capital expenditure will be about Rs 1.4 lakh crore against a budgetary allocation of Rs 36,691 crore. The central government’s main highway building authority has been forced to increasingly rely on market borrowings — up to Rs 61,217 crore in 2018-19 from Rs 3,343 crore in 2014-15, an increase of nearly 1800 per cent.....essentially a debt trap.” 

“773 National Highways spanning a length of 28432 km are facing time overruns worth as much as Rs.2.71 lakh crore. Projects have run into delays because of reasons including holdup in land acquisition, inability to procure environmental clearances and dispute with contractors, poor performance, non-availability of soil/aggregate, railway approval for RoB’s etc.” 

It is also a fact that Private investment in highways sector had slowed down and NHAI has not been able to get the returns it expected from auctioning its completed projects to private players for operation and maintenance.

It is also expected that with freight corridor nearing completion, it will also result in road traffic diversion. 

I think Covid 19 has only added-on to the challenges to the sector:

1.   Labour migration has much impact on existing projects leading to time/ cost overruns.

2.    Huge claims because of force majeure conditions

3.    Land acquisition hurdles may increase as thousands of migrants have realized that in the time of difficulty only savior is their village/land and not the govt. and not the business owners.

4.    Many mid & small firms will disappear because of their fixed cost burden

5.    It will be difficult to enthuse private sector investment because with negative economic growth traffic growth/revenue will not give confidence.

However, despite these challenges there is a silver lining as far as highway financing is concerned. It is expected that PMO will lift embargo on borrowing more so because highway construction is quickest way to give impetus to economy. Highway industry directly impacts cement, steel, mining, tyre, manufacturing, bitumen, oil etc. industry and above all job creation across the strata. And with repo rates in the pits borrowing cost also will be anyway low.

The big announcement is that Govt. is committed to constructing 34980 Km of National Highways in the next five years under Bharatmala Phase I program. 

As Prime Minister said this is also an opportunity and effective steps need to be taken to bring change: 

  • Set realistic target of implementation because to meet unrealistic targets half-baked projects are brought to tender which trigger another vicious cycle of delays. Also resulting in poor quality 
  • Develop a GIS based National road development Master Plan for next ten years in consultation with States. It will avoid development of competing roads as well save on resources during project development phase 
  • Have a fixed tenure of NHAI Chairman instead of frequent changes as it will help a person to own and carry out a vision 
  • Develop a comprehensive turnaround program for all the troubled concessions include their termination if need be & a financial strategy 
  • Approx. 85000cr is held up in arbitrations and NHAI should check their past track record of winning arbitration cases. It will be prudent to release certain percentage of money pending arbitration outcome 
  • Land acquisition cost has gone up from 0.8 cr/hectare in 2013 to 3.5cr/hectare in 2018 (ICRA). Land cost makes approx.. 30-35% of project cost. And then land acquisition remains the singular biggest reason for project delays. Alignment planning is critical to cut land acquisition and balancing between acquisition cost & overall benefit. Option of land bank cooperatives should also be tried which will reduce the upfront cost and can give long-term benefit to landowners beside making them true stakeholder 
  • Generally, govts. had focused on new construction as it gives more visibility of doing something. Considering the economic situation, a greater emphasis is required in maintenance of existing assets. Use technology like drones, PMS etc. to map all the assets and close monitoring on spend on maintenance linked to outcomes 
  • As per Mckinsey report productivity in construction sector is lowest. I believe construction firms should adopt new technologies and lean construction methodology to cut down waste. It will help them in realizing more benefit for per rupee spend 

I am sure there are many more ideas & thoughts which can be provided by experts across and need of the hour is to bring them on a platform and as mentioned earlier develop a road map with clear stage gates 

As far as Egis is concerned, Covid 19 has also affected our ongoing projects. But thanks to our project teams/contractors & client who given the first opportunity on 21st April re-started construction sites. Challenges are there with the constant fear of pandemic but these Corona warriors fight on in building the Nation!!

 

Sources:

 https://theprint.in/india/nhai-faces-debt-trap-as-borrowings-grow-1800-since-2014-15-but-construction-fails-target/354906/

 https://www.hindustantimes.com/india-news/highway-projects-worth-rs-2-71-lakh-crore-hit-by-delays/story-aWZ1x5ATkBFYVdNaCEJWrN.html