State of the Industry June 2009

Sections

1.0 Roads network in India B-1

- Extensive road network B-1
- Roads account for 62 per cent of total freight traffic B-1
- Higher passenger traffic on roads than railways B-2
- Upgradation of highways from double lane to four lanes B-3
2.0 Legal, institutional and policy framework B-5
- Institutional framework B-5
- Policy framework B-6
- Key parameters of New Model Concession agreement (2006) and Bidding
process B-6
- Concession structure - NHAI projects B-6
- Recent changes in the policy framework B-9
- Proposed changes in the policy framework B-10
- Fiscal incentive for road developers B-10
- Legal framework B-11
- Ownership B-12
3.0 Road Construction Activity B-13
- Type of roads B-13
- Construction equipments used in roads B-15
4.0 National Highways B-17
- National Highway Development Programme (NHDP) B-17
- Major chunk under balance for award B-18
- Phase I Largely completed B-19
- Phase II- Still some way to go for completion B-19
- Phase III- Future action phase B-19
- Phase IV- To be implemented by MORTH & not NHAI B-20
- PHASE V- 87per cent from GQ and other stretches B-20
- Phase VI- No action on ground B-20
- Phase VII- Total length not yet identified B-20
5.0 Rural roads B-21
- Pradhan Mantri Gram Sadak Yojana (PMGSY) B-21

Continued

CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW B-i

continued

Charts

2.0 Legal, institutional and policy framework

01 Road sector - Institutional arrangement at the Central and state level B-5

3.0 Road Construction Activity

01 Road Construction Activity B-14

Figures

1.0 Roads Network in India

01 Freight traffic across mode of transport B-2
02 Passenger traffic Roads vs railways B-2

4.0 National Highways

01 Trend in national highway network B-17

Tables

1.0 Roads Network in India

01 Road network in India as in 2007-08 B-1
02 Pecentage of National Higway in terms of width B-3

2.0 Legal, institutional and policy framework

01 Comparison of tolling policies B-9

4.0 National Highways

01 Description of NHDP phases B-18
02 NHDP Current status as on March 31, 2009 B-18

5.0 Rural roads

01 Progress on PMGSY as on April 2009 B-21

B-ii CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW

 1.0 Roads network in India

Extensive road network

India has the second largest road network in the world, aggregating 3.3 million kilometres. Roads form the most
common mode of transportation and account for about 86 per cent of passenger traffic and 62 per cent of freight,
making it the main artery for commuting across the country.

In India, national highways, with a length of close to 67,000 km, constitute a mere 2 per cent of the road network
but carry about 40 per cent of the total road traffic. On the other hand, state roads and major district roads the
secondary system of road, carry another 40 per cent of traffic and account for 18 per cent of road length.

In the decreasing order of the volume of traffic movement, road network in India can be divided in the following
categories:

Table 1: Road network in India as in 2007-08

Road network Length Percentage of total Length Coordinating Connectivity to
(km) Length Traffic (Laned km) agency
National highway 66,754 2.0 40.0 115,192 MoST, BRO Union capital, state capitals, major
ports, foreign highways
State highway 128,000 3.9 175,032 State PWDs Major centres within the states,
national highways
40.0
Major district roads 470,000 14.2 381,523 State PWDs
Main roads, rural roads
Rural and other roads 2,650,000 79.9 20.0 MoRD Production centres, markets,
highways, railway stations etc
- Project roads - - - State PWDs Projects like irrigation, power, mines,
etc
- Urban roads - - - Municipal corporations Intra-city networking
- Village roads - - - Zilla parishads Village to nearby markets
Total 3,314,754 100.0 100.0
Source: MORTH, NHAI, CRISIL Research

We have arrived at the figures of laned network based on laning of different types of road network, number of
lanes on each road network, which is normalised to 3.75 m per lane for national highways and state highways.

The laned network, which considers the upgradation in terms of increase in number of lanes in the national
highways, state highways and major district roads further bifurcates the road network.

Roads account for 62 per cent of total freight traffic

Road transport is considered to be the most frequently used mode of transport for both freight and passengers. It is
estimated that 62 per cent of the total freight and 86 per cent of the total passenger traffic is carried by roads.

In 1999, roads accounted for 54 per cent of the total freight traffic, which increased to 62 per cent in 2008.
Comparatively, railways contributed 36 per cent in 1999 to the total freight transport and declined to 29 per cent
in 2008-09.

CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW B-1

Figure 1: Freight traffic across mode of transport

Year 2000 (848 btkm) Year 2009 (1,845 btkm)

(per cent) (per cent)

Pipeline Coastal Coastal

4 Pipeline
6 5
4

Road
Rail
54
36 Road
Rail
62
29

Note
For details, kindly refer to CRISIL Researchs report, Domestic Freight Transportation Service
Source: CRISIL Research

Higher passenger traffic on roads than railways

Figure 2: Passenger traffic Roads vs railways

(per cent)
100
82
85 87
80 72 72
64

60
51
40 49

29 36
20 28 28
18 13

0
1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2004-05(P)

Road Passengers Railway Passengers

Source: Working Group Report on Road Transport for the Eleventh Five-Year Plan

Since 1950-51, the passenger traffic for railways has come down from 85 per cent to 13 per cent while passenger
traffic for roads has consistently grown from 30 per cent in 1950 -51 to 87 per cent in 2004-05.

Preference for road transport for freight movement is primarily on account of large capacity expansions carried
out by fleet operators, flexibility and door-to-door movement. In addition, roads act as a primary means for last
mile travel. Further, there are many players in road transport while Indian Railways is the only player in railways.

B-2 CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW

Upgradation of highways from double lane to four lanes

Table 2: Pecentage of National Higway in terms of width

Width of National Highways National Highways
carriageway Length (2004-05) Length (2007-08)
(km) (per cent) (km) (per cent)
Four-lane 5,901 9.0 9,325 14.0
Two-lane 36,719 56.0 39,079 58.5
One-lane 22,949 35.0 18,350 27.5
Total 65,569 100.0 66,754 100.0
Source: MORTH

There has been an upgradation in terms of lanes in national highways, which has gone from being single lane and
double lane to four lanes. Single lane roads have decreased from 35 per cent in 2004-05 to 28 per cent in 2007 -
08. Double lane roads have increased from 56 per cent in 2004-05 to 59 per cent in 2007- 08, while four lane
roads have increased from 9 per cent to 14 per cent in the same period.

CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW B-3

This page is intentionally left blank
 2.0 Legal, institutional and policy framework

Institutional framework
At the Central government level, several line ministries handle transport planning, coordination and policy setting,
with overall coordination by the Planning Commission.

Chart 1: Road sector - Institutional arrangement at the Central and state level
Planning Commission
Planning Commission
(Overall
(Overall policy
policy framework,
framework, overall
overall integration, approval plans)
integration, approval plans)

MORTH MORD
(Release and allocation of funds for development (Release and allocation of funds for development
and maintenance of national highways) and maintenance of rural roads)

Road dept
Road dept

NHAI
NHAI
(NHDP
(NH implementation,
& NHDP operations
implementation, andand
operations Central level
maintenance)
maintenance)

(Planning, policy
(Planning, policy and
and budgeting)
budgeting) Secretary
(Panchayat Ra j)

State PWD
State PWD for roads
for roads
StatePWDs
State PWDs for
for Roads-SH
Roads-NH wing
w ing (Construction
(Construction and
and maintenance of
maintenance of Panchayat Raj engineering dept
(Construction and
(Construction and maintenance
maintenance state
MDRsroads and
and rural
rural roads
roads (For construction and
of SH)
of NH) [for states] ))
some states]
[for some maintenance
of rural roads in some states )

Road Development Corpn

(Construction, maintenance and operation of roads ) State level

Source: CRISIL Research

In June 2009, the erstwhile Ministry Of Shipping, Road Transport and Highways (MoSRTH) has been segregated
in to two ministries, Ministry of Road Transport and Highway (MoRTH) and Ministry of Shipping and Ports
(MOSP).

At the Central level, the Planning Commission in consultation with the Ministry of Road Transport and Highways
(MoRTH) and the Ministry of Rural Development (MoRD) prepares the overall policy, programme development
and resource planning. MoRTH's duties relate to the development and maintenance of national highways and
policies on road transport.

CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW B-5

National Highway Authority of India (NHAI) is the implementing agency for implementation, operation and
maintenance of national highways. NHAI was constituted and operationalised in February 1995; it was given the
status of an autonomous corporate body under the control of the Ministry of Road Transport and Highway
(MoRTH). However, the Central government, in view of national interests, has powers to divest NHAI of its
responsibilities.

At the state level, the overall policy, programme development and resource planning is done by the State planning
cell in consultation with the Central level planning commission and the state ministry of roads.

State Public Works Department (PWDs) and Road development corporations are implementing agencies at the
state level implementing, operating and maintaining the State Highways, Major district roads and rural roads in
few states.

The Ministry of Rural Development (MoRD) is responsible for policy development as well as monitoring and
coordination of rural roads.

Apart from the state PWDs, the Panchayati Raj also implements the construction and maintenance of rural roads.

The ministries allocate and release funds, for the development of roads, to the respective implementing agencies.

(For details of the institutional arrangement, please refer to chart 1 in this chapter.)

Policy framework
Central government policy
Key policy measures for private participation
In order to encourage and facilitate private sector investment and participation in the roads sector, the Central
government has undertaken certain policy measures and provided certain fiscal incentives within the sector:

100 per cent foreign direct equity investment (FDI) will be allowed in road sector projects.
Dispute resolution will be in line with the Arbitration and Conciliation Act 1996, based on United Nations
Commission on International Trade Law (UNCITRAL) provisions.

Key parameters of New Model Concession agreement (2006) and Bidding process
Concession structure - NHAI projects
New Model Concession Agreement (MCA) for Built Operate and Transfer (BOT) toll-based projects has been
prepared. The MCAs identify risks and specify the terms and conditions for risk sharing between the private
player and the government.

Bidding variable to be the grant expected from NHAI

The selection of the concessionaire, under the new Model Concession Agreement (MCA), is based on open
competitive bidding. All project parameters such as the concession period, toll rates, price indexation and
technical parameters are clearly stated upfront. Pre-qualified bidders are required to specify only the amount of
grant sought by them. The bidder who seeks the lowest grant wins the contract. In some cases, instead of seeking

B-6 CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW

a grant, a bidder may offer to share project revenues with the NHAI. In that case, the bidder offering the highest
revenue share wins the contract.

Grant
The maximum grant provided will be 20 per cent of the project cost. In case the grant is inadequate for making a
project commercially viable, an additional grant up to a maximum of 20 per cent of the project cost can be given
for O&M support after the highway has been commissioned.

Concession period
The concession period is generally expected to be 20 years, but may vary depending on the volume of existing and
projected traffic for specific projects.

Partial traffic risk mitigation provisions and termination clause introduced

The provisions provide for an increase in the concession period by 1.5 per cent (subject to a maximum of 20
per cent) for every 1 per cent of shortfall in traffic. Provisions also provide for a reduction in concession
period by 0.75 per cent (subject to a maximum of 10 per cent) for every 1 per cent excess of actual traffic over
the target traffic.
If the average daily traffic of passenger car units (PCUs) continues to exceed the designed traffic for a
particular highway for three years then the contract would be terminated.

Concession period linked to six laning of the stretch

If the concessionaire agrees to a six-lane stretch (after a period of 8 years from the appointed date), then the
concession period will be available for a period of 20 years; else the concession period shall be granted only
for a period of 12 years.

Construction period
The time required for construction (typically 24-30 months) is included in the concession period. A concessionaire
starts earning revenues from the completion date, and this gives the concessionaire an incentive for early
completion of construction.

Focus on output parameters

Technical parameters are the MCA focus on output, rather than on construction-related specifications. Given that
only the core requirements of design, construction, operation and maintenance of the highway are specified, the
concessionaire has the requisite flexibility to evolve and adopt cost-effective designs without compromising on
the quality of service.

Concession fee
The concession fee is fixed on an ascending revenue sharing basis, in line with the cash flow pattern of the project
where debt service obligations entail substantial outflows in the initial years. The MCA provides for concession
fee of Re 1 pa for the first 9 years and 1 per cent of projected revenues from the 10th year onwards. Subsequently,
in each year, it will increase by an additional 1 per cent.

CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW B-7

Financial closure
A time limit of 180 days is set for achieving financial closure by the concessionaire. In the event of failure, the bid
security is forfeited.

Toll revision
The revision in toll rates was fixed at 40 per cent of change in WPI.

Obligations of NHAI
The obligations of NHAI are as follows: (i) to acquire and hand over possession of at least 80 per cent of the land
required for the project to the concessionaire before financial closure is achieved (ii) obtain all environmental
clearances for the project before financial closure is achieved (iii) NHAI will ensure that no competing road is
constructed where NHDP is being implemented.

NHAI will have to compensate the concessionaire if this is breached.

Substitution
MCA provides for the concession to be transferred to another company in the event of failure of the
concessionaire to operate the project successfully.

Termination
In the event of termination, the MCA provides for a compulsory buyout by the NHAI

Short listing and ranking in Request for Qualification (RFQ) stage

Based on the technical and financial capacity of the applicant, top five to six bidders were short-listed and
qualified for the Request for Proposal stage (RFP) for submitting the financial bids.

Cap on number bids submitted in RFQ and RFP stage

If a company has been pre qualified and short-listed for 12 projects or more, within a timeframe of 2 months
before the bid due date, then such a company will not be eligible to bid for another project
If company has been selected for four projects or more during the same period or is unable to achieve
financial closure for two or more projects, such a company will not be eligible for bidding

B-8 CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW

Recent changes in the policy framework
Toll charges and revision in toll rates
New Tolling Policy (2008)
Toll charges are based on the rates notified by the government. The new tolling policy came into force in
December 2008 with effect from April 1, 2008. The key changes in the new tolling policy are as follows:

Table 1: Comparison of tolling policies

Parameters New Tolling Policy(2008)
with effect from April 1, 2008
Categorisation of vehicles 5 types
Increase in base rate Rs per Km
- car/jeep/vans 0.65
-LCV 1.05
- truck/bus 2.20
- MAV 3.45
-Oversized vehicles 4.20
Methodology for revision in toll rates Fixed 3 per cent + 40 per cent of
change in WPI

Tolling rates for two laned national highway 60 per cent of toll
rates of 4 laned NH
Tolling of Permanent bridges, If Cost >Rs 0.5 bn then tolled
bypass or tunnel separately
Source: MORTH, CRISIL Research

Most significant change is the methodology for revision of toll rates

The most significant change in the new toll policy applicable for future bidding of contracts has been the change
in methodology for revision of toll rates. The toll rate revision has been fixed at 3 per cent plus 40 per cent of
change in WPI.

Other key changes in the new tolling policy include the following:

Uniform rates for public and private funded projects

Categorisation of vehicles in five different types
Change in base rates for four or more laned NH
Introduction of toll rates for two-laned NH
A permanent bridge, bypass or tunnel will be tolled separately and excluded from length of NH if the cost is
Rs 0.5 billion or more

Removal of ranking and short listing of bidders for future road projects
As per the Delhi High Court judgment, the ranking and short listing of top five to six bidders in the RFQ stage has
been removed for future road projects. Consequently, the cap on bids to be submitted in RFP has also been
removed.

CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW B-9

Proposed changes in the policy framework
Removal of ranking and short listing of bidders for road projects, which are up for re-bidding out of
the 60 projects bidded out in 2008
Developers and National Highway Builders federation (NHBF) have proposed the removal of ranking and
short listing top five to six bidders in RFQ stage for the balance road projects, which are up for re-bidding.
Reduction in design period
As per the recent press articles, NHAI/MORTH is considering of reducing the design period from 20 years to
less than 10 years to make the road projects attractive for private players. On account of which, the
concessionaire will have to estimate traffic volumes for lesser period and accordingly bear the risk
Land acquisition
As per the recent press articles, NHAI is obligated to acquire and hand over possession of land required for
the project to the concessionaire till the letter of award (LOA) has been issued and remaining 20 per cent will
have to be handed over with in 90 days of project award.
Contracts to be awarded based on traffic volumes
It has been proposed that the Authority should decide at the planning stage whether a particular highway is to
be awarded on BOT- Toll, BOT- Annuity or cash contract based on the traffic assessment.

Fiscal incentive for road developers

Under section 80 IA of the Income Tax Act, profits and gains derived by an undertaking are subject to a 100
per cent deduction for 10 consecutive assessment years out of the 20 years beginning from the year in which
the undertaking begins to operate the business provided such profits and gains are derived from the business
of 1) Developing, 2) Operating and maintaining or 3) Developing, operating and maintaining a road
including, toll road, a bridge; a highway project including housing or other activities being an integral part of
the highway project
Deduction up to 40 per cent of the income from financing of the infrastructure projects is available provided
the amount is kept in a special reserve
Subscription to equity shares or debentures issued by public company wholly and exclusively for the purpose
of the developing, maintaining and operating an infrastructure facility is eligible for deduction equal to 20 per
cent of the amount subscribed
On certain identified high quality construction plants and equipments, import duty has been completely
exempted for public funded needs.
Import of bitumen is now permitted under Open General Licence
External commercial borrowings are permitted up to 35 per cent of the project cost.

Funding for NHAI

In addition, as NHDP is implemented by NHAI, it is also entitled to
Capital gains tax exemption for NHAI bonds under IT Act, Section 54 EC are allowed to raise funds at
alternative rate.
Funds allocated from the Central Road Fund (from cess collection on petrol and diesel) are provided to
NHAI.

B-10 CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW

State Government Policy
States like Maharashtra, Madhya Pradesh, Gujarat etc have set up State Road Development Corporations (SRDCs)
for the development and implementation of projects. In order to encourage private sector participation states like
Maharashtra, Rajasthan, Bihar, Punjab, Harayana follow their own Model Concession Agreement (MCA).

Legal framework
Central level initiatives
Administration of roads is a concurrent subject, with the jurisdiction of the Central government limited to national
highways, and the jurisdiction of the state government limited to state highways, MDRs, village and other roads.
Following are some of the legislations governing the road sector:

The Indian Tolls Act, 1851

This Act enables the government to levy tolls on public roads and bridges within certain rates. Certain states have
modified this act to enable toll collection by private investors in road projects.

The Land Acquisition Act, 1894

The Act empowers the Central or the state government and its agencies, to acquire land required for the
construction of highways, by paying compensation.

Dispute Settlement Act, 1940

Any dispute between the government and a domestic enterprise has to be settled through arbitration as per the Act.
A dispute between the government and a foreign enterprise has to be settled either in accordance with the Dispute
Settlement Act, 1940, or in accordance with the provisions of the United Nations Commission on International
Trade Laws (UNCITRAL).

National Highway Act, 1956

Legislations about national highways are as per the National Highway Act (NHA), 1956. The NHA authorises the
Central government to notify any highway as a national highway, and also assigns it the responsibility of
developing and maintaining the national highways. The National Highway Act also provides for the de-
notification of a national highway. The portion of a national highway falling within the municipal limits of a town
with a population of more than 20,000 is automatically de-notified. For all other roads, the planning and
coordinating agency is the state PWD, which acquires the land required for road construction under the Land
Acquisition Act, 1894.

The Motor Vehicle Act, 1988

It is a Central legislation that consolidates and rationalises the various laws regulating road transport in the
country. The levy of road usage charges on the vehicles is governed by either the respective motor vehicle tax acts
or equivalent acts.

Some states like Maharashtra, Gujarat, Madhya Pradesh, Haryana, Uttar Pradesh, West Bengal, Rajasthan,
Karnataka, Andhra Pradesh and Tamil Nadu have amended the Motor Vehicles Act to provide a legal basis for
involving the private sector in the development of highways on BOT basis.

CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW B-11

The National Highway Authority of India Act, 1988
The National Highways Authority of India (NHAI) Act was passed in 1988. The Act provides for the constitution
of an authority for the development, maintenance and management of national highways in India. The Act
specifies that the principal function of the authority would be to develop, maintain and manage national highways
(or any other highway) entrusted to it by the Central government. The functional profile of NHAI, as envisaged in
the Act, includes:
Surveying, developing, maintaining and managing national highways and related facilities
Regulating and controlling the movement of vehicles on these highways
Collecting fees/charges on behalf of the Central government.

The 1995 amendment to the National Highways Act, 1956 permits:

Assignment of the responsibility to the private developer for the implementation and operation of projects for
a specified period through a concession agreement.
Collection and retention of toll by the developer for the usage of the highway for meeting construction,
maintenance, management, operational expenses, interest on the borrowings raised, and a reasonable return
on investment.
Regulation and control of the traffic on the private sector (BOT) highways by private parties.
Punishment to any person encroaching and misusing the highway developed by private parties.

Central Road Fund Act, 2000

The Central Road Fund (CRF) was created based on the Central Road Fund Act promulgated in November 2000.
Revenues from the cess (at the rate of Re 2/litre) on petrol and diesel production and imports accrue to CRF (cess
on petrol has been in effect from June 1998 and on diesel from March 1999 which was revised in 2003-04 and
further in Union Budget 2005-06).The cess is routed through the Consolidated Fund of India to CRF. The fund is
non-lapsable (cannot be merged into the consolidated fund of the Central government).

State level initiatives

To stimulate private sector participation in roads project, several state government have taken favourable
initiatives on these lines like making appropriate amendments to the Motor Vehicles Tax Act (Gujarat,
Maharashtra, Rajasthan and Karnataka), the Indian Tolls Act (Madhya Pradesh and Andhra Pradesh) and enacting
infrastructure development acts (Andhra Pradesh and Gujarat).

Ownership
The government usually owns the roads; it also has the right to develop and maintain them. However, in case of
BOT projects, the right to develop, maintain, collection and retention of tolls (known as RoW-Right of Way) is
given to the concessionaire of the project. However, even in such cases the ownership of the roads is not
transferred to the concessionaire. These projects are transferred back to the government at the end of the pre-
determined concession period.

B-12 CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW

 3.0 Road Construction Activity

Type of roads
Roads can be classified as per the material used for construction:
Earth roads
Gravel or murum roads
Metalled roads (WBM)
Bituminous roads or black-top surfaces (BT)
Asphalt concrete roads (AC)
Cement concrete roads (CC)

Roads consist of one or more courses of coarse aggregates whose voids are partially filled with finer material,
usually gravel. Earth and gravel roads are of inferior type and are called unmetalled roads. They are suitable for
village roads, which carry light traffic. Gravel used for road surfacing should be well graded and should contain
sufficient amount of fines to give binding property. Metalled roads known as WBM roads are suitable for district
roads

Bituminous concrete is a paving mixture composed of coarse aggregate, fine aggregate and bitumen. Bituminous
materials are well suited for road construction because of their binding or cementing as well as water-proofing
properties.

Asphalt and cement are two binding agents. Hot-mix asphalt is mostly used for surfacing roads. Constructing
roads by this method involves applying a layer of the mixture on the foundation or the existing road surface and
compacting it to form a compact and tough surface. The black colour of asphalt lends its colour to the road
surface. A high proportion of the long-haul roads and most inter-city and urban roads are constructed using this
method.

The use of cement as a binder is also a popular method of road pavement, where the aggregate is bound together
using Portland cement, by preparing a water-based mixture and allowing it to set on the road surface. Concrete
pavements are costly in comparison to asphalt pavements, but last longer and have low maintenance requirements.
Most expressways are constructed using the cement concrete mix.

Bituminous roads and concrete roads are preferable for state and national highways, which carry heavy and fast
traffic. They are also known as modern, superior or high cost roads

Since the last few years, fly ash is also being used for road construction and embankment work. The erstwhile
Ministry of Road Transport and Highways (MoRTH) had directed all its agencies to use fly ash up to a specified
quantity for all road and embankment construction work within a radius of 100 km (earlier the limit was 50 km)
from the thermal plant.

CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW B-13

Internationally, new materials like polymer modified bitumen (PMB), rubberised bitumen (RB), and crumb rubber
bitumen (CRB) have been introduced in the road development activity. However, the usage of these materials has
still not caught up in India.

Introduction of new materials in road construction activity

The use of plastic-waste has been a concern for scientists and engineers for a long time. Recent studies in this
direction have shown some hope in terms of using plastic-waste in road construction i.e. plastic roads.

Plastic roads mainly use plastic carry bags, disposable cups and PET bottles that are collected from garbage
dumps as an important ingredient of the construction material. When mixed with hot bitumen, plastics melt to
form an oily coat over the aggregate and the mixture is laid on the road surface like a normal tar road. The use of
plastic in roads is just a recent phenomenon, which seems to have huge potential in the sector.

Most of the roads awarded by NHAI under NHDP comprise bitumen roads. The cost of construction of a
particular stretch would depend upon the terrain, topography, nature of the soil, structures like flyover, bridges,
bypasses, culverts involved in the project. However, on an average for a 4 lane road project, the cost of
construction per km has reduced from Rs 100 million - Rs 120 million in 2008 to Rs 750 million- Rs 800 million,
on account of decline in bitumen and steel prices coupled with restructuring of NHDP road projects.

Road construction activity involves the following process:

Chart 1: Road Construction Activity

Excavation and Filling work

Subgrade : native soil, portland

Compressing the sub grade cement and quicklime

Placing the base course on the Base course : gravel or crushed

sub grade stone (aggregates)

Placing the surface course on Surface course : asphalt concrete

top of base course or portland cement concrete

Source: CRISIL Research

Excavation and filling work

Overcoming geographic obstacles to create a continuous right-of-way, and having grades (slope or gradual
inclination) low enough to facilitate vehicle or foot travel.

B-14 CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW

After removing the geographic obstacles, the process of removing the earth and rock starts. This is usually carried
out by digging or blasting. This stage also involves construction of embankments, bridges, and tunnels and
removal of vegetation.

Subgrade
Once the above activities are completed, the native soil, known as the subgrade, is compacted. Weak soils may be
stabilised with additives such as portland cement and quicklime, or dug out and replaced with imported soils.

Base course
Then a base course consisting of gravel or crushed stone (aggregates) is usually placed on the subgrade and
compacted.

Surface course
After constructing the granular sub-base, a surface course, consisting of asphalt concrete or portland cement
concrete, is placed on top of the base course. This surface course strengthens the pavement structure by spreading
out the vehicle loads applied to the subgrade.

Construction equipments used in roads

Roads sector is headed for a robust growth in the near future. This growth, in turn, is likely to cull out a strong
demand for road construction equipments.

Today, a contractor has the option of meeting his equipment requirements either by buying the equipments from
the equipment manufacturers or hiring the equipments on a lease or rental basis. The strong and continuous
growth in roads sector has allowed most of the bigger players to own substantial portion of their equipment
requirements. On the other hand, the smaller players, on account of lack of funds, often have to meet their
requirements by either buying second hand equipments from bigger players or by hiring the equipments on a
rental basis from equipment banks like Quipo, etc.

In this section, we have put together various types of road equipments, along with their main functions that are
currently being used in roads construction in India.

Crawlers Excavators and Tractors

These are mainly used in the process of earthmoving and excavation. An excavator is generally used for
digging of trenches, holes, foundations, sometimes for carrying out demolitions and other times for general
grading/landscaping. Excavators are usually employed together with loaders and bulldozers. Excavators
usually come in a variety of sizes to meet various requirements of the contractor. The crawler excavator and
tractors have common uses, however, excavators are generally put to use in difficult terrains where a lot of
earth-removing process is involved and tractors on the hand are more likely to be used in the plain terrain
regions. Major road construction equipment players in this segment are Larsen & Toubro (L&T) Komatsu and
Telco Construction Equipment Co Ltd.

Loaders
Loaders are used mainly for trenching, ditch cleaning, uploading materials into trucks, clearing rubble, and

CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW B-15

 digging. A loader (front loaders) though used for digging cannot replace the excavating machines as it cannot
dig very deep below the level of its wheels. Therefore, loaders are not classified as earthmoving machinery.
They can be easily transported from one place to another as they are tyre-mounted unlike the tracked
excavators, which have to be dissembled and reassembled again. There is one distinct variant of the loaders
family, called backhoe loader. Backhoe loaders can be used for activities like digging holes/excavating,
breaking asphalt, and paving roads, etc. Major road construction equipment players in this segment are JCB
India Ltd. and L&T Case Equipment Ltd.

Tippers/Dumpers
These are new generation trucks that carry materials, sand, aggregates, etc. and dump at the desired place.
Tippers and dumpers perform the same functions. Usually dumpers have a larger carrying capacity (35 50
tonnes) than tippers that carry weights between 5 to 10 tonnes. Major road construction equipment player in
this segment is Bharat Earth Mover Ltd.

Pavers
A paver is an engineering vehicle used to lay asphalt on roadways. A roller is then used to press the hot
asphalt mix, resulting in a smooth, even surface.

Road roller
These equipments are used to compact dirt, gravel, concrete, and asphalt in construction for roads and
foundations. Road rollers are also used in landfill compaction. There are two types of rollers static rollers and
tandem roller. Major road construction equipment player in this segment is L&T Case Equipment Ltd.

Motor Graders
Graders are commonly used in road construction to prepare the base course to create a wide flat surface for
the asphalt to be placed on.

Scrapers
The scraper pulls up roadway, crushes it and loads it into a heavy truck. Any other thing left behind by the
scraper is then taken away by means of front loader.

B-16 CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW

 4.0 National Highways

There has been considerable growth in the national highway (NH) network since independence. Major growth in
NH has taken place from 1992-2007. Almost 33,000 km of national highways have been added to the NH network
during the same period.

Figure 1: Trend in national highway network

Length (in kms)
80000

66590 66754

60000

40000 33689
28977
23769
21440
20000

0
1947 1962 1977 1992 2007 2008

Source: Eleventh Five-Year Plan, MORTH

National Highway Development Programme (NHDP)

The thrust on the countrys road network is manifested through the National Highway Development Programme
(NHDP). NHDP encompasses upgradation, rehabilitation, and broadening existing national highways to a higher
standard. The project is executed primarily by NHAI and in some instances by State Public Works Department
(PWD) and Border Roads Organisation (BRO).

NHAI manages the project under the aegis of Ministry of Road Transport and Highways. In next 5 years, close to
54 per cent of the total investment on national highways will be incurred on NHDP. Despite rising budgetary
deficits, and a change of government at the Centre, the NHDP has been accorded top priority and its scope has
been significantly expanded beyond the original scope of Golden Quadrilateral and North-South and East-West
corridors.

CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW B-17

Table 1: Description of NHDP phases
Phases Description Implementing
agencies
I Golden Quadrilateral Connecting Delhi-Kolkata NHAI
Chennai
Port Connectivity Connectivity for 10 major ports NHAI
Others - NHAI
II North South East West (NSEW) Shrinagar to Kanyakumari- NHAI
corridor (North South) and Silchar to
Porbander- (East-West)
III Phase Connecting state capitals and NHAI
places of ecomnomic and tourist
importance
IV Improve 2-lane standards with - MORTH
paved shoulders
V 6-laning of existing N.H. Phase involves 5,600 km stretch NHAI
under GQ

VI Expressways - NHAI
VII Ring roads - NHAI
Source: CRISIL Research

Major chunk under balance for award

NHAI initiated the NHDP in the form of Phase I& II, which involves widening of NH to four lanes in general and
to six or more lanes in exception.

Table 2: NHDP Current status as on March 31, 2009

Port
Unit GQ connectivity Others Phase I Phase II Phase III Phase V Total
Total length km 5,846 380 962 7,188 7,274# 12,109 6,500 33,071
Completed till date km 5,721 206 781 6,708 3,399 787 102 10,996
Completion rate as % of per cent 97.9 54.2 81.2 93.3 46.7 6.5 1.6 33.2
total
Under implementation (UI) km 125 168 161 454 3,032 1,878 928 6,292
UI as a % of total per cent 2.1 44.2 16.7 6.3 41.7 15.5 14.3 19.0
Balance length for award km 0 6 20 26 843* 9,444 5,470 15,783
(BFA)
BFA as a % of total per cent 0.0 1.6 2.1 0.4 11.6 78.0 84.2 47.7

Cost incurred so far Rs billion 287 72 359 288 84 13 744

#
Actual current length is 7,274 km (excluding 442 km of common length with GQ). The original approved length of NSEW
corridor is 7,300 km
* Includes 53 km terminated in 2008
Source: NHAI, CRISIL Research

Note: For the purpose of our analysis, we have considered entire length of NSEW Corridor in Phase II and entire
others National Highways (NH) in Phase I.

As can been seen from the table above, 33 per cent of the total road length under NHDP has achieved completion
(as on March 31, 2009). The focus of implementation has shifted to the Phase II (NSEW Corridor) and Phase III.

B-18 CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW

Of the total length of 33,071 km in NHDP, approximately, 6,300 km is under implementation and about 15,800
km is yet to be awarded, mainly from Phase III and Phase V.

Phase I Largely completed

Phase I was approved by Cabinet Committee on Economic Affairs (CCEA) in December 2000 at an estimated
cost of Rs 303 billion (1999 prices) for a total of 7,188 km comprising the following:

Golden Quadrilateral (GQ) connecting four major metropolitan cities viz. Delhi-Mumbai- Chennai-Kolkata,
with a total length of 5,846 km
North South & East West (NSEW) Corridors connecting Srinagar to Kanyakumari and Silachar to Probandar.
(981 km of this Corridor was included in Phase I.), with a spur from Salem to Cochin
380 km of Port Connectivity, this connects major ports (Haldia, Paradeep, Vishakhapatnam, Chennai &
Ennore, Tutrocorin, Kochi, New Mangalore, Marmugoa, Jawarharlal Nehru Port Trust and Kandla) from east
to west coast and to GQ
Other National Highway (NH) stretches of 962 km.

As on March 31, 2009, around 93 per cent of Phase I was complete and cost incurred has been Rs 320 billion.

Phase II- Still some way to go for completion

The Cabinet Committee on Economic Affairs (CCEA) approved Phase II in December 2003 at an estimated cost
of Rs 343 billion (2002 prices). As per CRISIL Research, the total length of NSEW Corridor stands at 7,274 km.
In 2009, only one stretch of 30 km (Vadakkancherry-Thrissur), worth Rs 6.4 billion has been awarded.

As on March 31, 2009 around 46.7 per cent of NSEW Corridor was complete and further 41.7 per cent is under
implementation. Nearly 12 per cent of NSEW has not yet been awarded .The total cost incurred has been Rs 288
billion.

Phase III- Future action phase

Phase III involves four-laning of two-laned roads .The criteria for identification of stretches under this phase is as
follows:
High density traffic corridors not included in Phase I & II.
Providing connectivity of state capitals with NHDP (Phase I&II)
Connectivity of centres of tourism and places of economic importance

In 2009, six projects worth Rs 74 billion have been awarded out of the total 48 projects to be awarded in Phase III
in 2008. As on March 31, 2009 around 6.5 per cent was complete and 15.5 per cent under implementation and
total cost incurred has been Rs 84 billion. Close to 78 per cent of the phase is yet to be awarded.

The government aims to implement all projects from Phase III to Phase VII on BOT-Toll basis.

CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW B-19

Phase IV- To be implemented by MORTH & not NHAI
Around 20,000 km of NH are envisaged to be improved to two-lane standards with paved shoulders. The Cabinet
Committee on Economic Affairs (CCEA) approved around 5,000 km in July 2008. However, the Ministry of
Road, Transport and Highway (MORTH) will implement this phase.

PHASE V- 87per cent from GQ and other stretches

This phase involves six-laning of 6,500 km of selected stretches of existing four-lane NH on Design-Build-
Finance-Operate (DBFO) basis. This includes around 5,700 km of GQ and other selected stretches and the total
estimated cost is Rs 412 billion (2006 prices). Expenditure incurred so far on this Phase is Rs 7 billion. In 2009,
two projects, out of the total nine projects to be awarded in Phase in 2008, worth Rs 56 billion have been awarded.
However, 84 per cent of the phase is yet to be awarded.

Phase VI- No action on ground

This phase includes development of around 1,000 km of access controlled four/ six lane divided carriageway
expressways. The estimated cost of the project by the planning commission (based on 2006 prices) is to the tune
of Rs 167 billion. Although this phase has been approved by the government, it is yet to see any action on the
ground. The Vadodara Mumbai corridor has been identified but is still in preliminary stages.

Phase VII- Total length not yet identified

This programme proposes construction of ring roads, flyovers, and by-passes on selected stretches on NH at an
estimated cost of Rs 167 billion. The government approved this phase in December 2007. The total length is yet to
be identified, till date only 40 km of stretches have been identified out of which 18 km of Chennai Port elevated
corridor has been recently awarded to Soma Enterprise Ltd. The corridor comprises project cost of 16 billion and
concession period spread over 15 years including 3 years of construction period.

B-20 CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW

 5.0 Rural roads

Pradhan Mantri Gram Sadak Yojana (PMGSY)

Slow but steady progress in PMGSY
Rural roads play a vital role in the socio-economic upliftment of rural community. Of the total 3.3 million km
road network, rural sroads account for around 2.7 million km (80 per cent). Despite various efforts at the state and
Central levels, about 40 per cent of Indias villages still do not have access to all-weather roads and remain cut-off
during the monsoons.

Pradhan Mantri Gram Sadak Yojana (PMGSY), a sub programme under Bharat Nirman, has been launched for
providing all-weather access to unconnected habitations. PMGSY estimates that 66,802 habitations would be
provided new connectivity with a road length of 146,185 km. It is also proposed to upgrade 194,132 km of
existing routes for ensuring full farm-to-market connectivity.

PMGSY is a 100 per cent centrally sponsored scheme, wherein the existing sources of funding are budgetary
sources, Central Road Fund (CRF) on High Speed Diesel (HSD), market committee fees, loan assistance from
NABARD, World Bank and Asian Development Bank. It is implemented through cash contracts only.

Around Rs 40 billion have been allocated for rural roads in the Interim Budget 2009-10 and would be routed
through a separate window created under the Rural Infrastructure Development Fund (RIDF). This will provide
necessary funds for the upgradation and development of rural roads planned under Bharat Nirman. The corpus of
RIDF was increased from Rs.5.5 billion in 2003-04 to Rs.140 billion for the year 2008-09 ensuring greater
availability of funds for its activities.

Table 1: Progress on PMGSY as on April 2009

units Phase I Phase II Phase III Phase IV Phase V Phase VI Phase VII Phase VIII Phase IX Total
2000-01 2001- 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2008-09
02/2002-03
Proposals cleared (Rs billion) 28.0 52.0 56.6 67.5 125.7 213.0 216.9 141.0 0.0 900.8
Total amount released (Rs billion) 23.6 47.6 38.0 47.8 76.9 95.1 70.4 8.7 4.3 412.5
Road works planned km 26,168 32,551 31,050 30,796 50,003 71,498 66,325 39,887 - 348,279
Road works completed km 25,507 30,035 28,364 24,533 33,591 28,872 12,309 343 - 183,556
(upto April 2009)
% of roads completed (Per cent) 97.5 92.3 91.3 79.7 67.2 40.4 18.6 0.9 0.0 52.7
Expendture incurred till (Rs billion) 24.1 46.6 49.0 52.3 92.9 100.0 61.4 14.3 0.0 440.5
date
% of expenditure (Per cent) 85.9 89.7 86.5 77.4 73.9 47.0 28.3 10.1 0.0 48.9
Source: PMGSY Online

As on April 2009, around 52.6 per cent of the road works planned was completed. The target for 2008-09 was
39,887 km but only 343 km of roads have been completed. The slow rate of implementation has been further
marred on account of scattered road patches, tiny ticket sizes, low capacities of contractors. Value of proposals
cleared by the government is Rs 901 billion; however, only Rs 413 billion has been released till date. Expenditure
incurred in this programme until date is Rs 441 billion, which exceeds the amount released from the government.
The cost per kilometre is Rs 2.3 million and on an average, the ticket size of a project would vary from Rs 10 to
30 million arriving at 5 km to 10 km of typical size of contract.

CRISIL RESEARCH ROADS AND HIGHWAYS ANNUAL REVIEW B-21

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