The NHAI Crisis Part 6: How to Fix NHAI

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
 

In conclusion
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.)
 

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    COMMENTS

    Mahesh S Bhatt

    3 weeks ago

    Sirji Politically unorganised well developed perfected Business Models Yeda banke peda khate hai Mahesh Bhatt Kirticorp

    Ramesh Poapt

    3 weeks ago

    eye opener!

    manojkamrarti

    3 weeks ago

    Better would have been to consider engineering aspects of roads in your series like leaving blind curves, very sharp horizontal curves in the haste to complete road projects by NHAI. All national highways suffer from sharp horizontal curves needing improvement of its radius.

    2-Lane with paved shoulder by NHAI is the biggest scam in independent india . Its purpose was exclusively to extort at the rate of 70 percent of 4-lane road toll without any substantial expenditure by merely widening 2.5 ft on both sides.

    As advocate, you are requested to examine the legal validity of such 2-lane with paved road roads by NHAI merely for extortion of toll. No research institute of india have ever supported it. No wide consensus have been made for finalising standards (IRC) in transparent manner as per prevailing practice.

    So 2-lane road with paved shoulder is the biggest scam of independent india and dark chapter of road construction by NHAI.

    The NHAI Crisis Part 5: The Tolling and Revenue puzzle!
    While tolling to pay for construction of roads is as old as Roman Empire (and possibly older in India), the concept of tolls is not very well developed. In this part, we explore the details of tolling. It is the most critical piece of puzzle and should be one of the first issue to be fixed.
     
    Need for tolling
     
    Ideally, developing roads is the responsibility of the government. Government collects taxes out of which it is supposed to fund the development of roads.
     
    However, developing countries like India, have low tax collections constraining infrastructure development. Therefore, to tide over the lack of availability of resources, build-operate-transfer (BOT) type projects were conceptualised. Here the private player assumes the risks for recovering the costs and making a return for creating a road. To get the return, BOT contractors get a right to collect toll from users of their road.
     
    In general, infrastructures such as railways, pipelines, power grids, water, broadcasting and broadband networks, by design, charge for the benefit they provide. This is the “user-pay” principle. Tolls are simply a mechanism to deploy that principle to roads. 
     
    Tolls can be ONE of two things
     
    At present the tolls are sold to public as a means to ensure a return on the road project investments. This principle of tolling, called toll for expected return, is consistent with BOT-type projects or for projects divested using toll-operate-transfer (TOT) projects. Here, toll is a specific, time-limited mechanism to provide return on a particular road project. In this case, the amount of toll depends upon the traffic, the cost of the project and promised return to the contractor. Once these criteria are met the tolls should STOP. The World Bank PPP Legal Resource Centre document, titled ‘Tolling Principles’, identifies three methods for determining total amount of toll-revenue-maximisation, welfare maximisation and operational and maintenance cost recovery. 
     
    Alternative principle is, tolls as a pay-per-use tax for the population. In this case, the rate of tolling can be standardised across the country. The toll rates are lower, and they are applied in perpetuity. The toll collection goes to a central or state government kitty and from there it is allocated to fund new projects or pay off old projects. The new National Highways Authority of India (NHAI) contracting methods like BOT-Annuity, engineering, procurement and construction (EPC), hybrid annuity model (HAM) type models, are more suitable for this method of tolling. However, if we accept this principle of tolling then we must subsume into this, all other taxes like fuel surcharge, road tax, etc.
     
    Indian toll system is unnecessarily complicated
     
    There is lot of confusion as to principle of tolling at centre and state level. Across the country the principle of application is different. 
     
    At the moment, the stated policy use the first principle of tolling i.e. toll for expected return, and tolls are used to recover investments in road projects.
     
    However, if the tolls computed based on this principle is too high then there is political intervention and tolls are reduced arbitrarily. This was one reason why contractors are reluctant to bid for BOT projects, where toll collection is their responsibility. 
     
    Conversely, governments, once they get used to the toll revenue are reluctant to close the revenue stream. Maharashtra, for example, started with first system at Mumbai toll plazas. The idea was to recover the costs of Mumbai infrastructure using the toll at a certain return. This implies that once the cost of the infrastructure was recovered the toll will cease. However, it was later moved to second system.
     
    It is not clear why the toll is being levied at present. Therefore, there is no way to determine if we are being tolled at proper rate or less or more. 
     
    The wide-spread anti-toll protest arise because of the change of the principle of tolling without informing the public. In effect, toll is being collected for project that has paid itself over. Further, the toll collected is not utilised to improve the quality of roads tolled. Hence the tolled road is ridden with potholes. Here people are forced to pay for a service that has not been provided.
     
    We need absolute clarity on the principle of tolling at a national level. Indians must resign to the fact that tolls are not going to go away. What we can insist is the transparency in determining the level of tolls but more importantly in collection of tolls.
     
    Transparency in Toll collection is a BIG issue
     
    The lack of transparency with respect to toll collections relates to the levy of tolls, collection and deployment of the collected proceeds.
     
    As mentioned earlier, we are constrained to admit that toll is here to stay. It is never going to go away. However, we should now ensure that the metrics used to decide the amount of toll is just and fair. So fairer norms and mechanisms need to be developed as to how levels of toll will be decided, when they will be revised etc. All other taxes including fuel surcharge, road taxes must be subsumed into the tolls. These decisions depend on transparency in collection of tolling.
     
    A tolling contractor must be required to disclose all the financials at toll-booth level. The level of corruption means that absurd numbers are being reported by tolling contractors. As shared in a previous article, activist Sanjay Shirodkar found out that tolled traffic as reported by toll contractor has not increased over 10 years. This simply cannot be true.  Mr Shirodkar and Vivek Velankar found a discrepancy of about 50% in the number of average daily traffic on the Mumbai Pune Expressway reported by the contractor and Maharashtra State Road Development Corp (MSRDC). The contractor and MSRDC eagerly attribute it to VIPs and exempted vehicles. 
     
    We need metrics of number and types of vehicles and tolls collected in real time.
     
    The screens and information kiosks are already set up at certain tolling stations.
     
    However, that information must be publicly available on the internet. 
     
    Toll collection transparency issue can be completely solved by enforcing 100% electronic tolling. The cost benefit for creating the 100% fully electronic, open road tolling makes it a no-brainer. In fact, in this series we have repeatedly urged that 100% electronic open road tolling should be the first project to be undertaken by NHAI and all state tolling agencies.
     
    The final aspect of transparency in tolling relates to deployment of proceeds. There needs to be a systemic, real time mechanism to understand as to how much tolls were collected and where these funds were applied. At present the government makes the citizens need to jump through various hoops to get this information. This mindset must change. This information must be available in real time and transparently. It requires that we evolve a government financial reporting standard. (It is a separate issue by itself which may be subject of a separate article). Suffice to say we need transparency in application of proceeds collected from tolls.
     
    The 100% electronic open road tolling system
     
    In this method, the toll is charged when the vehicle moves from under a gantry with electronic sensors. Every vehicle needs to have one sensor inside. The toll amount is deducted from your account in real time. Modern technology allows this to be implemented using number plate identification too. The benefit of this system is that vehicles do not have to stop or slow-down while toll is collected.  
     
    The data on traffic and toll collection is tallied by computers and uploaded to the central server. In this technology it is possible to introduce variable pricing methods to help manage traffic better. Thus, when congestion on one road increases, the toll rates can increase based on program (and advanced information given to drivers on road signs). The drivers can be directed to alternate routes where tolls can be reduced to ease the congestions.
     
    The system is integrated nationally and supplemented with satellites (which India already has). Just using the software and additional technology we will be able to create toll system that is flexible, fair and transparent.
     
    In Sum
     
    It is absolutely critical that first a logical, national level metrics are established on level of tolls to be collected. Second, NHAI and all state bodies must complete 100% electronic, open road tolling across the country on war-basis. Third, all the information should be available in public domain as to traffic data, tolls collected, toll deployed etc.
     
    Transparency in tolling will solve 50% of NHAI problems. In out next and final article in this series we will detail how to solve other 50% of NHAI’s problems.
     
    You may also want to read…
     
     
     
     
     
    (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.)
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    COMMENTS

    kpushkar

    4 weeks ago

    Pune Bangalore road is bad to worst now . Not worth paying toll .. no improvement in last 9 years ...i wonder if the court is sleeping over it or too busy in mid night Afjal guru type priorities. May be they get it all free. So don't t care. The road beyond Kolhapur is fantastic . And toll us more reasonable

    Newme

    4 weeks ago

    Having lived in USA, I have noticed one thing. There Toll roads are an option for faster or shorter travel. At the same time, there exists an alternative free route. But in India, Toll roads are the only option at many stretches. This forced TINA Toll roads are human rights violation.

    REPLY

    Prasenjit Sarkar

    In Reply to Newme 3 weeks ago

    Agree absolutely and most tolls are just arbitrarily priced. Imagine paying Rupees 40 for a single journey by a commercial LMV on a 3-4 Kilometer stretch. This is not imaginary. It is there in Pune on the erstwhile NH4 and the toll contractor does not even provide a proper receipt.

    Haryana: 13% MLAs Have Criminal Cases, Average Asset of MLAs Jump to Rs18.29 Crore, says ADR
    As many as 13% of the newly elected members of legislative assembly (MLAs) in Haryana have declared criminal cases against them, while the average asset size of these MLAs have jumped over 40% to Rs18.29 crore, reveals a report. 
     
    According to an analysis carried out by Haryana Election Watch and Association for Democratic Reforms (ADR), out of the 90 MLAs analysed, 13% of the MLAs have declared criminal cases against themselves. "Four out of 31 MLAs from Congress, two out of 40 MLAs from Bharatiya Janata Party (BJP) one each from Jannayak Janta Party, Indian National Lok Dal (INLD), and Haryana Lokhit Party and three out of seven independent MLAs have declared criminal cases against themselves in their affidavits," the report says.
     
     
    Out of the 90 newly-elected MLAs, 84 or 93% are crorepatis, compared with 75 or 83% during Haryana 2014 assembly elections. At the same time, the average assets of these MLAs jumped to Rs18.29 crore in 2019, from Rs12.97 crore in 2014, the report says. MLAs from Jannayak Janta Party have the highest average assets of Rs25.26 crore, followed by Congress at Rs16.32 crore and BJP at Rs12.04 crore.
     
     
    But, in terms of assets, all these political parties are beaten by an independent MLA, Balraj Kundu from Mehem constituency in Rohtak district. He has declared an asset of over Rs141 crore and is followed by Kuldeep Bishnoi of Congress from Adampur constituency in Hisar district at more than Rs105 crore and Gopal Kanda of HLP at over Rs95 crore assets. Mr Kundu has also shown total income of Rs8.18 crore, including his own, his wife and dependent children while filing his income tax return (ITR).
     
     
    Balbir Singh of Congress, who won from Israna constituency in Panipat district has declared lowest assets of Rs40 lakh, the report shows.
     
    Gopal Kanda, who is emerging out as kingmaker in Haryana, has highest liabilities of over Rs78 crore, out of which liabilities of over Rs39 crore are disputed, as per his affidavit.
     
     
    Talking about education, as many as 62% of the MLAs are graduate or above degree, while 30% out of the total 90 MLAs have education qualifications between 5th to 12th pass. 
     
     
    Majority or 63% of the newly elected MLAs from Haryana are between 51 years to 70 years, while six MLAs are over 70 years. About 11%) MLAs have declared their age to be between 31 and 40 years while 19% MLAs have declared their age to be between 41 and 50 years.
     
     
    Out of the total 90 MLAs, 29 are re-elected again and have registered an average growth of Rs3.25 crore or 24% in their assets compared with previous election.
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    COMMENTS

    shadi katyal

    4 weeks ago

    It is a very educational data and gives educational background but what it fails to tell us the number of criminals and reason of being given tickets by each party.
    Whu has EWC gailed to check thids over all.

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