More pain for highway developers?

Fri, 9 Nov Pre-Open

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It's my way or the highway. That seems to be the attitude with which the highway developers are pitching for the national highway projects. India's ambitious plans to build thousands of kilometers of roads each year have hit a roadblock, with construction companies short of cash and banks becoming increasingly reluctant to lend because of chronic problems in getting environmental approvals and in acquiring land, which can take several months or even years.

Shortage of funds is affecting financial closure of some 50 major road projects. Indian highway builders have sought the government's immediate intervention to allow them to exit fully from completed projects. Infrastructure firms, which are now required to stay, invested in a road project for years after completion nearly close to the end of the concession period plan to deploy freed-up equity funds in fresh road projects.

As per existing guidelines, the developers of build operate and transfer (BOT) road projects awarded before 2009 do not have a complete exit option. While those awarded after 2009 can exit only two years after completion. The highways ministry has called a meeting of developers, bankers, financial institutions and finance ministry officials to identify the reasons behind funding problems and ways to solve them.

Cash-crunched private highway developers may offset government's target to award 9,500-km during this fiscal. With only 600-odd km road stretches awarded during the first half of the financial year, even senior National Highways Authority of India (NHAI) officials are conceding that they can award not more than 5,000-km till March 2013.

The implications of slow pace of road development go far beyond the infrastructure sector itself and can affect the overall economy. India's notoriously potholed roads slow the movement of industrial and agricultural goods, hurting manufacturing activity and contributing to inflation because of higher fuel expenses and spoiling of food items in transit.

India now has a total of 70,934 km of national highways, with most of them two-laned passageways. But these highways, which are only 2% of India's total road length, carry 40% of its total traffic, leading to severe jams. So if the country wants to achieve rapid industrial growth, the number one priority should be to develop basic infrastructure.