UPA making progress, but concerns remain

UPA making progress, but concerns remain

Despite the high priority placed by the Union government on redressing the infrastructure deficit in the country, a widely shared view is that actual progress in implementation during UPA-I (the first term of United Progressive Alliance government) was not impressive. At the end of the first year of UPA-II, are there indications of a better performance in the near future? A look at the evidence on roads, rail, ports and airports reveals that things are improving. But some concerns remain.

Listen to Utpal Bhaskar talking to Gokul Chaudhry, a partner at BMR advisors, on how the UPA government has fared on the infrastructure front.

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In the roads sector, it has been clear from the outset that the magnitude of investment required was such that private sector funds would be needed on a much larger scale than in the past. To attract such investment, it was necessary to improve the framework for public-private partnerships (PPPs), model concession agreements, requests for qualification and requests for proposals and related procedures. But after more than three years, the framework was still riddled with serious inadequacies, including requirements that caused unnecessary delays. To make matters worse, the worldwide recession struck in September 2008, slowing economic growth. The result was that against bids for 60 projects in 2008-09, only 10 could be awarded.

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The most glaring shortcoming was a stipulation that all projects should be compulsorily bid first on a BOT (build-operate-transfer) toll basis, before considering bids on alternative models of delivery such as BOT annuity or EPC (engineering, procurement, construction). In the mistaken zeal to maximize the number of BOT toll contracts, bids were made on this basis even when the traffic count was too low for any chance of success. Another dilatory requirement was to have a pre-qualification process separately for each case. Further, a number of arbitrary and harsh clauses made concession agreements unrealistic and the road projects unattractive for entrepreneurs.

UPA-II has started well by approving in December a revised strategy for building national highways based on the report of the BK Chaturvedi committee, which addresses these deficiencies and is bound to speed up construction. Under the revised strategy, 51 projects were bid out by March and awards could be made in as many as 38.

However, the country still awaits a move to raise its highways to world-class levels. At present, traffic on the highways is slow because of vehicles moving at varying speeds, crowded stretches where they pass through townships, ribbon development and stoppages at state borders. India cannot become a modern country without a network of access-controlled greenfield expressways in which traffic can flow seamlessly without these impediments. The roads ministry has recently received a consultant’s report for building such a network entirely on a PPP basis. What is needed now is for the Union government to set up an expressway authority immediately to take preliminary steps to finalize their alignment and to begin the task of land acquisition accompanied by appropriate compensation and resettlement.

For the railways, the big projects for delivering world-class infrastructure are the dedicated freight corridors. They will make freight movement fast, reliable and capable of being tracked on a continuous basis. It will increase the share of rail in total freight transport, lead to reduction in logistics cost, conservation of energy and deliver a fitting response to the challenge of climate change. What’s more, it will also release capacity in existing lines in saturated corridors for the exclusive use of passenger trains. After inauguration of work on these corridors over a year ago, progress has been slow. No doubt delay in funding has been one of the factors. Now that an agreement for funding has been signed with Japan and another one is expected soon with the World Bank, the new completion target being mentioned is 2016-17. However, the announcement by the railway minister that there will be no acquisition of land without the consent of landholders has cast a shadow on the prospects of the deadline being met.

As for ports, the main objective has been to build more berths, improve mechanization and undertake dredging for deepening draughts. Progress had been held up for a long time because of an outdated framework for inviting bids and awarding work on a PPP basis and inter-ministerial differences on the model concession agreement. However, a new framework was approved based on upfront fixing of tariff and the differences on the concession agreement were resolved in 2008. Fifty-four projects were identified for building of berths and mechanization during the 11th Plan but only two could be awarded in the first two years. Against this, as many as 13 have been awarded during 2009-10, and the target of 25 projects for award during 2010-11 looks likely to be fulfilled as in 14 of them the upfront tariff ceiling has already been determined.

In airports, the major works in progress have been the PPP projects at Mumbai and Delhi and the modernization of 48 non-metro airports entrusted to the Airports Authority of India along with that of Chennai and Kolkata airports. Work is stated to be on schedule at the four metro airports. A new terminal building will be inaugurated at New Delhi in July. As for non-metro airports, 21 have already been completed, and the target is to finish the rest by 2011-12. There has been a slippage, however, on the city-side development of non-metro airports, for which even bids have not been invited.

Anwarul Hoda is a professor at Indian Council for Research on International Economic Relations and former member of the Planning Commission.

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