A

Report
on

Road Sector in India

Submitted in partial fulfillment of the course
Infrastructure Development and Financing

To
Prof. Raghuram
Prof. Rekha Jain
Prof. Sebastian Morris

On
August 24 2001

By

Ajeet K Choudhary
Deepak Dangayach
Prashant Dwivedi
Tarun Sharma
Venu Madhav P.

Indian Institute of Management, Ahmedabad

A Report on Road Sector In India Group IX, Section B 1

Table of Contents
Introduction.................................................................................................................................................. 3
Trend in Road Traffic ................................................................................................................................. 3
Problems ....................................................................................................................................................... 4
National Highways Development project............................................................................................... 4
Frame work for Commercialization of Highways ................................................................................. 5
Current Status of Road Network in India .............................................................................................. 5
Comparison with Other Countries ........................................................................................................... 6
Statutes and Institutional Structure........................................................................................................ 7
National Highway Development Plan (NHDP) ...................................................................................... 8
NHDP Mandate ............................................................................................................................................ 9
Funding plan for development of roads............................................................................................... 10
Current Status............................................................................................................................................ 12
Governmental Support............................................................................................................................. 12
Management Of Highway Built Through Private Investment.......................................................... 13
Key Issues facing the Sector .................................................................................................................. 14
Other Innovative Road Development Projects ................................................................................... 16
Impact of NHDP on Domestic Industry................................................................................................ 17
Review of the book- Indian Highways: A framework for commercialization............................... 18
Present status of Indian highways ........................................................................................................ 18
Strategy for funding highway development ........................................................................................ 19
Shadow tolls/annuity scheme ................................................................................................................ 19
Phased development ................................................................................................................................ 21
Rationale for user charges ...................................................................................................................... 21
Need for reform and restructuring........................................................................................................ 22
Model framework ...................................................................................................................................... 22
Rationale for phased development ....................................................................................................... 23
Technical Parameters ............................................................................................................................... 23
Concession period ..................................................................................................................................... 24
Selection of Concessionaire .................................................................................................................... 24
Grant ............................................................................................................................................................ 24
Concession fee........................................................................................................................................... 24
Risk Allocation............................................................................................................................................ 25
Financial Close ........................................................................................................................................... 25
User Fee ...................................................................................................................................................... 25
Local traffic ................................................................................................................................................. 26
A Report on Road Sector In India Group IX, Section B 2
Construction ............................................................................................................................................... 26
Operation .................................................................................................................................................... 26
Right of Substitution................................................................................................................................. 26
Force Majeure ............................................................................................................................................ 26
Termination ................................................................................................................................................ 27
Monitoring and Supervision .................................................................................................................... 27
Government Support and Guarantees ................................................................................................. 27
Miscellaneous ............................................................................................................................................. 28
Applicability to State Highways .............................................................................................................. 28
References .................................................................................................................................................. 29
Exhibits ........................................................................................................................................................ 30
A Report on Road Sector In India Group IX, Section B 3
Introduction
India has one of the largest road networks in the world (over 3 million km at present). For
the purpose of management and administration, roads in India are divided into the following
five categories:
?? National Highways (NH)
?? State Highways (SH)
?? Major District Roads (MDR)
?? Other District Roads (ODR)
?? Village Roads (VR)
The National Highways are intended to facilitate medium and long distance inter-city
passenger and freight traffic across the country. The State Highways are supposed to carry
the traffic along major centers within the State. Other District Roads and Village Roads
provide villages accessibility to meet their social needs as also the means to transport
agriculture produce from village to nearby markets. Major District Roads provide the
secondary function of linkage between main roads and rural roads.
The Road network in the country is as under

CATEGORIES LENGTH (KMS)

Primary road system covering National Highways 38,445

Secondary road system covering State Highways (SH) 1,33,000

Other roads including major district roads (MDR) other district roads
28,46,400
(ODR) & village roads (VR)

Trend in Road Traffic

Freight transport by road has risen from 6 billion tonne km (BTK) in 1951 to 400 BTK in
1995 and passenger traffic has risen from 23 billion-passenger km (BPK) to 1,500 BPK
during the same period. Freight and passenger traffic are expected to increase to 800 BTK
and 3,000 BPK respectively by the year 2001. The annual growth of road traffic is expected
to be 9 to 10%. Current boom in the automobile sector may even increase the future
growth rate of road traffic. While the traffic has been growing at a fast pace, it has not been
possible to provide matching investment in the road sector, due to the competing demands
from other sectors, especially the social sectors, and this has led to a large number of
deficiencies in the network. Many sections of the highways are in need of capacity
augmentation, pavement strengthening, rehabilitation of bridges, improvement of riding
quality, provision of traffic safety measures, etc. There are congested road sections passing
through towns where bypasses are required. Many old bridges are in need of
rehabilitation/replacement along with capacity augmentation.
A Report on Road Sector In India Group IX, Section B 4
NHs are the main arterial roads which run through the length and breadth of the country
connecting ports, state capitals, industrial and tourist centers and neighbouring countries.
NHs constitute less than 2% of the total road network, but carry nearly 40% of the total
road traffic.

Problems
There has been no matching growth of the main road network comprising of National and
State Highways as seen from the table given below:

CATEGORY 1951 1998 %

Expressways Nil Nil -

National Highways 22,255 38,445 72%

State Highways 60,000 1,33,000 123%

Other Roads 3,18,000 28,46,400 792%

Total 4,00,255 30,15,845 653%

The main roads have not kept pace with traffic in terms of quality also. Out of the total
171,445 Km. Length of National and State Highways only 2 percent of their length is four-
lane, 34% two-lane, and 64% single lane. As far as NHs are concerned, only 5% of their
length is four-lane, 80% two-lane and the balance 15% continues to be single lane.
Thus the road sector, in spite of its high priority is adversely affected by the poor quality and
service levels. The poor quality of Indian roads is highlighted by congestion, old fatigued
bridges and culverts, railway crossings, low safety, no by-passes and slow traffic movement.
The deficiencies in the road network is causing huge economic losses due to slow
transportation and also contributing to high rate of road accidents.

National Highways Development project

In order to improve the road network on a country wide level, the National Highway
Development Project was set up by the PMO. The project aims to develop the Golden
Quadrilateral and the North south as well as the East West corridor as these are the high
volume sectors carrying the substantial portion of the road traffic in India.
This report aims to study the NHDP with respect to the mandate that was given for the
NHDP to the National Highways Authority of India (NHAI). The funding plan to fulfill the
objectives of the NHDP is also discussed. A host of financing mechanisms utilized in the
NHDP are presented. In addition, the current status of the project in terms of the award of
A Report on Road Sector In India Group IX, Section B 5
contracts, release of funds for the projects from various financing agencies etc along with
the future completion dates are also discussed.
The government’s role in providing support to the project like policy incentives for promoting
investments, increasing private sector participation in building infrastructure and financial
support is also explored. The other road development projects carried out by the
government are also looked at for comparison.

Frame work for Commercialization of Highways

In the context of the NHDP, the framework for commercialization of highways as proposed
by Mr. Gajendra Haldea has been studied to evolve a comprehensive policy for improving
the private sector participation in the Road sector. The Model Agreement, as proposed by
him takes into account the deficiencies in the present framework of private participation.
The model attempts to address the concerns of all the stakeholders like the investor,
lenders, the government and NHAI, with an emphatic orientation in favor of the user.
The model proposes a phased development of the Project Highway to avoid huge capital
commitment and thus encourage private participation. The agreement also provides for
strict definition of technical parameters from the users point of view. Issues such as risk
allocation, concession period and concession fee are clearly dealt with special focus on
encouraging private participation. It also provides for substantial flexibility to the
concessionaire in terms of operation, construction and monitoring and supervision. The
obligations of the concessionaire and the NHAI are clearly spelt out.
Thus the Model Agreement Framework has been well drafted and can be used as a
foundation for developing policy initiatives for improving private participation in the roads
sector.

Current Status of Road Network in India

The roads and highways in India account for about 80 per cent of the total passenger traffic
and about 60 per cent of the total freight traffic in the country (Table 1).
??Of the 49,585 km of National Highways in India about 33 per cent are single lane
and only about 2 per cent of the total road network is four lane. The poor quality of
Indian roads is highlighted by congestion, old fatigued bridges and culverts, railway
crossings, low safety, no bypasses and slow traffic movement.
??Considering the importance of the road sector in the country, the government has
embarked on the ambitious National Highway Development Project covering 13,000
km with a cost of Rs.54, 000 crore and the projects have already started rolling.
??The Indian construction industry that had been experiencing a slowdown witnessed a
growth of 9 per cent and 8.5 per cent for the periods FY2000 and FY2001 (1st half)
A Report on Road Sector In India Group IX, Section B 6
respectively. This was possible due to the increased spending in infrastructure and
the actual taking off of some of the road sector projects.
Table 1: Current Status
Road Railways
Passenger 80% 20%
Freight 60% 40%

However, road development has been ignored in most of the development plans of India.
National & State highways comprise around 5.9% of the total 3.1mn kms of road network.
National highways, which carry 40% of the total traffic, comprise just 2% of the total road
network (Refer Table 2).
Of the total 182,000 kms of state and national highways only 1% is four lanes, 34% is two
lanes. Around two thirds is still one lane. The poor state of road infrastructure has badly
affected the transportation in our country. Our commercial vehicles are able to make only
250-300 kms in single day against 500-600 kms in developed countries. This shows the poor
state of road infrastructure, one of the most vital elements for economic growth.
Table 2: Indian Road Network
(in Kms.)
Total Length 33,00,000
National Highways 52,000*
State Highways 1,28,000
Major District Roads 4,70,000
Village and other Roads 26,50,000
*NHs are less than 2%but carry more than 40% of traffic

Comparison with Other Countries

The total road length in India is more than 2.25 million kilometers today (table 4), of which
half is paved. This compares favorably with the U.S. that has 6.24 million km of total road
length (3.63 million km paved). Compared to this, China has a total road length of 1.03
million km out of which only 170,000 km is paved. In terms of road length per square km,
the connectivity in India (68.4 km per sq. km) is hence much higher than China (10.7) and
comparable to the U.S. (66.5). However, most roads were built with the primary aim of
moving passenger traffic. With demand outstripping the supply and due to changes in
nature of goods moved, the modal share of road transportation has increased substantially.
This has led to introduction of new, larger capacity, trucks. Most highways do not have the
adequate bearing capacity for multi-axle and tandem trucks. This has led to rapid
deterioration of road surface quality in many areas. A look at the levels of road traffic (table
5) indicates that there is a great potential for increase in this area, which is similar to the
case of rail-based freight transportation.
A Report on Road Sector In India Group IX, Section B 7
Table 3: Comparison of the Transportation System

India China U.S.

Railways

Pass km, billion 263.82 241.37 29.77

Ton km, billion 173 811 1,310

Road

Pass km, billion 400 - 4,282

Ton km, billion 140 - 973

Statutes and Institutional Structure

The functions relating to development, maintenance and management of National Highways
are carried out by the Central Govt. under the provisions of National Highways Act, 1956.
The Act has been amended in June, 1995 to permit private sector participation.
The National Highways Act, 1956 empower the Central Govt. to enter into agreement with
any person for development and maintenance of National Highways. The person may be an
individual, partnership firm, company, joint venture, consortium or any other form of legal
entity, Indian or foreign, capable of financing from own resources or funds raised from
financial institutions, banks, open market etc., designing and building the project and
operating and maintaining it, collecting fee from users during an agreed period which
together with construction period is termed as concession period. Upon expiry of the
concession period, the right of the person to collect the fee and his obligation to operate
and maintain the project will cease and the facility will stand transferred to the Central Govt.
All policy matters relating to National Highways are decided by the Ministry of Surface
Transport.
The Central Govt. has decided that the policy of privatization of National Highways will be
implemented by the National Highways Authority of India (NHAI). In exceptional cases, the
Central Govt. may also assign the functions of implementing agency (IA) to the States.
NHAI was established under the National Highways Authority of India Act, 1988 but was
operationalised on in February 1995. The Authority is an Autonomous Body with executive
responsibility for the development, maintenance and operation of those National Highways
and associated facilities vested in it by the Ministry of Surface Transport. It is intended to
take over the management of the entire National Highways on agency basis in a phased
manner. The Authority has been entrusted with the execution of the highway projects under
ADB-III as well as OEC-III. In addition, NHAI will also be implementing other externally-
A Report on Road Sector In India Group IX, Section B 8
aided projects like World Bank-III and maintenance thereof. NHAI will also be responsible
for implementation of the policy of privatization in highway sector.
Apart from the Chairman the Authority has four full time Members namely Member
(Technical), Member (Finance & Administration), Member (Private Investment) and Member
(Information Technology).
MOST has so far entrusted the following works to NHAI for implementation under BOT
Scheme:
??Durg Bypass on NH-6 in Madhya Pradesh
??6 ROBs in Rajasthan, namely:
o Kishangarh Bypass - NH-8
o Ajmer Bypass-2 ROBs NH-8
o Km 26 of NH12
o Km. 69 of NH-12 (Newari Bypass)
o Km. 11.5 of NH-14 (Beawar)
??Moradabad Bypass on NH-24 in Uttar Pradesh
??Akola and Amravati Bypasses on NH 6 in Maharashtra
??4-laning from KM 343.0 to 381.0 on NH-8 in Gujarat
??Incomplete stretch on the Delhi-Ambala section of NH-1

National Highway Development Plan (NHDP)

For augmenting the capacity of National Highways, sequel to Prime Ministers
announcement, Central Government with National Highway Authority of India (NHAI) as its
nodal agency is undertaking National Highway Development Project (NHDP). The plan
envisages four and six laning of the following roads:
??Golden Quadilateral: Delhi-Mumbai-Chennai-Kolkata-Delhi
??North-South Corridor: Srinagar to Kanyakumari with spur from Salem to Cochin
??East-West Corridor: Silchar to Porbunder
The total length of Golden Quadrilateral is 5952kms and that of North-South-East-West
Corridor is 7300kms. The project envisages a total investment of Rs540bn spread over a
nine-year period. Golden Quadrilateral is scheduled for completion by the end of 2003 and
North-South-East-West Corridor by the year 2009. Of the total development projects
envisaged in the project, around 600 kms of stretch has already been completed.
The Ministry of Surface Transport has issued guidelines to NHAI for awarding all the
contracts of Golden Quadrilateral by June 2001. The authority has also been given a time
frame of 40 days for awarding the contracts. The government expects to grant at least 3000
kms of contracts by June 2001
A Report on Road Sector In India Group IX, Section B 9
In the Phase I of NHDP, Golden Quadrilateral is being undertaken. NHAI has set a target of
awarding around 2027 kms of contracts for four laning of stretches on the Golden
Quadrilateral by the end of current fiscal. However, the RFQ for awarding contracts on most
of the patches have not been called for. Apart from the procedural formalities involved in
awarding the contracts, there are number of other constraints like land acquisition,
environmental clearance and legal formalities. Of the total 2027 kms of projects identified,
around 500 kms were awarded by June 2001. Another 800 kms would be awarded by FY02.
In FY03, a major spurt in awarding contracts is expected.
The government expects to award most of the stretches of Golden Quadrilateral by the end
of FY03. This was the original scheduled time for completion of the Golden Quadrilateral is
FY03. THE Government still maintains that the Golden Quadrilateral is targeted for
completion by December 2003, while the north-south and east-west corridors will be
completed by 20071. total length involved in the Golden Quadrilateral connecting Delhi-
Kolkata-Chennai-Mumbai is 5,834 km. Of this, a length of 811 km is already four-laned and
a length of 2,433 km is under implementation. The government claims that the remaining
length would be awarded at the rate of 1,200 km per year from 2002-03. Going by the
current rate of progress it is more likely that the project would be completed earliest by
FY05.
Table 4: Progress of NHDP
Golden Quadrilateral Kms
Particulars Till FY00 FY01E FY02E FY03
Awarded 700 1373 2948 1381
Completed 520 80 443 1311
In Progress 180 1473 3528 3598
Corridor
Kms
Particulars Till FY00 FY01E FY02E FY03
Awarded 272 50 250 100
Completed 0 50 222 50
In Progress 272 272 300 350

NHDP Mandate
Primary mandate is time and cost bound implementation of National Highways Development
Project (NHDP) through host of funding options including from external multilateral agencies
like World Bank, Asian Development Bank, OECF etc. Work mainly comprises of
strengthening and four laning of high-density corridors around 13,000 Kms in three phases,
over a period of 10 years. The components are
??Golden Quadrilateral - 5,952 Kms connecting Delhi-Calcutta-Chennai-Mumbai
??North-South-East-West Corridor - 7,300 Kms connecting Kashmir to
Kanyakumari and Silchar to Porbandhar

1
The Hindu Business Line, July 3, 2001
A Report on Road Sector In India Group IX, Section B 10
??Providing road connectivity to 12 major ports and high-density road to Madurai
??Involving the private sector in financing the construction, maintenance and operation
of National Highways and wayside amenities
??Improvement, maintenance and augmentation of the existing National Highways
network
??Implementation of road safety measures and environmental management.
Funding plan for development of roads
Roads are primarily funded through budgetary allocations. Central government provides
funds for National Highways and State Government for other roads. Presently the total
allocations, central and state, available for road development are to the tune of Rs110bn,
which is just 42% of total transportation revenues received by the government. This implies
the inefficiency of our system, which consumes 58% of the total revenues received by the
transportation sector.
The following table shows the quantum of investments expected to be invested in the NHDP
over the next three years.
Table 5: Investment Statistics
Investments in NHDP (Rs
bn)
Particulars FY01E FY02E FY03
Quadrilateral 19.5 59.0 87.2
Corridor 7.3 8.1 7.9
Total 26.8 67.1 95.1
Source: India Infoline
For funding NHDP, annuity based model is primarily been adopted. NHAI proposes to
finance its projects by a host of financing mechanisms.
??Cess on Diesel & Petrol is expected to provide Rs20bn annually for National Highway
Development Program. The states are also getting Rs9.62bn for development of
state roads. A dedicated road fund has been created by the central government. It is
expected that the total collections in the fund will be to the tune of around Rs50bn.
The allocations from the fund would be as shown:
o 50% of the proceeds from additional excise duty on diesel would be allocated
for development of rural roads.
o Of the remaining balance, 57.5% would be provided for national highways,
27% for state roads, 3% for development of roads of interstate and economic
importance and 12.5% for railway safety works such as rail roads over
bridges, manning of level crossings etc.
??Issuance of bonds by NHAI guaranteed by Government. In FY01, NHAI has raised
Rs5bn through issuance of Bonds. The borrowing programme of the authority was
delayed because of 54EA and 54EC benefits accorded to investments in Mutual
A Report on Road Sector In India Group IX, Section B 11
Funds till September 2000. In the second round of issue the authority has raised
Rs20bn in March 2001.
??In budget 2001-02, government has increased the allocations for development of
roads by 93% to Rs87.27bn.
??Through external funding agencies like World Bank, Asian Development Bank and
OECF. World Bank has already sanctioned loans worth US$897mn and Asian
Development Bank has sanctioned loans worth US$180mn. NHAI further expects to
raise US$400mn from World Bank and US$200mn from ADB for NHDP every year.
??Talks are in advanced stages for an assistance of US$500mn from World Bank Loan
and US$340mn ADB.
??Issuing of Infrastructure Bonds – In FY01, the authority issued raised Rs25bn from
the issue of Infrastructure Bonds. They propose to further raise Rs31bn in FY02 and
around Rs62bn in FY03.
??By setting up its independent companies and borrowing from the market. The
authority has already set up two companies, Moradabad Toll Bridge Company and
Vadodara Halol Toll road
??Company for getting sops and getting funds from the markets. Through Build,
Operate and Transfer schemes by providing necessary regulatory framework for
accessing private financing The various BOT schemes include
o SPV’
s (Special Purpose Vehicles)
o Annuity
o Shadow Tolling
Table 6: Financing Plan for NHDP
Source Rs. Cr.
Total Cost 54,000
Revenue
Cess on Petrol and Diesel 20,000
External Assistance 20,000
Market Borrowings 10,000
Private Sector Participation 4,000

The funds would be managed by the following agencies:

??Ministry for rural development for component meant for rural roads
??Ministry of Surface Transport (MoST) for remaining funds meant for national
highways, state roads, roads for interstate and economic importance and rail safety
works.
The detailed year wise breakup of the funding is shown in Exhibit 3
A Report on Road Sector In India Group IX, Section B 12
Current Status
The World Bank is likely to release another $590mn loan for the National highway
development project (NHDP), in the near future. The credit, which forms the bank`s second
tranche of loan for the project, would be utilized for four-, six-laning of stretches on national
highway-2 connecting Delhi and Calcutta.
While the Bank`s first tranche of $516 million, released in June last year, is being used for
multi-laning of 477 km of national highway-2 (NH-2) between Agra (in Uttar Pradesh) and
Barakar (in Bihar), the second tranche loan would be used for upgrading the remaining
sections on the NH-2, officials said. The World Bank would provide around $500 million
variable spread rate and single-currency loan with a grace period of five years and 20 years
to maturity.
Besides the $516 million loan, NHAI has already got a $180 million loan from the Asian
Development Bank (ADB) for four-, six-laning of national highway between Surat and Manor
on NH-8, officials added. Negotiations are at present on for the second tranche of ADB`s
loan of around $200 million.
The World Bank would provide $500 million every year till 2006-07 and Asian Development
bank (ADB) 250 million dollars per year over the next seven years. Multilateral funding for
the ongoing NHDP, comprising four-, six-laning of 13,252 km of national highways, is to the
tune of Rs 20,000 crore, while another 20,000 crore will come from the cess on petrol and
diesel.
The amount will be used for part-financing the Rs 54,000 crore (at 1999 prices) project,
which entails four- six-laning of 13,252 km of national highways in the country. The
remaining portion, amounting to Rs 14,000 crore would come from market borrowings and
through private participation. NHAI would raise Rs 13,500 crore through market borrowings
over the next four years, of which Rs 663 crore have already been raised through two
tranches of capital gains exempt bonds.
The first phase comprising over 6,000 km of Golden Quadrilateral project connecting four
metros of Delhi, Mumbai, Chennai and Calcutta with four/six lane would be completed by
2003 and NHAI is expected to award all stretches on the GQ by June this year. The second
phase comprising over 7,000 km of north-south corridor joining Kashmir to Kanyakumari and
east-west corridors connecting Silchar with Porbandar is targeted for completion by 2007.
Governmental Support
Development of roads and highways has been taken up by the union government as a major
step in augmenting the infrastructure of the country. As a means of financing the Rs 54,000
crore National Highway Development Project, the National Highways Development Authority
of India has been authorized to issue bonds.
A Report on Road Sector In India Group IX, Section B 13
NHAI is expected to issue bonds totalling about Rs 12,000 crore till 2003-04. These bonds
are now eligible to tax exemptions from capital gains under Section 54 EA and 54 EB of the
Income-Tax Act.
??Moreover, with the dedicated Central Road Fund created from cess on diesel and
petrol, NHAI is expected to get Rs. 2000 crore annually, which should reduce the fund
crunch for construction of roads. In addition, the Government has also announced
number of concessions and incentives for development of roads to encourage private
sector participation:
??Among the policy incentives for promoting investments in the road sector, 100 per
cent Foreign Direct Investment is permitted, including a five year tax holiday and 30
per cent deduction on profits for the purpose of tax during the next five years for the
private players.
??For increasing private sector participation in building infrastructure tax holiday U/s
80IA of Income Tax Act, 1951 for building roads, bridges, ports, which as per present
provision is available for five consecutive years has been extended to 10 years in a
span of fifteen years.
??Rs9.62bn from the cess fund is being made available to States for state roads. The
total plan outlay for this sector is being enhanced by 93% to Rs87.27bn in 2001-02.
??Pradhan Mantri Gram Sadak Yojana has been launched on December 25, 2000. A
Central allocation of Rs25bn is being granted for development of rural roads in FY02,
same as that of FY01. 50% of the diesel cess is earmarked for development of rural
roads.
??Duty-free import of modern high capacity equipment for highway construction.
??For development of roads, government will provide lands at no cost and free from all
encumbrances.
Management Of Highway Built Through Private Investment
Management Of The Highway Stretch
For the purpose of proper management the highway stretch built through private
investment, the enterprise will have powers to regulate and control the traffic on the
highway stretch forming part of the agreement between the Government and the enterprise.
In order to reduce interference from other authorities, no sales tax and octroi barriers will be
established on the highway stretch, but properly designed unified check barriers may be
allowed at the inter-state borders, located out side the right-of-way with proper entry/exit
layouts.
Regulatory Framework
The Implementation Agency will carry out the Regulatory functions. The upper limit of the
user fee applicable for the initial years will be stipulated in the agreement, together with the
A Report on Road Sector In India Group IX, Section B 14
fee revision formula applicable for the subsequent years and appropriate upper limit of fees
shall be notified by the Government from time to time. The enterprise will be free to charge
less than such notified fee. The Implementation Agency will ensure that the highway facility
is available to all the users on equal terms and no user is charged more than the notified
fee, or harassed in any manner and that the private facility does not result in the creation of
private monopolies. The implementation Agency will also ensure that the highway stretch is
maintained to the proper standards. The Implementation Agency may carry out surprise and
periodic checks, and for any default of the enterprise, suitable penalties on the defaulting
enterprise may be imposed by the Implementation Agency.
The enterprises will be obliged to protect the national interests like national security
whenever necessary and required. They will abide by various statutory requirements relating
to protection of environment, safety etc. and also abide by the directives issued by the
Government/Implementation Agency in this regard from time to time.
Revision Of Fee
The revision of the fee may be allowed every year from the year of opening the road for
traffic, linked to the Wholesale Price Index (WPI).
Dispute Resolutions
Any dispute between the Implementation Agency, the Government and the enterprise will
be settled under the provisions of Indian Arbitration Act, 1940, which has been recently
amended for providing Arbitration procedure on the lines of UNCITRAL
Transfer Of The Project To The Government
For the purposes of transfer, the project will consist of the assets built within the right-of-
way and the junction/inter-section areas and the enroute highway related facilities. At the
end of the concession period, the project, in sound condition, shall be transferred by the
enterprise to the Government free of any cost. The standards to which the project will
conform to at the time of its transfer to the government will be laid down in the concession
agreement. Even after the transfer of the project to the Government, the Implementation
Agency will continue to exercise control on the highway related developments at the
entry/exit points and the advertisements.

Key Issues facing the Sector

In spite of all these concessions, private sector exposure has been below the expected
levels. This is primarily due to reasons like reluctance of the private sector to participate in
long-term projects, land acquisition problems and difficulty in toll collection in the operating
phase in certain stretches.
Although the Indian transportation infrastructure is one of the largest in the world, it is far
from being the best. The population of the country is almost four times that of the U.S. and
A Report on Road Sector In India Group IX, Section B 15
has one of the highest growth rates in the world. The existing transportation system is not
adequate to sustain the current rates of economic and industrial development in the
country. Demand has constantly outstripped the supply of transportation over the last fifty
years. Compared to the U.S., the amount of freight traffic carried by highways in India is
quite meager. This is partially due to poor surface quality of the roads. The Indian
automobile industry today manufactures a large variety of multi-axle vehicles with turbo
charged engines, but most of these are currently exported. The Indian industry needs large
freighters to transport goods. The automobile industry has necessary facilities to
manufacture them in sufficient quantities. The inadequate road infrastructure hence acts as
an economic bottleneck impeding growth of both these industries.
Network Connectivity
Achievement of high network connectivity is usually the first step in infrastructure
development. However, while this is a major problem in a number of other emerging
economies such as China, it is not a factor in the Indian context. India already enjoys one of
the highest rail and road connectivities in the world. The current Road Plan aims at
achieving a level of around 80 km per square km by 2011, which is primarily to achieve
social equity.
Travel Time
The average speed on Indian highways is around 45 km/h, which is less than half of that on
the U.S. Inter-State system. Coupled with this, there is a problem of low bearing capacities.
Most road surfaces are flexible pavement bitumen, with bearing capacities one fourth of the
U.S. Inter-State highways. There is a need for improvement in this area. However, it may
not be desirable to go in for an intricate system of expressways for freight and passenger
traffic. Due to a number of reasons mentioned earlier, it would be economically sound for
the country to maintain a high share of railways in the overall surface transportation system.
Also, construction and upgrading of roads requires major capital investments that may not
be available. Hence, it might be better to go in for selective upgrading through identification
of suitable higher priority corridors. The 2011 Road Plan proposes construction of about
12,000 km of expressways. Seven years after the plan commencement, India has yet to see
this starting in any major way. A major factor hampering road construction is availability of
funds.
Maintenance
The other major issue in freight transportation is increased use of containers. Larger sixteen
wheel trucks and combination vehicles are replacing the old six wheel trucks. These heavier
vehicles need higher bearing capacity of the pavement. Most roads in India currently have a
bitumen pavement. This was initially adopted over concrete because high bearing capacity
was not needed for passenger movement. Most military equipment in India is transported
A Report on Road Sector In India Group IX, Section B 16
on rail, unlike the U.S., where the Inter-State roads were constructed to enable movement
of heavy tanks and artillery. Use of heavy axle-load trucks has led to rapid deterioration in
surface quality. Since immediate upgrading of all the major highways is neither required nor
economical, there is a need for evolution of an adequate maintenance and monitoring
system. Use of heavy axle trucks would have to be restricted to certain roads, where
alternate rail facilities are not available. A suitable strategy might be to restrict such trucks
to roadways identified for upgrading in the 2011 Road Plan. This would have to be coupled
with improvement in the railway transportation system in areas where modal shift is
desirable. An integrated approach would be necessary in this context.
Reliability
Due to increased scales of production and higher inventory costs, the Just-In-Time (J.I.T.)
approach is becoming increasingly popular in India. A number of perishable commodities are
being transported over longer distances. Hence there is a need to increase average speeds
on highways through improvement in the surface quality and increase the existing capacity.
Road transportation needs to be faster and more reliable. Addition of more lanes and
removal of bottlenecks may solve the problem in some cases; alternate strategies may be
required in others. The Government has to be more accountable in terms of the funds
collected and spent on roads. Over the last financial year, the total Government expenditure
on roads was just 10% of the total revenue earned from road transportation (including
gasoline tax). This figure is very low compared to U.S. (85%) and most other countries.
The industry that is responsible for the implementation of the road sector projects is the
construction industry. However the construction industry is still plagued with an absence of
regulatory framework, lack of proper financing mechanism for the contracting community
and low levels of mechanization.
These bottlenecks often result in problems during the execution phase leading to delays and
time and cost overruns.
Other Innovative Road Development Projects
Road development by SPV route
The Government of Gujarat and IL & FS has entered into a Memorandum of Agreement to
examine the feasibility of implementing the concept of widening/strengthening/improvement
of State roads under a commercial format. Preliminary Feasibility of these roads namely
Ahmedabad-Mehsana including Kadi-Kalol section of the State Highway (SH-41), Vadodara-
Halol section of the State Highway (SH.87), and Ahmedabad-Viramgam-Dhrangadhra.
Section of State Highways (SH-17, SH-7 & SH-44) linking Kandla port on National Highway
(NH 8A) has been completed and based on techno-economic, commercial and environmental
and social considerations, it is envisaged that the following projects are viable on a
commercial format.
A Report on Road Sector In India Group IX, Section B 17

In addition the Government has also invited proposals for pre-qualification for private sector
participation in four 4-laning and one expressway project.

SPV Projects - Moradabad Toll Road Company

NHAI has achieved financial closure of the Rs1bn Moradabad bypass project involving a
four-lane expressway highway along a 18-km stretch on NH-24 in Uttar Pradesh. The debt
equity ratio of the project is 7:3. Debt component of the project has been tied up with IDFC,
ANZ Grindlays Bank and State Bank of India (SBI) at competitive rates of about 13.75% with
fine tenures of 15 years.
The repayment of the loans will start from sixth year onwards. The unique feature of the
project is that the repayments are linked to the cash flows from the project. The project is
expected to be complete by December 2001.
Impact of NHDP on Domestic Industry
When NHDP plan was perceived, it was expected that at lease 30% of the national highways
would be in cement, which would usher demand for cement in the country. However due to
cost constraints no major stretch is using cement.
As a policy, government is permitting import of construction equipment for road
development without duty. This has severely hampered the local manufacturers who are in
the business of manufacturing construction equipments. Hence no cement company or
construction company has benefited substantially from the investment in road sector.
The only beneficiaries would be construction companies who are interested in development
of roads. Some of the major beneficiaries are Hindustan Construction Company, Larsen &
Toubro, Gammon etc. However, even here the margins have come down significantly
because of competition from Korean and Chinese companies.
A Report on Road Sector In India Group IX, Section B 18
Review of the book- Indian Highways: A framework for commercialization

Context
The decade of the nineties witnesses a series of economic reforms in India. The government
has since committed to the second generation of reforms aimed at achieving an annual
growth rate of 7 to 8 per cent. Such acceleration in growth is bound to create a massive
demand for infrastructure services such as power, telecom, roads, ports, railways and civil
aviation. All these sectors are already suffering from a large backlog of development, and
the pace of economic growth may itself be constrained in the absence of a quantum jump in
the provision of these services.
Highways, one of the key elements of infrastructure, are entirely owned and operated by the
government. Following the Nagpur plan of 1943, national highways constitute the principal
network for commercial and strategic transportation requirements, traversing through the
states and connecting the major ports. The responsibility for developing and maintaining the
national highways network rests with the central government while the state highways
belong to the respective state governments.
Over the years, the augmentation and maintenance of the road network ahs suffered from a
prolonged neglect owing to the inadequate budgetary allocation. Recognizing the transport
growth and the inadequacy of budgetary outlays to address this constraint, the government
of India decided in 1995 to invite private investment in the highways sector. Several policy
measures have since been announced for commercialization of highways based on user
charges. A detailed framework for awarding the first highway project on ‘Build, Operate and
Transfer’(BOT) basis is still being evolved.

Present status of Indian highways

Owing to the emphasis on rural connectivity, the road network in India has grown
remarkably from 1.4 mn km in 1981 to over 3.3 mn km in 1999, making it the third largest
in the world, though its quality remains poor and neglected. There are yet no expressways
in India. The national highway network is 52000 km long and carries 40 percent of the total
traffic. Less than 2 percent of the national highways are four-lane, about 60 percent are
two-lane and the remaining 38 percent are single-lane. The state highways have an
aggregate length of 137,000 km and less than 1 percent of these are four-lane while about
22percent are two-lane and 77 percent are single-lane.
The growth in traffic has been causing increasing congestion in several highway corridors
across the country. The population of cars, buses and goods vehicles ahs grown from 1.9
mn in 1981 to 8.8 mn in 1999, implying as annual growth rate of 8.9 percent. The share of
road transport in the total passenger traffic is about 80 percent and its corresponding share
A Report on Road Sector In India Group IX, Section B 19
in freight traffic in about 75 percent. It is estimated that a GDP growth of 1 percent leads to
a growth over 1.25percent in passenger traffic and freight by road. As a result, the targeted
GDP growth rate of 7 percent may lead to a traffic growth about 10 percent per annum
causing a tremendous strain on the highway network and its safety. Indian roads already
account for one of the highest incidence of accidents in the world, and claimed nearly
85,000 lives in 1999.
Inadequate capacity, poor maintenance, lack of bypasses for circumventing urban areas,
octroi / tax barriers, road side encroachments and mixed traffic are the principal causes of
congestion that slow down the movement of traffic and increase the consumption of fuel.
The rapid growth of traffic without a matching augmentation of capacity is only adding to
the deterioration of the network. Based on road user cost studies, it is estimated that four-
laning and up gradation of congested two-lane highways would lead to savings of ever 20
percent in the road user costs.

Strategy for funding highway development

In the absence of user charges, the road sector in India has relied entirely on budgetary
resources, which stagnated at about 3 percent of the total plan expenditure during the
seventh as well as the eighth five-year plans. In absolute terms, the funds allocated have
proved grossly inadequate. Given the emphasis on expansion of basic social services coupled
with the pressure on fiscal deficit, any major shift of budgetary resources in favor of
highways seems unlikely, and cannot in any case be justified in the overall context of
government’
s commitment to commercialize infrastructure services.
The budgetary resources of the government should be deployed mainly for leveraging
private capital and market borrowings, and for up gradation and strengthening of two-lane
and single-lane highways what may not be ripe for imposition of user charges.
Consequent upon the decision to invite private investment in highways, several alternative
strategies have been considered by the government. in early 1997, the government
announced the policy of four-laning the existing two-lane national highways on BOT basis.

Shadow tolls/annuity scheme

There has been some debate on the use of shadow toll as a means of sustaining private
investment in highway development. Shadow toll projects are predicted on recovery of user
charges for the use of the highway by each vehicle, in accordance with a pre-determined
tolling structure. They are referred to as ‘
shadow’
, as opposed o real tolls because the
payment for usage is made by the government, and not by the user.
A Report on Road Sector In India Group IX, Section B 20
The annuity scheme, a modified version of shadow tolls, has also been in debate during the
recent past. Under this arrangement, payments to the BOT concessionaire are determined in
absolute terms, irrespective of the number vehicles using the highway.
Shadow toll and annuity payments essentially entail budgetary funding on a deferred basis.
In the Indian context, the constraint of budgetary allocations, present as well as future,
makes both options unviable as these can at best sustain only a fraction of the highway
development programme.
It should be recognized that the shadow toll and annuity schemes are predicated on private
entities setting up the project companies and raising resources from the market for funding
their respective projects. The debt as well as the equity deployed by such companies would
be significantly costlier as compared to the debt raised by the government/NHAI. The
shadow toll/annuity scheme would, therefore, imply a comparatively smaller programme as
compared to an arrangement where funds are raised and serviced by the government/NHAI
since the size of either programme will have to be capped by the ability of
government/NHAI to contract deferred payments. It may be argued that the higher cost of
private capital will be offset by efficiency gains, but this proposition would need to be closely
scrutinized in the context of the emerging framework and practices.
It is argued that the resources required for development of the national highways can be
raised by private entrepreneurs who will be compensated by way of annuity payments,
which in turn will be sustained by a cess on fuels. Alongside, some of the highways are
proposed to be funded through user-paid tolls. It seems doubtful whether, legally as well as
from the economic stand point, the user of a road can be expected to pay a toll while the
fruits of a cess recovered from him are enjoyed by a user in another state of region using
the same class road. It may rather be appropriate to use the cess mainly for two-laning and
strengthening of highways across the country while all four-laning should be sustained by
tolls.
Here the author does not clarify that even if the cess is used to maintain the highways
across the country the issue of the cess collected in a state being used more for some
highways in other state which are in bad shape and might lead to conflicts.
The more significant concern relation to the shadow toll/annuity is the identification of toll
roads and toll-free roads, it is difficult to visualize how the government be able to justify the
toll roads in one state or region and build toll-free roads in another. The region of states
subjected to toll roads may refuse to accept them if they find that no toll being levied in
another state or region. The political fall-out of such discrimination may also not be easy to
deal with. In fact, even an experimental initiation of shadow tolls/annuity scheme may deal
a fatal blow to the very concept of toll roads, which is still in its nascent stage in India.
A Report on Road Sector In India Group IX, Section B 21
Yet another fallout of the shadow toll or annuity scheme would be its adverse impact on
development f the state highways. If the government if India were to abandon the
commercialization of highways, it would be difficult for the state governments to pursue in
that direction, with the imposition of a cess on motor fuels by the union government, the
state may not find it possible to tax fuels any further for raising resources to fund their
highway programmes. A holistic view of the entire sector is, therefore essential for ensuring
a balanced and coordinated approach.
For the reasons stated, the extant government policy for commercialization of existing
national highways seems robust and sustainable.
Here the author has not explored and tried to some up with other options that these two.
Some of the other options that could have been explored might be the increase of road tax,
imposition of differential tax on the type of vehicle, which can be shared by the state
government and central government.

Phased development
The blue print for the national highway development should envisage four0-laning of
national highways in the first phase top be followed by six-laning, along with the services
lanes, after gap of 7-9 years. At the six-laning stage, access control may be introduced for
effecting better traffic management and confining slow moving traffic to service lanes. At
that stage, the national highways would be close to expressway standards, catering to a
much greater volume of traffic. Given the resource constraints, phased development alone
would be sustainable option.

Rationale for user charges

For several years, it was believed that like elsewhere in the world, highways in India could
not be tolled unless a free alternative was provided. This argument is certainly valid for local
users who depend on a highway as their only means of transportation. However for
commercial traffic and cars plying between two cities, improved services for a small fee can
hardly be questioned if such fee is earmarked for servicing the investment on augmentation
and upkeep of respective highway.
It is only through the levy of user charges that government will be able to develop the
national highways on a sustainable basis, and attract the requisite private investment for
this purpose.
User-paid highway development would also ensure a superior level of maintenance through
the BOT concessionaire. As noted earlier, the highways presently suffer from poor
maintenance and neglect, primarily due to the lack of funds. User charges seem to be a
viable alternative for reversing this trend.
A Report on Road Sector In India Group IX, Section B 22
Here the author has not considered the development of highways in economically backward
regions where the users might not be able to pay the charges. In that case according to this
scheme it would be difficult to develop highways in those region. Also it ahs not been
clarified that whether the charges would be used for the use of full stretch of roads or for
partial use also. It might be possible that people of a village might use the road to travel to
another village along the highway, and so would they need to pay the charge. Also it has
not been clarified that the user charges needs to be paid only by the motor vehicles on by
all the user of road as a significant amount of traffic is of non motorized vehicles also
especially for short distance along the highways.

Need for reform and restructuring

A programme of the aforementioned proportions can succeed only if a holistic approach is
adopted towards reforms and restructuring of the highways sector. First and foremost, the
NHAI Act would have to be amended for empowering NHAI to grant BOT concessions to
private entities. More teeth may also need to be provided to NHAI and BOT concessionaires
for managing and maintaining highways and the appurtenant lands.
There is also need to modify the structure and manner of operating of NHAI to make it more
conducive to play a major role in the development of highways through BOT contracts.

Model framework
Whatever be the nature and ownership of four-laning projects, the framework governing
their operations would have to be uniform so as to provide an assured minimum level of
service and safety to the users across the country. Ensuring a level playing field for all the
investors would require that a common framework, whether owned by the
government/NHAI or by private entities, govern all project companies. An appropriate
framework would also virtually eliminate the scope for increasing the liabilities of NHAI as
compared to the present arrangement where the gap between the tender price of highway
projects and their out-turn price is very wide and unsustainable. Such a framework would
also save on time and transaction costs, besides imparting transparency and fairness.
The author proposed a Model Concession Agreement, which tries to deals with all the critical
issues relevant to limited recourse financing of infrastructure projects, and tries to address
equitable the concerns of all principal stakeholders, such as the investor, lenders, the
government and NHAI, with an emphatic orientation in favor of the user. The author expects
that adoption of this framework should accelerate the pace of highway development by
motivating both the NHAI as well as the prospective entrepreneurs to improve the
performance and achieve the targets of growth and development.
Overview of the framework
A Report on Road Sector In India Group IX, Section B 23

Rationale for phased development

The four critical elements that determine the financial viability of a highway project are
traffic volumes, user fee, concession period and capital costs. As the existing highways have
dedicated traffic and the government has prescribed the user fee for uniform application
across the country, the revenue streams can be assessed with reasonable accuracy. The
concession period on the other hand can be extended only for marginally improving project
viability. As three of the above stated four parameter are pre-determined, capital costs is the
only viable element for the bidders to determine the financial viability if a project, and they
would seek an appropriate capital grant/subsidy (being offered by the authority in order to
arrive at an acceptable rate or return.
In such a scenario, higher the capital costs, greater would be the compulsion of project
sponsors to seek larger grants from the government to leverage a larger pool of extra-
budgetary resources, including private investment, resulting in a smaller programme of
highway development. It is therefore important to reply on cost effective designs and to
combine them with a phased investment programme to enable a more efficient and
sustainable development to highways.
As a general principle, capacity augmentation of the nation al highways should be based on
the standards adopted for the on-going projects assisted by the World Bank and the Asian
Development Bank. All these projects are restricted to four-laning, and the recent
suggestion that BOT projects must begin with six-laning should not be pursued, both on
grounds of financial viability as well as the volumes of existing and likely traffic. Sic-laning
should be undertaken only after 7 to 9 years of four-laning, to be accompanied by
substantial up gradation of designs and standards, such as provision of service lanes for
slow-moving traffic, bypasses in urban and semi-urban-areas, grade separation and access
control. On projects where traffic volumes and compositions so justify, service lanes may be
constructed along with the initial four-laning.

Technical Parameters
Presently, the focus is on construction specifications in the agreements. However, the model
agreement proposes technical parameters based on output specifications having a direct
effect on the level of service. The fundamental requirements for design, construction,
operations and maintenance of the Project Highway should be identified so as to leave
scope for innovation and value addition by the concessionaire.
This also provides for the concessionaire flexibility to develop and adopt cost effective
designs without compromising on the quality of service for the users.
A Report on Road Sector In India Group IX, Section B 24

Concession period
A concession period of 22 years has been proposed for a phased six-lane project. This may
be increased or reduced by 3 years depending on the traffic volumes and capital costs of
each project. The time required for construction (2 years) has been included in the
concession period to encourage early completion to maximize toll revenues.

At any time before the completion of 7 years, the concessionaire or Authority would be
entitled to withdraw from the six-laning option, which will reduce the concession period to
12 years (16 years if service lanes are constructed).

Thus the concessionaire is likely to structure and finance the project as a four-lane project.

Selection of Concessionaire
The selection would be based on open competitive bidding. All project parameters such as
concession period, toll rates, price indexation and technical parameters would be frozen and
short listed bidders would be required to specify the amount of grant required by them. The
bidder seeking minimum grant would b awarded the contract.

Grant
According to the Model Agreement, the NHAI would provide the grant in the form of equity
support and the concessionaire should be allowed to fund up to 50% of the project equity
out of such grant. This would reduce the promoters’equity burden and facilitate leveraging
of larger volumes of debt. Any grant in excess of equity support may be used for defraying
O&M expenses in the initial phase.

Concession fee
In the initial years, the concessionaire has substantial outflows of capital due to debt
service obligations. However, over the years, the cash flows increase due to increasing
revenues and reduced interest payments. Therefore, the model agreement proposes that
the concessionaire pays no concession fees in the initial years.
In the subsequent years, the concession fee is proposed to be levied on an ascending
revenue sharing basis. Since the concession fee is to be paid in the later years, the present
value of the fees is lower for the concessionaire.
A Report on Road Sector In India Group IX, Section B 25
Risk Allocation
The model agreement attempts to allocate risks to the parties who are best equipped to
manage them. Project risks have been allocated to the private sector to the extent that it is
capable of managing them. It also increases the scope of innovation and efficiencies in costs
and services by the private sector.

The commercial and technical risks relating to construction, operation and maintenance are
allocated to the concessionaire, as it is best suited to manage them. Other commercial risks,
like rate of growth of traffic are being allocated to the concessionaire. The traffic risk is
mitigated, as Project Highway is a monopoly where existing traffic volumes can be measured
precisely. All direct and indirect political risks are being allocated to NHAI.
Since GDP growth rate bears a direct relation to the growth of traffic. Therefore the
Agreement provides for extension of the concession period in event of economic slowdown
leading to an average GDP growth of less than 5.5% over the first seven years. Similarly,
the concession period is proposed to be reduced if the average GDP growth rate exceeds
7% over the same period.

Financial Close
The agreement stipulates a time limit of 240 days (extendable to 360 days) failing which the
bid security amount shall be forfeited. This is possible if all the parameters are well defined
and all the requisite preparatory work has been undertaken. The model agreement provides
the framework for obtaining the financial closure within the stipulated time. It will result in
substantial cost reduction.

User Fee
The agreement provides for indexation of user fees to the extent of 30% linked to WPI and
exchange rate variations (20% indexed to WPI and 10% to exchange rate variations). A
higher level of indexation is not being favored due to the following reasons:
It would require users to pay more for a declining (more congested) level of service when
they should be receiving the benefit of a depreciated fee.
A higher indexation would also add to uncertainties in the financial projections.
At the time of six laning however, a one time increase in toll rates has been proposed for
neutralizing inflation occurring between project commencing and six laning.
Since the user fee has also been linked to the exchange rate variations, it allows the bidders
to individually determine the extent of foreign equity and external loans that such a linkage
would sustain.
A Report on Road Sector In India Group IX, Section B 26
In order to improve the financial viability of the toll roads, a predetermined increase in user
fee has been provided during the first 5 years. This is done to improve the revenue streams.
The user fee in the first year has not been kept at a very high level to avoid the risk of user
resistance.

Local traffic
It is proposed that the highway should be used by local residents without any payment of
tolls until free service lanes are provided. It would improve the local support for the project
and avoid any legal or political opposition. Frequent travelers would be allowed at a
concessional rate based on daily or monthly passes.

Construction
Handing over the possession of the required land and obtaining all environmental clearances
are being proposed as conditions precedent to be satisfied by the Authority.
The agreement defines the scope of the project with precision and predictability in order for
the concessionaire to determine his costs and obligations.
Before the commencement of the collection of user fee, the concessionaire will be required
to subject the highway to specified tests for ensuring compliance with the output
specifications relating to the level and safety of service for the users.

Operation
Operational performance would be the most important test of the service delivery. The
agreement provides for an elaborate mechanism to evaluate and upgrade safety
requirements on a continuing basis. A dedicated Safety Reserve has been proposed for
meeting the additional cost relating to up gradation of safety measures. The agreement also
provides for traffic regulation, police assistance, emergency medical services and rescue
operations.

Right of Substitution
The lenders in the highways sector require assignment and substitution rights so that the
concession can be transferred to another company in the event of failure of the
concessionaire to operate the project successfully.

Force Majeure
The agreement contains the requisite provisions for dealing with Force Majeure events. It
particularly provides protection to the concessionaire against political actions that may have
material adverse effect on the project.
A Report on Road Sector In India Group IX, Section B 27

Termination
In the event of termination, the Agreement provides for a compulsory buyout by the NHAI.
Termination payments have been quantified precisely in the agreement. Political force
majeure and NHAI default are proposed to qualify for adequate compensatory payments to
the concessionaire and thus guard against any discriminatory action by NHAI or
government.
Debt will be fully protected by NHAI in the event of termination, except for two situations:
When termination occurs as a result of default by the concessionaire, 90% of the debt will
be protected
In the event of non-political force majeure, 90% of the debt beyond insurance cover will be
protected

Monitoring and Supervision

The agreement specifies a ‘
hands-off’approach with respect to monitoring and supervision
and the NHAI is entitled to intervene only in case of default.
Monitoring and supervision of construction, operation and maintenance is proposed to be
undertaken through an Independent Consultant to be selected by NHAI through a rigorous
and transparent process. The independence would add to the efficiency of the operations.
The agreement also provides for a transparent procedure to select well-reputed statutory
auditors to enforce financial discipline. In addition, all the financial inflows and outflows of
the project are proposed to be routed through an escrow account.

Government Support and Guarantees

Loan assistance from NHAI has been stipulated for supporting debt service obligations in the
event of revenue shortfall resulting from political force majeure or Authority default. The
agreement provides for a sovereign guarantee to secure the repayment of debt. This would
result in lowering of interest rates and thus reduction in grants from govt./Authority.
A state support agreement has been contemplated to provide the sponsors and lenders with
support from State Governments in respect of law and order, traffic regulations, land laws,
local bodies etc.
The agreement also provides that if any act or omission of the State Government causes
material adverse effect on project operations, the concessionaire is entitled to claim
compensation or termination payments from state government.
Guarantees have also been provided to protect the concessionaire from construction of
competing roads, which can upset the revenue streams of the project. Additional toll ways
A Report on Road Sector In India Group IX, Section B 28
would be allowed, but only after a specified period and upon compensation to the
concessionaire by way of an extended concession period and reduced concession fee.

Miscellaneous
A regular traffic census and annual survey has been stipulated for keeping track of traffic
growth. Sample checks by the Authority would also be carried out.

Applicability to State Highways

Though the agreement has been drafted for national highways, it can easily be adapted to
state highways with marginal modifications. To implement it, the states would also need to
undertake reform and restructuring of their road sector.
A Report on Road Sector In India Group IX, Section B 29
References
NHAI website, www.nhai.org

India Infrastructure Report 2001, Edited By Sebastian Morris, Oxford University Press, New

Delhi

Road and Highway Industry Report,

http://www.economictimes.com/Budgetcountdown/lroads.htm

“India Infoline Infrastructure Report-The ground realities-2001”, www.indiainfoline.com

Haldea, Gajendra, Indian Highways –A Framework For Commercialization

A Report on Road Sector In India Group IX, Section B 30
Exhibits
Exhibit 1: Estimates and Projections of Freight and Passenger Traffic by Road

Freight traffic
Year GDP (In Cr at Total Traffic Road Movement
1980-81 (btkm)
prices)
(btkm) %
1984-85 132,367 343 161 47
1991-92 185,503 524 267 51
1998-99 281,691 869 585 67
2005-06 1442
Passenger Traffic
1984-85 132,367 966 739 77
1991-92 185,503 1477 1162 79
1998-99 281,691 2450 2046 84
2005-06 4065
A Report on Road Sector In India Group IX, Section B 31
Exhibit 2: Sources Of Funds
A Report on Road Sector In India Group IX, Section B 32

Exhibit 3: Status of NSEW Corridors

On North South East West Corridors

Completed 4 Laned Stretches
States (Corridor) Length (kms.)
1 Punjab (NS) 188
2 Haryana (NS) 254
3 Delhi (NS) 34
4 Uttar Pradesh (NS) 99
5 Karnataka (NS) 33
6 Kerala (NS) 20
7 Gujarat (EW) 20
NSEW Total 648
A Report on Road Sector In India Group IX, Section B 33
Exhibit 4: Status of Golden Quadrilateral and Other National Highways

Completed 4 Laned stretches on NHDP

(All lengths in kms)
On Golden Quadrilateral

NH-2 Delhi to Calcutta

S.No. Section Length
1 Delhi - Mathura 145
2 Mathura – Agra 54
3 Dankuni – Calcutta 5
Sub Total 204

NH-4, 7 & 46 from Mumbai to Chennai

S.No. Section Length
1 Neelamangala – Bangalore 30
2 Bangalore – Hathipalli 33
Sub Total 63

NH-5, 6 & 60 from Calcutta to Chennai

S.No. Section Length
1 Vishakhapatnam – Ankapalli 38
2 Jagatpur – Bhubneshwar 28
Sub Total 66

NH-8 Delhi to Mumbai

S.No. Section Length
1 Delhi – Gurgaon 36
2 Kotputli - Amer (Km. 162.5 - 248.1) 86
3 Jaipur Bypass Phase-I 14
4 Ahamadabad bypass (upto start of A.V. expressway) 15
5 Vadodara - Surat 152
6 Basseim Creek Bridge to Dhaisar 2
7 Rail Over Bridge at Kishangarh 1
8 Dhaisar - Mumbai Km. 498.9 to Km. 502.37 4
Sub Total 310

Total 643

Status : February,2001
A Report on Road Sector In India Group IX, Section B 34
Exhibit 5

National Highways Projects on Golden Quadrilateral

From Total Project
NH 4Lanned Under Implementation
To Length BOT Preparation
By By In To
(Kms) Total Total
NHAI MOST Progress Start
Delhi to
2 1,469 204 438 33 118 140 783 783
Calcutta -
Calcutta
5,6
to 1,751 66 374 - 374 231 1221 - 1221
&60
Chennai
Delhi to
8 1,454 296 417 - 417 128 717 - 717
Mumbai
Chennai
4, 7
to 1,278 63 146 - 146 304 1076 - 1076
&46
Mumbai
Total 5,952 629 1375 33 1408 803 3797 - 3797
(B) Other Than Golden Quadrilateral
NH
9,
24, - 1000 - 214 - 214 - 786 - 786
27,
67

All length in Km.

Civil construction
Length
4- contracts award
Corridor (NH) U-I BOT
Laned By
BAF AAF Diff. 6/2001
3/2001
Delhi - Calcutta (2) 1469 1458 -11 204 471 140 210 573
Calcutta - Chennai (5, 6 &
1751 1661 -90 66 374 221 1062 159
60)
Chennai - Mumbai (4, 7 &
1278 1285 7 63 146 304 248 828
46)
Mumbai - Delhi (8,79,76) 1454 1430 -24 296 417 128 467 250
Total 5,952 5,834 -118 629 1408 793 1770 2027
BAF-Before Alignment Fixing: AAF-After Alignment Fixing: AAF-I-Under
Implementation
A Report on Road Sector In India Group IX, Section B 35