Kamal Nath on building roads

“Once you have 30 pc growth in auto sector, you either build roads or you build garages”


Sweta Ranjan | September 20, 2010

Kamal Nath
Kamal Nath

If infrastructure is the edifice on which India's dream double-digit GDP growth rests, roads are its backbone. Surface transport and highways minister Kamal Nath is leading the mammoth exercise of strengthening that backbone with his own dream within a dream: to build 20 km of roads every day. In this exclusive interview with Sweta Ranjan, the no-nonsense minister takes on questions about his plans and the problems. Edited excerpts:

You have been aiming to build 20 km of road length every day but the target is still far away. What are the hurdles?
That’s not correct at all. During this year itself we will  achieve the 20-km/day target. There have been hurdles, huge issues; you can’t build a road simply by deciding to build a road. You got to have a project report, got to bid it out, you need to have technical consultants, you need to design the roads... all these have been put in place. I believe from about November we will be building 20 km/day. 

Is your ministry facing challenges in terms of land acquisition and environment clearances?
There were a couple of hurdles or irritants plaguing the sector when I took over at this ministry. The first task I took up was to hear from various stakeholders about their problems­—why the award process was so slow, why companies were not coming forward despite such great opportunities in the sector.
I was able to fathom their problems which mainly related to the standard bid documents and the Model Concession Agreement. With the government’s approval of the B K Chaturvedi Committee recommendations that problem has been addressed. The other problem is the poor quality of the feasibility reports and DPR (Detailed Project Report). We are taking steps to make them accurate.
Another challenge is to find skilled manpower for the enormous work in progress—we are managing 20,000 km of works now to be able to fulfil our target of 7,000 km of roads per year. Though land acquisition is not a contentious issue as far as road construction is concerned, delay in acquiring land can result in time and cost overruns. We have tried to address this problem by mandating that 80 percent of the land has to be acquired before bidding out the project and balance before achieving financial closure. Special land acquisition units have been set up by NHAI (National Highway Authority of India).
You have to acknowledge that we are making up for the tardiness of the past. We have to do a lot to bridge the infrastructure deficit.

Has progress not been too slow?
No, we are now doing close to 12-13 km of roads per day. Roads are built on the ground, they are not built on statements.

The 20 km target led to a war of words with planning commission deputy chairman Montek Singh Ahluwalia...
I had just said building a road is very different from producing a book. I have had no problems with Montek. I said so in my speech that day. I started by saying that we have got full support from Montek Singh, planning commission member B K Chaturvedi and member secretary Sudha Pillai. But we must recognise that one size never fits all. A road in Kerala is very different from a road in Rajasthan or Madhya Pradesh.  I have said repeatedly that Montek and I are on the same plane and there are no issues between us.

Why is the panel critical of the target?
You should ask the planning commission. They have not said no but if they have problems let them go and deal with it. The planning commission has not told me they have problems with that. The prime minister said in his Independence day speech last year (that we would build 20 km a day). The finance minister has also spoken about 20 km a day in his budget speech.
I have said repeatedly that our target is constructing 7,000 km of roads per year and we are very much on track. For achieving such a target, a lot of ground work has to be done, the required number of works have to be sanctioned. We have done that now. The total work in progress now stands at 12,348 km. Of this 4,870 km are of previous year’s, while 7,478 km have been added in 2009-10. During 2010-11 we are targeting to award another 12,000 km. So, by next year, we will have work in progress for more than 24,000 km.
As far as the planning commission is concerned they have come out with some monitorable targets for this year which are way less than what we intend to achieve. They use historical data and must have accordingly worked out the figures. We as the implementing agency have fixed our targets and are on way to achieving them.

I am referring to plan panel advisor Gajendra Haldea’s report.
Gajendra Haldea is not the planning commission. Because even the deputy chairman has written to me that this is not (the view of) the planning commission. That’s the end of the matter.

Is it true that the banks are clearing loans to the private bidders way above the project cost?
Yes, in comparison to the total project cost assessed by NHAI consultants and approved by the PPPAC (Public Private Partnership Approval Committee), the actual total project costs assessed by the bankers have been found to be in high in many cases. The banks are doing their own evaluation and we should let them do their own due diligence.

In some cases banks are giving up to 80 percent more in loans to the concessionaire than the total project cost (TPC) itself (see explanation below).
If they are evaluating it... the banks have to look at it from their own risk management, do their own due diligence.

How come they are dishing out such higher-than-TPC loans without collateral or guarantees?
What a strange question! You should ask the banks.

Aren't you worried this could create huge problems in future—on the lines of the sub-prime crisis in the US?
Why will it create problems?

Then the NHAI  has been asked to give the concessionaire a viability gap funding (VGF) at 40 percent.
Good if TPC is low. We are not giving VGF on what the bank assesses.

But you are giving 40 percent though the cabinet had fixed the figure at 20 percent (see explanation below).
You have not done any homework, so you don’t know.

This is what Haldea’s paper says.

Forget Haldea. The fact of the matter is this. First have a look at the paper. We are not even commenting on this as this is not a planning commission paper. You can produce a paper tomorrow. If the banks are doing this, ask the banks.

Why did you increase the VGF from 20 percent to 40 percent?
See, you have not done your homework. Forget it, you are wasting time. There is a laid-down norm where it can be 40 percent, where it can be 20 percent. It’s approved by the cabinet. How can you have a VGF which is higher or lower? It’s approved by the Chaturvedi committee report. Read the Chaturvedi committee report.

I am quoting from Haldea’s paper.
You are wasting my time. Go and read the Chaturvedi committee report.

The concessionaire not only gets easy funding, they can even exit from the project in two years’ time. Will you please explain this?
Go and read the Chaturvedi committee report. Chaturvedi is the member infrastructure. If you want to talk to me on Haldea... please don’t talk to me. The PM appointed B K Chaturvedi, so read the Chaturvedi committee report. Now you will say I don’t agree with Mr Chaturvedi. Keep saying it.

Don't you consider Haldea’s paper as valid?
I have not read it. Montek Singh Ahluwalia has written to me saying this is not a planning commission paper.

So you have not taken cognizance of Haldea’s report.
It’s not about me taking cognizance. NHAI will look at it.

Now, to turn to another controversy, the environment and forests ministry has expressed its reservations in clearing certain highway projects.
This is not a such a big problem. Only 90 km of roads are held up because of a national park or sanctuary or forest issues. These things continue. There is a process issue. I was environment minister myself when we put this regulatory process into place. So I’m fully aware what the regulatory process is.

But matters must have gone beyond the routine process because you had to seek the prime minister's intervention.
No, I sought it on a general environmental issue when the matter came up in the cabinet. If there is already a two-lane road and you are making it four-lane, it’s already there; traffic is already running on it. Now if you make the Mumbai-Pune road from four-lane to six-lane or six-lane to eight-lane, it makes no sense to have an environment clearance. Once you have a 30 percent growth in the auto sector, either you build roads or you build garages.

Then there's the issue of land acquisition. Is it true that you have abandoned projects for which the respective states are not cooperating by way of acquiring land?
What I said is that if states don’t want a road let them not have it. Finally the roads are in states. So if a state doesn’t want a road I will build it in another state. So in the end the state doesn’t get a road. It’s as simple as that. NHAI has established regional offices and zonal offices to liaison with state governments on pre-construction issues.

Is it true that some states like Uttar Pradesh, Gujarat, Tamil Nadu, Delhi and Jammu and Kashmir are reluctant to sign the state support agreement (SSA), which is an umbrella agreement with the centre to support all National Highway projects?
For any road there has to be a state support agreement. States are signing it. Until now there has not been any road for which a state support agreement does not exist. Some states have signed the SSA in general, some states sign it on the basis of every project.

You have proposed to split the NHAI and create a separate Expressways Authority. What is the rationale for this and when will it happen?
To resolve the problem of capacity constraints, we are planning to set up an Expressways Authority of India (EAI) to implement the master plan for development of 18,637 km of expressways  by 2022, i.e. by the end of 13th five-year plan. This is intended to create additional road capacity by segregating traffic so that the high volume heavy commercial vehicles and the fast car traffic destined for long distances, could ply safe and fast. The expressway will ease out traffic congestion and provide quick, fast and cheaper transport.
Discussions are on with various government agencies and stakeholders. I hope we will have more clarity on this in next three months.

Your dream of setting up a Road Finance Transportation reportedly faced opposition from some quarters. 
Currently 85 percent of the finance in the roads sector is being provided by public sector commercial banks. Having another organisation doing the same financial intermediation for the same target audience was not found to do any value addition.

You have been campaigning hard to get foreign investments in the roads sector. How has the response been?
While the domestic sector is mostly well informed, there is still a certain element of doubt and wariness (among foreign investors) regarding the investment climate in India. Our efforts right now are focused on ensuring that the positive policy initiatives in attracting FDI (foreign direct investment) to India and in the road sector are made known to foreign investors. We also felt it necessary to convince such investors that notwithstanding the structural challenges India posed, the profit pool remained large and attractive with potential for players to enlarge exposures.
Investment benefits flowing as a result of these have a longer gestation period. Outlining and quantifying benefits…within this limited time zone would be a bit premature. We have definite information that large inflows continue to come from overseas sources, and large mega projects have elicited encouraging response from many major players abroad. Requests for pre-qualification are at all-time highs and project bids have attracted encouraging response.
Given the fact that much interest is being shown by PE (private equity) investors in Indian companies developing road projects and the overall interest shown by overseas investors, our efforts in this direction have been fairly fruitful. For example, the formation of BIRG; Tata, Actis, Atlantia (Italian tolling company) to invest $2 billion in the next five years. Many Canadian pension funds have shown interest. Australian funds are also setting aside funds for the roads sector in India.

* * *

Understanding the debate: Why Kamal Nath is furious

Mention Planning Commission advisor Gajendra Haldea’s discussion paper and Kamal Nath gets suddenly furious. The reason: the paper, entitled ‘Sub-prime Highways’, criticises the cavalier way highway works are being financed. The paper warns: “The issue is that the principles and practices of good governance cannot solely rely on good behaviour of the private sector and must identify and eliminate potential risks to public interest. Due diligence and caution can hardly be overemphasised when dealing with public funds.” (For more on that report, see the cover story, ‘NHAI going for broke’, Governance Now, August 1-15.)

Why higher-than-TPC loans are worrying
Banks have been allowed to lend far in excess of the total project cost (TPC) arrived at by the NHAI. This inflated lending means,
according to the Haldea paper, that the private player “may not
only spend beyond reasonable costs but also siphon out funds
at public expense.”

Why VGF at 40 percent is questioned
The Model Concession Agreement (MCA) specifies the viability gap funding (VGF) at 20 percent of the total project cost (TPC), but the committee on NHDP doubled it to 40 percent. This can allow the concessionaire to transfer most of its financial risk to the public.



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