Indian Roads Sector

Frequently used abbreviations

Abbr.
MoRTH NH NHAI NHDP GQ NSEW Ministry of Road Transport & Highways, Govt. of India National Highways. Developed by the National Highways Authority of India National Highways Authority of India National Highways Development Program Golden Quadrilateral. A scheme under National Highways Development Program Phase I North-South East-West corridors. A scheme under National Highways Development Program Phase II

Description

SH
VGF PPP PPP-AC PSP BOT DBFO EPC MCA WPI 2

State Highways. Developed by the responsible department/development corporation of the State Governments
Viability Gap Funding. A grant, one-time or deferred, provided by the Central Govt. with the objective of making a project commercially viable Public Private Partnership. A project based on a contract or concession agreement, between a Govt or statutory entity and a private sector company, for delivering an infrastructure service on payment of user charges Public Private Partnership Appraisal Committee. A Committee set up by the Planning Commission of India for appraisal & approval of infrastructure projects under the PPP mode Private Sector Participation Build-Operate-Transfer. A form of PPP model most commonly used in the roads sector. BOT projects can be either annuity or toll (user charges) based Design-Build-Finance-Operate. A form of PPP model likely to be used in the road sector in future. Engineering-Procurement-Construction. Construction contracts on lumpsum turnkey basis. Model Concession Agreement. A template for concession agreement with standardized clauses, to be used in Public Private Partnership projects, provided by the Planning Commission of India Wholesale Price Index. An economic indicator used to measure the movement of prices of commodities in all trade & transactions. Most widely used price index in India.

Infrastructure Advisory

Key messages
India has a vast but low quality road network. Need for investments in the sector is recognized

Institutional framework in place in the National highways segment, owing to the creation of National Highways Authority of India, & a dedicated PPP appraisal committee at the Centre

A large & assured pipeline of National highways in the upcoming phases of National Highways Development Program, primarily on PPP basis

Potential for BOT exists in State highways as well, and given the Viability Gap Funding scheme of the Centre, states will see more action going forward

Infrastructure Advisory

India

has a vast road network by international standards

Worlds top 10 countries (Total road network) Million km USA India Brazil China 6.37 3.32 1.98 1.40 Type National highways & Expressways State highways Major district roads Rural & other roads The Indian road network Length (km) 66,790 1,31,899 4,67,763 26,50,000 % of total 2% 4% 14% 80%

Japan
Russia Australia Canada France Italy

1.15
0.95 0.91 0.90 0.89 0.67

Total

33,16,452

100%

Indias road network of ~3.32 million km, is second only to that of the United States

Source: Ministry of Road Transport & Highways 4

Infrastructure Advisory

Major

issue is not the size, but the low quality of the road network
Status of National Highways
Four or more lanes 10% Doublelane 55% Singlelane 35%

Modal shift Composition of road traffic is currently estimated to be 65% of total freight & 80% of total passenger traffic (as against 12% of total freight & 31.6% of total passenger traffic in the 1950s) Traffic on the roads is growing at the rate of 7-10% per annum Growth of vehicles has been ~12% per annum for the last few years Issues Most of the road network being single or double lane, provides low capacity and slow vehicle speeds National highways are 2% of the network, but carry 40% of the total traffic

Status of State Highways

Two or more lanes 25% Singlelane 75%

Road maintenance throughout the network is low, leading to poor quality of roads About 40% of the villages are not connected by all-weather roads
Source: NHAI, Planning Commission

Infrastructure Advisory

investments in the sector to fuel economic growth

The Govt. of Indias Vision 2021 identified transport infrastructure as a major constraint to the growth of the economy, and assessed the capital funding need to be around $ 56 bn on highway improvements in the period 2001 2011. The investment figure has grown much more since these initial plans
Scheme
A. Expressways B. National highways 4-laning/6-laning 2-laning with hard shoulders Strengthening weakening pavements Bypasses, bridges, safety measures, etc Expansion of NH system C. State highways 4-laning/6-laning 2-laning with hard shoulders Strengthening weakening pavements Bypasses, bridges, safety measures, etc 3,000 35,000 30,000 Lump sum 16,000 15,000 20,000 Lump sum 10,000 16.0 4.7 3.8 1.8 3.8 0.0 2.5 7.0 5.5 2.5 6.3 12.5 7.5 2.5 19,000 7,000 24,000 Lump sum 12,000 19.0 2.2 4.5 2.3 4.5 Period 2001 - 2011 Length (km) 3,000 Amount ($ bn) 7.5 Period 2011 - 2021 Length (km) 7,000 Amount ($ bn) 17.5

Expansion of SH system
Total
6 Source: World Bank

10,000

1.3
56.25

2.5
81.25 Infrastructure Advisory

Key messages
India has a vast but low quality road network. Need for investments in the sector recognized

Institutional framework in place in the National highways segment, owing to the creation of National Highways Authority of India, & a dedicated PPP appraisal committee at the Centre

A large & assured pipeline of National highways in the upcoming phases of National Highways Development Program, primarily on PPP basis

Potential for BOT exists in State highways as well, and given the Viability Gap Funding scheme of the Centre, states will see more action going forward

Infrastructure Advisory

NHAIs establishment provides strong institutional

support for the national highways segment
The National Highways Authority of India (NHAI) was constituted in 1988 by an act of Parliament* and operationalized in 1995. It is responsible for the development, maintenance, and management of the National highways in the country Time and cost bound implementation of national highway projects Providing road connectivity to major ports Involving the private sector in financing the construction, maintenance, and operation of national highways and wayside amenities Improvement, maintenance & augmentation of the existing national highway network Implementation of road safety measures and environment management

Elements of the mandate for NHAI

*The National Highways Authority of India Act, 1988 8

Infrastructure Advisory

NHAI is entrusted with implementing the biggest integrated

effort to upgrade Indias national highway network
The National Highways Development Program (NHDP) was launched in 1999, initially with the objective of four-laning 13,000 km of highways; but the scope of the program has increased almost 4 times
NHDP Phase Overall project (km) 5,846* 380 320 6,159** 482 11,542 20,000 6,500 1,000 Yet to be finalized 148 2 30 1 Completed Length (km) 4,250 111 287 No. of contracts 94 6 9 Under implementation Length (km) 1,465 248 32 5,267 462 1,767 No. of contracts 31 7 3 136 9 27 861 20 9,746 20,000 6,352 1,000 Not Available
Status as on 31 Mar 2007 Source: NHAI

Balance for award Length (km) No. of contracts

Project

Golden Quadrilateral I Port connectivity Others II III IV V VI VII North South East West Corridor Others III A & B Not started Launched in Jul 2006 Not started Not started

21

22 1 102 Not Available

*2 stretches of 131 km terminated **1 stretch of 31 km terminated

Infrastructure Advisory

The Golden Quadrilateral (GQ) Project aimed at developing

4-lane highways connecting the 4 important Indian metros

Corridor

NH No

Length (km)

Delhi

Delhi-Mumbai
Mumbai-Chennai Kolkata-Chennai Delhi-Kolkata Kolkata

8, 76, 79
4, 46, 7 5, 6, 60 2 Total

1,419
1,290 1,684 1,453 5,486

Mumbai The GQ project is 75% complete, and rest of the stretches have already been awarded Most contracts under implementation lie on the Delhi-Kolkata arm Most of the stretches were developed by NHAI through the award of EPC contracts Almost 35% of the project length was developed by external assistance (funding by World Bank, ADB and JBIC)
Source: NHAI, Projects today, Feedback analysis

Chennai

*Representative map; not to scale 10

Infrastructure Advisory

Phase II aimed at developing 4-lane highways connecting

the extremities of the country
Srinagar

Delhi

Highway connectivity is being established between: Porbandar, Gujarat in the West to Silchar, Assam in the East Silchar Srinagar, Jammu in the North to Kanyakumari, Tamil Nadu in the South The NSEW project is actively under implementation 85% of the project length has been awarded BOT (Annuity) & BOT (toll) have been adopted for recent contracts

Porbandar

Kanyakumari
*Representative map; not to scale 11 Source: NHAI, Projects today, Feedback analysis

Infrastructure Advisory

Though Phase I & II are complete/awarded, NHDP

offers a large opportunity in the segment
NHDP Phase Description Rehabilitation & upgradation of existing national highways into 4-lane, dual carriageway configurations Targets important stretches not covered in earlier two phases carrying high volumes of traffic, connecting state capitals with the network developed in earlier 2 phases, and providing connectivity to places of economic, commercial & tourism importance Development of single-lane highways to 2-lane with paved shoulders, and strengthening of existing 2-lane highways Widening of high traffic density 4-lane stretches developed under Phase I, to 6-lane Development of expressways connecting major commercial and industrial townships The 400 km Mumbai-Vadodara expressway has been identified as one of the potential stretches under this segment Nationwide construction of bypasses, ring roads & flyovers on major national highways Length (km)

Cost ($ bn)

Expected completion

Status

III

10,000

16.3

2012

Sub-phases III A & B have been launched

IV V

20,000 6,500

7.0 10.3

2015 2010

Yet to begin, in planning stage Launched in Jul 2006

VI

1,000

4.2

2015

Yet to begin

VII

Not known

4.2

2014

Yet to begin

12

Infrastructure Advisory

Key messages
India has a vast but low quality road network. Need for investments in the sector recognized

Institutional framework in place in the National highways segment, owing to the creation of National Highways Authority of India, & a dedicated PPP appraisal committee at the Centre

A large & assured pipeline of National highways in the upcoming phases of National Highways Development Program, primarily on PPP basis

Potential for BOT exists in State highways as well, and given the Viability Gap Funding scheme of the Centre, states will see more action going forward

13

Infrastructure Advisory

Private sector participation is necessary to bridge

the funding gap
Financing mechanism Description

Fuel cess

Govt. of India introduced a cess on both petrol & diesel, which currently contributes $ 1.25 to 1.5 bn annually. The funds collected are put aside in a ring-fenced Central Road Fund (CRF) for exclusive utilization in development of roads
Grants from International agencies such as World Bank and ADB Loans from international lending agencies such as the Japanese Bank of International Co-operation NHAI taps the market by securities cess receipts

External assistance Loans Market borrowings

NHAI Expenditure vs financing over the years (Rs. crores)

9096 6785 4189 3904 9800 8059

3038 871 1524 1404

3442

3448

The Committee on Infrastructure has estimated that out of the $ 55 bn required for NHDP, $ 44.75 bn or 82% of funds are expected to come from the private sector

2000

2001

2002

2003

2004

2005

Expenditure

Financing

14

Infrastructure Advisory

Source: NHAI, GoI

Funding pattern across phases shows very high

Phase I: Golden Quadrilateral
Others 7% MORTH 7%

expectations from the private sector by the Govt

Phase II: NSEW

Phase IIIA, IIIB & V

(Expectation by the Govt.)

External assistance 35%

External assistance 33%

NHAI 35%

NHAI 37%

BOT 100%

BOTBOT Annuity BOT-SPV 6% 6% 2%

BOTAnnuity 14%

BOT 18%

*Charts show break-up of funding for total length of projects completed and/or under implementation

The supremacy of the BOT model over the traditional EPC contracts has been established in the National highways segment. The Committee on Infrastructure, Govt. of India has taken a stand that for NHDP Phase-III onwards, all contracts for provision of road services would be awarded only on BOT basis either based on Toll or Annuity or a suitable Toll / Annuity hybrid), with EPC awards being made in specified exceptional cases only
Source: NHAI, Planning Commission, Feedback analysis 15

Infrastructure Advisory

Key messages
India has a vast but low quality road network. Need for investments in the sector recognized

Institutional framework in place in the National highways segment, owing to the creation of National Highways Authority of India, & a dedicated PPP appraisal committee at the Centre

A large & assured pipeline of National highways in the upcoming phases of National Highways Development Program, primarily on PPP basis

Potential for BOT exists in State highways as well, and given the Viability Gap Funding scheme of the Centre, states will see more action going forward

16

Infrastructure Advisory

Potential for BOT projects exists in states, and

increased participation by private sector foreseen
In a World Bank study of traffic across 6 states - constituting 30% of total state highway network 13,000 km could potentially be taken up for BOT Traffic on these stretches was > 5,000 PCUS, considered as the minimum for viability 36% of total network (37,000 km) in these states

Traffic in PCUs on State Highways

18,000 16,000

>5,000 PCUs <5,000 PCUs

(km of State Highways)

Andhra Pradesh Karnataka Madhya Pradesh Maharashtra Uttar Pradesh West Bengal

< 5,000 PCUs

304 4,089 2,205 11,074 4,439 1,416

> 5,000 PCUs

1,741 3,890 60 6,047 1,159 589

km of State Highways

14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

Andhra Pradesh

Karnataka

Madhya Pradesh

Maharashtra

Uttar Pradesh

West Bengal

Total

23,527

13,486

Source: World Bank 17

Infrastructure Advisory

Large investments required in the state highways

segment indicating healthy pipeline of projects
Vision 2021 Capital Investment on State Highway Network (at 1999 prices) Period 2001 - 2011 Length (km) Four laning / Six laning Two-laning with hard shoulders 3,000 35,000 Amount ($ bn) 2.5 7 Period 2011 - 2021 Length (km) 7,000 60,000 Amount ($ bn) 6.25 12.5

Strengthening weak pavements

Bypasses, bridges, over bridges, safety and drainage measures Expansion of SH system

30,000
Lump sum 10,000

5.5
2.5 1.25

40,000
Lump sum 20,000

7.5
2.5 2.5

Total

18.75

31.25

Source: World Bank 18

Infrastructure Advisory

PPP in state highways limited in the past, but Centres

VGF scheme will provide impetus
A few states (Andhra Pradesh, Gujarat, Maharashtra, Madhya Pradesh, Rajasthan, Tamil Nadu and Punjab) have made some progress in attracting PSP in state highways Creating Road Development Corporations (RDCs) Amendment of the Indian Toll Act (1851) to allow the private sector to levy tolls on state roads and bridges The overall role of the private sector has been limited in this segment Rehabilitate, operate and maintain concessions, bypasses, and bridges have usually been the most viable projects for PSP (captive traffic for tolls) The new Scheme for financial support to PPPs in infrastructure being implemented at the Central level by the Ministry of Finance, will provide impetus to the State highways segment, across states Under this scheme, the Govt. will provide viability gap funding to infrastructure projects (including roads), not exceeding 20% of the total project cost The Govt or statutory entity that owns the project, may provide additional grant out of its budget, not exceeding a further 20% of the total project cost The funding under this scheme will normally be in the form of a capital grant at the stage of project construction
State highways are likely to see increased action in PPP projects, owing to the new Viability Gap Funding scheme being implemented by the Centre. The empowered committee under the Department of economic affairs, Ministry of Finance, has started receiving proposals for approval from various State Govts under this scheme
Source: Department of economic affairs, Ministry of Finance; , GoI published data on PPP projects, World Bank 19

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