Under Kamal Nath, the highway builder was giving funding to concessionaires
Prasanna Mohanty | November 14, 2011
Less than a year after taking charge of the road transport and highways ministry, CP Joshi has changed the fortunes of the national highway authority of India (NHAI). Instead of extending financial support to the concessionaires to build roads by way of viability gap funding (VGF), NHAI is now raking in money by way of premium from the concessionaires.
A little over a year ago, Gajendra Haldea, advisor to the deputy chairman of the planning commission, had circulated an “issue paper” painting a grim picture of NHAI’s financial condition. It had warned of an impending sub-prime-like crisis built up by unreasonable concessions and financial supports to the concessionaires which not only increased NHAI’s liabilities but also exposed our exchequer and public sector banks to great risk. It had estimated that the NHAI would need an additional borrowing of Rs 30,000 crore to repay its existing debts piled up because of these concessions and had warned that it may not be possible to take up anymore road projects after April 2011.
The gloom has lifted. The NHAI is coasting along fine now with the concessionaires not only refusing financial assistance but promising to give huge premium to NHAI for being allowed to build roads.
A key financial assistance granted by NHAI was by way of VGF. Under this policy, the concessionaire was given up to 40 percent of the total project cost as an incentive. This put unnecessary financial burden on NHAI. The policy exists but Joshi has changed the game by making the bidding process completely open and transparent. He introduced e-tendering in March this year and now, instead of just three to four bidders, NHAI is attracting more than 25 bidders.
More competition has brought a welcome change. Joshi told Governance Now that the bidders are now not seeking financial assistance from the government but offering a part of their future earning from the toll tax. The first such contract was awarded on April 27 in which Keti Constructions Limited, which won the bid to lay Kota Jalawar road offered Rs 3.5 crore of premium every year for the next 25 years, with a provision for 5 percent annual hike.
In another instance, GMR has offered Rs 636 crore of premium a year for the next 25 years for taking up Kishangarh-Udaipur-Ahmadabad stretch of national highway.
In all, NHAI has signed 13 such projects until now, which entails more than Rs 1,600 crore of annual premium for the next 25 years. The premium will be increased by five percent annually in all the cases.
Joshi attributed this dramatic turnaround to throwing the bidding open to all and making the process transparent, something that his predecessor Kamal Nath never allowed.
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