Top Priority Projects

Some truths are uncomfortable but need to be expressed - for many of us, delay is par for the course. We show up late for appointments; we're inured to late trains, buses and flights; and we are comfortably resigned to the fact that most things (from plans to projects) are never completed when promised. So why should we focus on delayed infrastructure projects, you may ask? The answer is simple: these projects are a very BIG deal. When the familiar miasma of delay is allowed to creep into a project that costs the earth and is vital to the nation's development, it is time to shed our apathy and ask some serious questions: Which projects are delayed? Why? How do we choose the projects to fast-track? And, most significant, what can the government do? Litany of delay First, let's look at the numbers, straight from the horse's mouth. According to the August 2012 report of the Ministry of Statistics and Programme Implementation, Infrastructure and Project Monitoring Division, out of the 195 'central sector infrastructure mega projects' - costing Rs 1,000 crore and above - 84 are delayed, with respect to the latest schedule, and 30 projects have reported additional delays in the range of one to 20 months. (These figures are with respect to projects relating to coal, power, road transport and highways, petroleum, shipping and ports, and steel sectors.) (Refer to the table for Delayed Projects on Page 83-84.) The total original cost of implementation of the 195 projects was about Rs 624,383.18 crore but their anticipated completion cost is likely to be Rs 718,709 crore, at an overall cost overrun of Rs 94,325.82 crore (15.10 per cent of the original cost). The newspapers are full of projects gone awry; GMR terminates the country's largest contract (Rs 7,200 crore for the Kishangarh-Udaipur-Ahmedabad highway); GVK pulls the brakes on the Shivpuri-Dewas highway; the Mumbai Metro Line II is stalled; and the Kudankulam Nuclear Power Plant loses steam... To get to the bottom of things, let's first look more closely at the key sectors of roads, railways, airports and ports. Roads and highways As the Environment & Building Technologies Practice of consulting firm Frost & Sullivan tells us, there has been a surge in highways projects in the past few years. About 4,375 km was awarded in the first nine months of FY2012, as against 4,553 km in FY2011, 3,338 km in FY2010 and 643 km in FY2009. Indeed, under the National Highway Development Project (NHDP), NHAI plans to award about 25,000 km of highway projects over the next five years through a combination of PPPs and EPC contracts. The report points out that though the award of new projects picked up last year, there was a slowdown in execution primarily owing to delay in land acquisition, clearance and financial closure, while projects with requisite approvals and funding reported healthy completion. Its analysis is succinct: high interest rates, funding constraints, slowdown in execution and increased competition are the key challenges. M Murali, Director General, National Highways Builders Federation, cites the same list of challenges. "The expected investment in the Indian road sector in the Twelfth Five-Year Plan is to the tune of $120 billion, of which the share of the private sector will be around $70 billion," he further underlines. "These targets can only be achieved with policy support. In the past, the lack of consistency in contract terms has been a major concern. Other key issues are the large investment requirement coupled with uncertain recovery. High costs of land acquisition, tolling equipment, maintenance and related costs place a substantial burden on early debt service capacity. Several projects have faced delays in execution mainly on account of delayed land acquisition, removal of encroachments, shifting of utilities, receipt of approvals and environment clearances. In fact, 96 road proposals are pending for forest clearance at the Central Government level and 475 proposals are awaiting clearance from state governments. Besides, actual traffic in many operational toll road projects has turned out to be lower than traffic estimates. Consequently, lenders have increased caution while funding fresh projects." The railways Money does appear to be a major constraint, a concern echoed in the railways segment. According to the Ministry of Statistics report, of 38 mega projects in the railways sector, 15 are delayed. As Adhir Ranjan Chowdhury, Minister of State, Ministry of Railways, tells us, while projects worth Rs 450,000 crore are up for bidding. there are no buyers owing to paucity of funds. "At present, we have ongoing projects amounting to Rs 147,000 crore that we need to prioritise in view of viability and feasibility," he says. "We are not just a commercial enterprise; we have to look at the socioeconomic angle. Our resources are limited and so we provide the funds in a phased manner; thus the amount sanctioned for the railways is spread thin. That's why these projects are undergoing such a long gestation period." KP Singh, Retired Executive, Railway Board, echoes this, saying, "Every year, a large number of project are added purely to get votes and support and the funds are not arranged in advance, so whatever funds are available get distributed over a large number of projects very thinly. Thus, projects do not make much progress." He also cites land acquisition as a major bottleneck, a point reiterated by RK Gupta, Managing Director, Dedicated Freight Corridor Corporation of India. His second concern relates to the non-availability of assured funding. "There is a huge list of projects and hundreds of thousands of crores of sanctions are pending," he says. Shipping and ports As Frost & Sullivan tells us, in 2012-13, almost 25 projects have been identified to be awarded at various major ports in the country under the PPP mode. The Ministry of Shipping's 10-year plan, the Maritime Agenda 2010-2020, intends to develop the capacity of Indian ports to 3,200 mt by 2020 at a cumulative investment of around Rs 2,774 billion in three phases. This proposed investment will be majorly concentrated on non-major ports and on construction of berths. But, the PPP projects at major ports are lagging - of the planned target of 23 projects, only three have been finalised and awarded in FY2012 owing to problems in land acquisition and statutory clearances. And according to the Ministry of Statistics report, of the six projects, three have been delayed. In fact, the construction and development of two offshore container berths and terminals at Mumbai Port - allotted to Gammon and a Spanish company - has reported an additional delay of seven months. The setting up of LNG Regasification Terminal at Puthu Port Trust, reported an additional delay of two months. "The Government had targeted 42 projects, both PPP and non-PPP to be awarded in 2012-13. But it is understood that till now, only 14 projects have been awarded," says A Janardhana Rao, Managing Director, Indian Ports Association. "When projects are stuck, it is because of extraneous factors, mostly on account of court cases, and environmental and forest clearances." For his part, L Radhakrishnan, Chairman, Jawaharlal Nehru Port Trust (JNPT), tells us that it hopes to award Rs 9,000 crore worth of projects by the end of the year, including two for container handling. "Right now, a Rs 1,500 crore dredging project to dredge the Mumbai Port and JN Port channel to 14 metre is under implementation and 10 per cent of the work has been completed," he reveals. "Work will begin on a Rs 1,000 crore 330 metre container berth extension project, awarded a couple of months ago, after the concession agreement is signed. This may be implemented in a year." In his view, environment clearances take the longest time. Meanwhile, Michael Pinto, Former Director General Shipping, Government of India, Former Chairman, JN Port, and Former Secretary-Shipping, Government of India, is quick to express his concern over some projects that have been recently aborted. "One was a project in Ennore Port where they suddenly backed down saying the economic situation is bad," he says. "But in nearby Krishnapatnam port, we are spending over Rs 1,000 crore on expansion and in getting into the container business. And just near Ennore, L&T has put up the new Kattupalli port. So why is only Ennore affected? Second, a huge Rs 6,000 crore-6,800 crore container project in JNPT didn't take off. There was a consortium consisting of the PSA and ABG but for some reason they didn't sign the agreement and finally the port had to cancel the whole project and the deposit amount was forfeited." Experts believe the parties in both cases, especially JNPT, went too high. Pinto, though, has his own reasons for why projects fall through. "You don't need one model concession agreement for every port," he argues. "Ideally, a concession agreement should capture those areas in which the port has an advantage. So you need an individual agreement in each port. The second thing is that you need to go to the PPP approval committee in the Finance Ministry for all PPP projects. If the Ministry of Shipping has the overall knowledge of the port, why go to the Finance Ministry for further checking? It just adds another layer and inhibits investment. Finally, the tariff regulatory authority plays havoc with private investment in major ports." Airports The generation of aviation infrastructure in India has been energised by the involvement of private players. As Frost & Sullivan tells us, the development of airport infrastructure in Delhi and Mumbai has been taken up under the PPP mode to create world-class airports; the development of Kolkata and Chennai international airports has been taken up by the Airport Authority of India (AAI); and Bengaluru and Hyderabad international airports have been developed under the PPP mode as Greenfield airports. Further, the AAI has taken up the development of 35 non-metro airports at an estimated cost of Rs 4,300 crore. "Our big ticket projects are the development of Chennai and Kolkata airports with project costs of Rs 2,015 crore and Rs 2,325 crore," reiterates VP Agrawal, Chairman, Airports Authority of India. "The main reasons for delay have been that the existing airports were operational and work had to be undertaken without disruption to flight operations and minimal inconvenience to travellers. The sites were handed over to the contractors in parts. At some places, existing structures under use ran afoul with the new structure and were to be demolished after vacating them to the new premises. Additional piling and excavation works owing to existence of hard rock added to the delay, as did handover of pockets of land from the state government and defence and security clearance for the Chinese companies participating in the tenders for passenger boarding bridges." He adds that airports at Navi Mumbai, Mopa and Kannur are being developed under PPP mode by respective state governments. "Issues at most airport projects are land acquisition, environmental clearance, equity participation and financial closures," Agrawal points out. "Airport development by nature is a complex exercise with the participation of several stakeholders and requirement of clearances from various agencies." The contractor's perspective Now, let's turn to the people who get the job done, on ground: the contractors. Interestingly, as far as airport projects are concerned, B Seenaiah, President, Builders Association of India, and Managing Director, BSCPL Infrastructure, doesn't have too many causes for concern. "We do not have any issues," he says. "We completed the runway extension of Chennai airport and then in Port Blair within time. In general, in airport projects, unless the entire land is acquired, they do not go in for tendering. They give you everything in a consolidated state or concentrated area." When asked about the land acquisition problems reportedly plaguing the Navi Mumbai, Mopa, and Kannur airports, he acknowledges that land prices have gone up and that the process is time-consuming. "But once that is clear and the designs and drawings are available, they can go ahead and start the project." For projects across the board, though, Seenaiah agrees that environmental clearances and land acquisition (owing to the question of money) are major concerns. BSCPL too has two mega projects pending forest clearance: a Rs 1,250-crore project on the Chhattisgarh-Orissa border and another Rs 1,500-crore project in Meghalaya. He rues that the power sector, hydel projects and thermal projects are hobbled by clearance and land acquisition issues. "In Madhya Pradesh and Chhattisgarh alone, there are projects of almost 10,000 MW worth almost Rs 50-60,000 crore at a virtual standstill. In the Northeast and Himachal, projects of over 10,000 MW are stuck because of clearances," he informs. He also explains that even after financial closure of projects, banks donÆt dispatch the amount unless 80 per cent of the land is given by the client. Sudhir Hoshing, CEO-Roads, Reliance Infrastructure (Rinfra), knows only too well how projects can get delayed. "Our Rs 3,000-crore Delhi-Agra project on NH2 was delayed by two years owing to environment clearance and our Kandla-Mundra project was also delayed because of land and other clearances," he shares. "Although now the clearances and land are in place, progress is still affected owing to a delay in getting environment and forest clearances." Goutham Reddy, Executive Director, Ramky Group, agrees that clearances and land acquisition have bedevilled road projects. "In many NHAI projects, though 80 per cent of the land is given when the project is awarded, the remaining 20 per cent leads to major delays,ö he says. Meanwhile, KK Mohanty, Managing Director, Gammon Infrastructure Projects, points out the fact that projects have been successful in the past, allowing a degree of infrastructural development to take place. "We got around six projects last year; one from the Madhya Pradesh Road Transport Corporation (MPRTC) and five projects from the NHAI, and financial closure is complete for all of them," he shares. "But yes, there has been a delay in land acquisition and environmental clearance in most of them and we are coordinating with NHAI to achieve it in the fastest possible time." The company has road projects in Hajipur-Muzaffarpur, Bihar; Birmitrapur-Barkote in Orissa; and the mining belt in Rourkela. It also has one hydro project in Sikkim and two in Himachal Pradesh; the Sikkim project took five years to get underway; the Himachal project is still pending survey. In his view, land acquisition and clearances, the contractual and legal process, the concession agreement that deters investors, and a lack of understanding that infrastructure development at different stages of its lifecycle (promotion, construction, operation) requires different expertise are all problem areas. "Ultimately, it's almost like a mantra," Mohanty quips. "Land acquisition, forest and government clearance." As for the Gammon-Spanish JV that appears to have hit a wall, he reveals, "Technically, the Spanish are still there but, yes, this is a discussion. The Mumbai port authorities have not been able to fulfil their part of the responsibility; the dredging and land handover have got delayed. They are supposed to hand over the backup area to us in March; then, we will go ahead." S Paramasivan, Deputy Managing Director, Afcons Infrastructure, also shares his experience. "We have two projects that have faced delays," he reveals. "The technically challenging nature of Chenab Bridge, the first project in the world to be designed for 'blast load', called for repeated design scrutiny but the issues are resolved now. And for the Kolkata Metro, which is the first underwater tunnel in India, there were alignment-related issues consequent to difficulties of land acquisition. There are many agencies involved but there have been concerted efforts of late to remove all hindrances." According to him, the unavailability of 80 per cent of land at the initial stage and coordination issues between various agencies are major bugbears. Time and money lost Ultimately, the repercussions of project delays are felt all around. "We are facing time and cost overruns," concedes Seenaiah. "We have claims up to Rs 12,000 crore because of delayed projects and the interest is almost another Rs 10,000-12,000 crore." Reddy points to "significant impacts", ranging from interest during construction and loss of tolling revenue/annuity to project cost overrun and, above all, demotivation and penal costs. Paramasivan spells it out, saying, "Even if projects are stalled, resources deployed at site need to be maintained. The running costs result in a huge cash-flow drag. Revenue generation slows down, leading to working capital and cash flow problems, while associated costs need to be incurred. Finally, increase in input costs over the period leads to huge cost escalations." In the absence of undisputed dispute review and arbitration, things are worse. "The government must make it mandatory that if any arbitration award by any department or agency is to be challenged; they must release money to the contractor, against a bank guarantee," he says. "This results in the contractor getting cash flow and the government being protected in the event of change in the court ruling." Meanwhile, Hoshing draws our attention to the fact that the RBI and lenders have strict regulations against cost overruns. "A number of projects have been stalled in the wake of litigation around small parcels of land and this put the exposure of banks at risk," he says. "As per the regulations, if any project is delayed for more than two years, even though the project is profitable and servicing debt, it gets classified as Non-performing Asset (NPA). Thus, bank funding for road projects is not that easy these days. Materials and manpower also get under-utilised as they are trapped and it isn't easy to relocate them to new projects." Hoshing tells us that many companies like Rinfra will be initiating arbitration to claim compensation for delays owing to authority default. "Government bodies are likely to face claims in thousands of crores from road sector players alone," he cautions. The role of the CCI With these concerns in mind, in December 2012, the Government announced the constitution of a new body, the Cabinet Committee on Investment (CCI), which will be tasked with the responsibility of expediting mega projects, worth over Rs 1,000 crore. "With ministers in charge of infrastructure sectors as its members, the Committee will identify key projects in notified sectors to monitor their progress and time taken to obtain clearance," explains Minister for Information and Broadcasting Manish Tewari. "It will also review the implementation of delayed projects to ensure expeditious and time-bound grant of various licenses, permissions and approvals. The Cabinet Committee, in consultation with the concerned Ministries, will prescribe different time limits for taking decisions on requisite approvals and clearances for projects. The Committee will not function as an appellate body and the companies will not be allowed to go to the Committee. The main purpose is to oversee and monitor large projects, which will give a fillip to India's economic growth." Agrawal tells us that the CCI is a step in the right direction as it will be effective in a majority of cases stuck owing to bureaucratic hurdles and delay in clearances by various agencies. Radhakrishnan and Pinto too believes the presence of a higher authority like the Cabinet Committee on Infrastructure will speed up the passage of approvals and thus implementation. While Paramasivan believes the CCI is a positive step, he points out that it can only be effective if it is has the power to act and intervene; as of now, he is concerned that the respective ministries will continue to drive the process. Hoshing, too, feels that the CCI could be effective if it exercises its powers in the case of critical infra projects and sort out the differences between the Environment Ministry and NHAI over forest clearances. However, Seenaiah believes that ultimately it is the Prime Minister who must take a call. "He must format a subcommittee with three or four ministers and see how we can sort out these problems," he insists. "He must give some guidelines. Only then will things move." To this, Mohanty adds, "You need a shadow committee at the state level so both committees can work in tandem." The priorities It is also significant to identify priorities while fast-tracking projects. So what projects should be brought to the front-burner right away? "You know, everything is a priority today," responds Seenaiah. "You need roads, airports and you need power. How else will the country move?" For his part, Hoshing lists power, which is a crucial input for every industry, and roads, which provide last mile connectivity across the length and breadth of the nation and ensure inclusive growth, as the sectors to fast-track; Reddy agrees completely. Paramasivan lists transportation (marine and surface) and strategic projects (linking of the northeast states with Kashmir) as broad segments that require urgent focus, with urgent attention needed to ports with the implementation of Marine Agenda 2020; railways, including key projects like North Eastern Railway, Srinagar-Baramulla link, DFCC and DMIC; and roads. In the railways segment, Chowdhury calls prioritisation a "continuous process", telling us that 347 projects have been prioritised to the tune of about Rs 147, 000 crore. In Singh's view, new lines that provide port connectivity and serve the industrial sector carrying raw material must take utmost priority. For Radhakrishnan, the dredging and construction of the terminals at JNPT in time are priorities, while in aviation, Agrawal points to Navi Mumbai and other Greenfield airports like Pekyong, Durgapur, Gulbarga and Kannur as priorities as they will provide connectivity and relieve congestion. The Government must... Now that the priorities and problems have both been identified, it's time for some solutions. What are the pending measures the Government must undertake " on a war footing " to get our mega projects off the ground? Here's what our respondents (listed in alphabetical order) said, in a nutshell: Agrawal: "Boost for aviation sector in form of tax concessions related to VAT on ATF, MRO operations; single-window clearances for airlines and airport operators; land acquisition for new airports and expansion with land to be provided free by states; setting up of the Essential Air Connectivity Fund (EASF) to boost regional connectivity." Gupta: "Assign funds to each project in advance; simplify land acquisition; continuity of leadership in project management; and the three Ps: planning, planning and more planning!" Hoshing: "Partial tolling rights on completed stretches for projects where delay is on account of land acquisition; review powers over ministries for CCI and involvement in critical projects; prompt decision making by concerned authority; better coordination between government instrumentalities; land acquisition bill with time-bound schedules." Mohanty: "When you give 80 per cent of the land for a project, it should be continuous and contiguous; make the bureaucracy work; create an investor-friendly atmosphere by activating the secondary market and removing all bottlenecks; address modalities for toll collection and pricing; implement every policy diligently and to its letter; become accountable for decision-making, implementation, process and operations." Paramasivan: "A single nodal agency for all approvals responsible for delivery within a timeframe and a strong focus to release cash to contractors towards project completion." Radhakrishnan: "More delegation to lower levels in PPPs and less time in government approvals are desirable for faster completion of infrastructure projects in the ports sector." Reddy:"Give priority to key projects; take responsibility towards obligations listed in agreements, facilitate permissions and clearances." Seenaiah: "Workable land acquisition policy; blanket approval for forest clearance and environmental clearance; a tender for utility shifting to the concerned department." Singh: "Expedite land acquisition and environment and forest clearance; prioritise projects to fast track; embark on projects only after complete study; give clearance to projects only after arranging funds." Murali: Streamlined and time-bound land acquisition and environment clearances; land (100 per cent) and clearance before bid; single-window clearances for highways projects; allow developers/promoters to divest their stake holding through Special Purpose Vehicle (SPV) in road projects on achieving commercial operations date (COD); liberalise policy on financing to encourage investments in highways." The industry has spoken; now, it's our turn. CW promises to take this list of recommendations to the Planning Commission. It's time to banish delay from our lexicon and get the infrastructure express running, ASAPP! (Inputs by SHRIYAL SETHUMADHAVAN) (Refer to table on Delayed Projects in the following pages.) Must-Do List Frost & Sullivan's recommendations for the Cabinet Committee on Investment "Streamlining the land acquisition process: Delay in land acquisition is the major source of delay in project implementation. The introduction of the Land Acquisition Rehabilitation and Re-settlement Bill (LARR) may improve the process and reduce disputes. The government should adopt stringent guidelines to ensure that all infrastructure projects are awarded after 90 per cent of the required land has been acquired. Further, a special committee should be deployed to address the public grievances of landowners or farmers and either provide them alternate land, benefitting their livelihood, or add them as stakeholders in the project. "Enhance quality of bidding and awarding projects: The government or respective ministries should strive to improve the project bidding and awarding process to streamline the project tendering backlogs. The selection of contractors should be evaluated based on 'quality-cost' criteria instead of 'lowest bidding' or 'cost criteria', which is the preferred form of procurement. The evaluation of the contractors should be based on their technical expertise, quality and availability of manpower (both skilled and unskilled labour), technological adoptability, and financial capability. This will enhance the quality of bidding, project planning and execution. "Effective resolution of disputes: A growing concern amongst authorities and private developers are the disputes that occur owing to poor arbitration clause. The government should consider setting up a special judicial system authorising them to overcome infrastructure-related disputes, especially with PPP tenders. "Facilitation of funding for infrastructure projects: The issue of banks not lending to contractors and the need to allow banks to increase their capital for lending to infrastructure projects has been brought to the Finance Ministry, and consensus has been reached to release 90 per cent of the loan as 'secured'. The government has further taken some positive steps by allowing Indian companies in the infrastructure sector to avail loan of up to Rs 55,000 crore through external commercial borrowings (ECB). Under the EPC model, the government funds the project completely and the contractor has to execute the project. This move is expected to minimise time and cost overruns. This will also enable faster rollout of projects.