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No beating about the bush.
In the previous article we saw how we need to improve tolling. In this final article of the series, we explore how to fix National Highways Authority of India (NHAI), apart from tolling.
Focus on the Enabler Projects
In the second part, we defined enabler projects as those projects which by themselves do not yield any benefit but help improve revenues of other projects. There are few important projects to be undertaken in this phase. These projects are to be undertaken over existing roads that are already operational. These projects will make the roads easier to sell to private entities including Infrastructure Investment Trust (InvIT) or Toll Operate Transfer (TOT) players.
First and foremost is to have a 100% national electronic open road tolling system. To go along with this, we also need to implement, weigh-in-motion type technologies that aid the tolling system. A system of enforcement, through number plate identification should be implemented nationally.
Second most critical enabler projects is 4-laning. Any highway should at the minimum be 4-laned road with a proper divider in the middle. It is a criminal oversight that the main connector roads in Golden Quadrilateral (in smaller parts) and Corridors (in many parts) are not 4-laned. These are the trunk routes of the country and they have to be four laned. In addition, there has to be relief bays at regular intervals where large size commercial vehicles (carrying outsized loads) can wait till they are given clearance.
Third critical enabler project is debottlenecking. As noted in most of our articles, abrupt lane dropping creates bottlenecks and congestions. Adding and reducing lanes should be done in a gradual manner allowing the traffic to merge gradually. The size of exits should be commensurate with the kind of traffic expected in the region. There should be adequate buffer capacity.
Fourth enabler project refers to entry and exit infrastructure – particularly logistics parks, container terminals, truck and bus parking points. Logistic parks should allow highway traffic and city traffic to flow smoothly without interrupting each other. The long-haul vehicles can quickly offload the cargo and city haulers (smaller trucks) can take it up to the city. Similar arrangement can be thought of with respect to passenger transfers. For passengers the buses can go into the city, so the passenger terminal need not be too big. It needs to serve the transferring passengers who do not want to enter the city. We may observe people seeking lifts or waving out to vehicles at the entry points to expressways. At entry points, it should also house facility for customs clearance allowing for cleared cargo to move to ship directly.
Fifth, as of now there are no inter-model transfer facilities anywhere. These facilities allow flow of goods (and people) between roads and railways or ports etc. These need to be built so as to ensure smoother flow of goods between roads and railways (for most part) and when water and air transport achieves prominence, those may be added too. The facilities could be innovative by design. For example, Konkan Railways experimented with Ro-Ro wagons allowing trucks to roll on to railway carriage and roll-off at designated place.
Sixth, support infrastructure is as critical as other, this includes restaurants, truck rest stops, passenger rest stops, motels, vehicle emergency repair services, etc. The operators for these ventures should be selected transparently allowing them to set up world class infrastructure at these places.
Seventh, identify and shortlist the hoarding and display advertising (e.g. on the light poles) spots and auction them transparently through an online auction system. The same technology that IRCTC uses for tickets can be used to create an online auction process.
Finally, ensure that there is adequate mechanism to install pipelines, power cables, fibre-optic cables, mobile telecom towers, etc. without disturbing the traffic flow.
Sources of revenues for each project for Asset holders
Once a project is complete, it should various sources of revenues that should allow for InvITS type entities to hold these projects as assets for fixed term.
First, toll revenue should be clear with one year toll data provided. The traffic and toll charges across the term. The toll collections should be 100% electronic open road tolling allowing for no discrepancy or dispute with respect to these numbers. Entire collection from tolls will be handed over to Asset holder.
Second, the supporting infrastructure including logistic parks, truck and container terminals, passenger terminals, rest stop restaurants and other business entities should have transparent pricing mechanism, say share of revenues. All revenues should be collected electronically, and all payments monitored.
Third, the roads should have fees and receipts from right-of-way users i.e. fibre-optic providers, mobile telecom providers, etc. The Asset holders will have the right to collect these fees.
Finally, the roads will have billboards and hoardings, electronic display points, display advertising on electric poles etc. The revenues from these (from transparent auction program) should be transferred to the Asset owners.
At entry points, it should also house facility for customs clearance allowing for cleared cargo to move to ship directly.
Cost side improvements
Expectations from NHAI are three-fold. For projects where connectivity is the goal, they keep the costs low and execute the project within budgeted expenses. For projects which are revenue generating, they are expected to meet and possibly exceed revenue targets. When such projects are managed within budgeted costs then it should improve profitability for each of these projects. The third type of projects, termed as build-and-it-shall-come projects, need a phased design with plans to take it from a connectivity-type project to a revenue earning project.
In general, the way to reduce costs is to create empowered teams, fair and transparent process open for public scrutiny and close monitoring. Thus, all the data should be uploaded to publicly accessible website. This data has nothing confidential that it needs to be hidden.
Always, attribution helps better than audits and checks. The entire project till it is sold to InvITs should be handled by one officer who is known publicly. If he does good job, people will say it. If there is corruption, take decisive and drastic steps against such officials.
Under these principles NHAI should create specialist teams for land acquisition, for tendering, quality control, for monitoring and audits, for sale of assets, national level auction (like IRCTC type). All processes and data should be transparent.
NHAI should pursue land acquisition by agreement in right earnest. This should ideally reduce cost of land acquisition and eliminate delays in acquiring land. This must be done by empowered teams with transparent decision making and monitored closely.
NHAI will benefit greatly by using standard contracts with explicit terms. If such contracts are publicly disclosed and debated, terms settled, it will speed up contract signing, dispute resolution avoiding delays and costs.
It will be beneficial to settle the older contract disputes quickly. This requires empowerment of clean officials and removing the corrupt ones.
NHAI should start reporting the financials in the form similar to GAAP for government entities.
Regulatory Improvements for Better Exits
The exit vehicles can be of two types—InvITS or TOT operators. The regulatory mechanism should allow creating Infrastructure investment trust to hold the assets for fixed terms of say 15 years after which these assets are transferred back to NHAI. These trusts have to pay out 100% of their net earnings to shareholders (like REITs). Their taxation and levies should be clear.
If the plan detailed in these articles is followed there should be no dearth of private players interest to create InvITs or TOT operators. It is critical that government money is not used to create pseudo-InvITs or TOT operators taking capital from government entities like LIC etc. Such window-dressing create unwarranted apprehension of mistrust.
Finally, we need to create a talent pool of infrastructure experts who can help mitigate infrastructure project risks. Their learnings should be leveraged for all types of infra projects. Previously, such infrastructure experts were available as part of
The objective of this series of articles is to make NHAI a self-sustaining entity where it has the financial bandwidth to undertake road and transportation projects. It should not require additional funds from the budget, i.e. taxpayers should not be required to contribute any more capital to NHAI. Second, it should start giving a return on the capital already invested.
I have highlighted only some critical missing pieces that should help NHAI in particular but infrastructure development in general. The recommendations are not exhaustive. However, these recommendations will definitely make NHAI leaner and self-sustaining positive contributor to the exchequer that we expect it to be. I am confident that if there is political will and innovative oversight, solving NHAI will pave the way for profitable infrastructure development in India.
(This is final part of a six-part series.)
You may also want to read…
The NHAI Crisis Part 1: How many roads do we need?
The NHAI Crisis Part 2: Making Roads the Right Way!
The NHAI Crisis Part 3: What is wrong with NHAI?
The NHAI Crisis Part 4: The Problem with NHAI's Financials
The NHAI Crisis Part 5: The Tolling and Revenue puzzle!
(Rahul Prakash Deodhar is a private investor and Advocate, Bombay High Court. He can be reached at [email protected], on twitter at @rahuldeodhar or at his website www.rahuldeodhar.com.)