Nitin Gadkari's road construction targets ambitious: Experts

The government’s targets for completion of road projects have come under flak from road sector experts with Feedback Infrastructure Chairman Vinayak Chatterjee and MEP Infrastructure Managing Director Jayant Mhaiskar terming the targets as overambitious.

Analysts estimate that only 30 percent of the highway construction target of about 15,000 kilometres for FY17 achieved in the first nine months of FY17. The road construction target of 41 km/day by Road Transport and Highways Minister Nitin Gadkari was an ambitious one and currently the pace of highway construction stands at 17/km a day, said Chatterjee.

Concurring with Chatterjee’s views, Mhaiskar too said the target was an ambitious one. He, however, added that there has been a steady progress in road construction over past two years. Infusion of equity and payment of arbitration claims, besides government reforms have aided the sector, he said.

Chatterjee, however, said that award of road projects has slowed down due to lack of institutional interest. Even in BJP-ruled states there are issues with regard to land acquisitions, he added. The process being followed while awarding projects needs a revamp as it is a long-drawn one, he said.Below is the verbatim transcript of Vinayak Chatterjee and Jayant Mhaiskar’s interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.Sonia: I wanted to start by asking you what is the problem at this point, does it continue to be projects getting stuck similar to what we spoke about last time around and is it a double whammy with projects getting stuck as well as a delay in orders?Chatterjee: Let me step back a little and say that one of the problems is the target itself. On reflection, I think that the target was seriously over ambitious. If you analyse the figures that you have just read out yourself, we are today achieving a rate of 17 kilometers per day in terms of road construction whereas the target set by Nitin Gadkari was 41 kilometers per day. I have great respect for Nitin Gadkari in terms of his aggression and can-do attitude, but he is dealing with a very large system here, National Highways Authority of India (NHAI), Ministry of Road Transport and Highways (MORTH), 29 states, legal issues, environmental issues, land acquisition issues, stressed private sector balance sheets, stressed bank balance sheets. Now, if you put all of this together, there is a certain operating environment where most of your viewers will agree with me that 41 kilometers a day is an over ambitious target. So, if I again look at 17 kilometers a day which by March 31 has a decent chance of hitting 20 kilometers a day of actual road construction, it is not very bad. It is an increasing trend over the years and while we may flash news reports that it is way behind and all that kind of stuff, actually I feel a little positive that from levels that had fallen in the last two years of the UPA -- the level had fallen to as low as 3.5-4 kilometers a day. So, if you are doing 17 kilometers and easy to achieve 20 kilometers, let us not get unnecessarily distort about the figures, the bottomline being target was over ambitious.   Anuj: I am seeing your tweet from yesterday where you said of course the target being over ambitious is one thing but you have highlighted two reasons, lack of institutional capacity and state support. However, what about states in which say BJP is also in power, have you seen any difference between those states and other states? Chatterjee: To be honest with you, I have not myself done an analysis on BJP states versus non-BJP states, but the issues are similar. Even in a BJP state, with best of intentions there are hurdles in land acquisition, there are hurdles in wildlife, forest clearance, environmental clearance, removal of utilities -- these are systematic to India whether it is a BJP ruled state or a non-BJP ruled state. However, what you suggested is certainly worth doing and the results would be interesting. To be frank with you, I have not done that analysis. Sonia: You spoke about how 17 kilometers per day road and highway construction is a reasonable target, it is a good run rate and we could get to 20 kilometers per day. What about the awarding of projects? So far 4,500 kilometers has been achieved if I am not wrong, the target over there of 25,000 kilometers also looks very ambitious now and what do you think the run rate could be by the end of the year? Chatterjee: On award of projects, the issue is a little different. On award of project is the institutional capacity which I tweeted about yesterday. Before you award a project, there is a series of steps that go into it which often the public doesn’t realise. First you have to decide which road project you will award, under what public expenditure or under what format and that requires a cabinet clearance. Then you have issues like finalising alignment, finalising specs doing traffic studies, doing the engineering and doing all the kind of preparatory work before you can actually bid it out for either a PPP or a highway or an annuity or an EPC, whatever it is. There is a significant amount of work that needs to be done before a project is awarded. Now, there I think we have run up against an institutional capacity problem. There is so much that the institution as it exists today can do with the sequential nature of all these activities. Now, if there was a serious systemic review of how this moves, can something be done in parallel, can some things be done subsequent to the award of projects, can some steps be eliminated, I think a very serious review needs to be done about the revamping of the processes that lead to award to bypass the problem of institutional capacity.  Anuj: We are discussing whether the target itself was ambitious or not and what are the reasons that are preventing from that target being achieved. What are your thoughts on the issue? Mhaiskar: I think what Vinayak Chatterjee has already mentioned, I think there are specific issues pertaining to building of roads across the country. As he has already highlighted, the most important is the process and the timeframe it takes to complete from I would say a construction of a road to completion of a road and starting the tolling on it. As far as we are concerned, I think the company has been doing fairly good in terms of the projects what are being awarded. As far as the sector is concerned, I think the target of 41 kilometers, yes, definitely is a very tall ask. Having said that, unless you have large target set, the ability to go closer or inch closer to that is definitely going to be I would say a difficult proposition. As he rightly mentioned in his earlier discussion, if you see the number of kilometers that are being built vis-à-vis what was built, I would say two years back, there has been a steady progression in terms of the construction which has been happening on the highways. Also, I think there is a complete change over in terms of the authority’s ability to really address or cater to the concerns of the industry. The two large initiatives’ which they have already taken is one is infusion of equity in projects which were languishing for a period of time. Second is on the concession which has been given against the arbitration awards. 75 percent of the awards which have been already awarded, 75 percent of the money would be given to the concessioners as a equity or I would say cash flow boost which will enable companies to bid for larger projects. One of the other issues which Vinayak Chatterjee has missed out, is even though there is a large target in terms of bids which are being currently given out, the ability of companies to bid for them and actually do the execution – one classic example to my understanding is there were couple of hybrid annuity projects which were awarded which were recently cancelled. Now that again leads a time delay of further three to six months. Such kind of events, if they are avoidable, should be helpful to achieve the target which is being envisaged.  Sonia: Execution has been a big concern, not just now, for the last one to two years, how do you think that issue can be addressed? Chatterjee: The execution has not been a concern for the last one or two years, execution has been a concern ever since 1997 when NHAI was formed. So, the execution constraints have two parts; one is what one would call the sarkari part which is land, utilities removal, rail over bridge permissions, forest, all of that. The other is in a sense the ability of some construction companies to finish their work on time because of stress on their own balance sheets. They may have cash flow problems, they may have liquidity problems. So, it is a jugalbandi of both these. So, each road project is unique and therefore you have to understand what the issue is in terms of delay on execution on a particular project.Sonia: What is the expectation from the Budget this time around? The road ministry is seeking almost Rs 90,000 crore for FY18 but the indicated outlay in the budgeted estimate in FY18 is just about Rs 58,000 crore or so. What is your own expectation this time around? Mhaiskar: I think I would not like to speculate to begin with. However, having said that, I think the kind of allocation which the ministry had got last year was considerably higher than what it had got couple of years back or years before that. The ministry I think has taken further steps in terms of garnering their own set of funds which are over and above the capital outlay which has been given in the Budget of India. The different initiatives which ministry I believe has already taken which has got cabinet approvals is, one most important is the monetising of the current operating assets which allows them to garner close to Rs 75,000 crore which can be also utilised for the further building of roads. The ministry has currently focused in terms of execution on two major aspects; one is the EPC and second is the hybrid annuity. Both initiatives I would say are well taken by the industry in terms of number of projects being awarded and numbers of projects being bided. My only concern is the number of projects bided vis-à-vis the number of players available in the market, I think there has to be far more number of people bidding for that in order to achieve the target in terms of the award and also on-time completion and execution. Anuj: Final question and I will read one more tweet of yours; you said Coal India missing target does not surprise you anymore. Just elaborate on that.  What is going wrong here?Chatterjee: I said it doesn’t make news anymore. There is nothing going wrong. If you have a sector that doesn’t lift your output, what is your enthusiasm and energy to keep producing more? You have got pitted stocks, you have got stocks lying at the thermal coal plants, you have got the whole system of coal based thermal generation operating at anywhere between 48-59 percent capacity. Therefore the problem is not with the Coal India, the problem is not with thermal generation, the problem as usual is with the 53 discoms of this country which do not have an ability to pick up the power.