Govt proposes EPC route for J&K, N-E road projects

NEW DELHI: The ministry of shipping, road transport and highways has recommended that road projects in Jammu & Kashmir and the North-Eastern region be commissioned directly on the engineering-procurement-construction (EPC) basis to avoid delay. Under the present practice, highway projects follow a three-tier model.

First, bids are invited on the build-operate-transfer (BOT) toll basis. In the case of inadequate response, the project is offered on BOT annuity basis. If projects are still unable to attract bids, they are then offered on the EPC basis.

“Infrastructure companies are unwilling to take up projects in J&K and the North-Eastern on BOT due to the higher risks associated with high cost of construction and high traffic and operations & management (O&M) risks,” an official said.

The ministry has also suggested that all tolled highway projects where the post-tax returns to the investor are greater than 16%,the present economic internal rate of return (EIRR), be bid out on BOT (toll) basis. If the projected returns are less than this level, returns would be re-assessed with the inclusion of a maximum of 40% viability gap funding (VGF).

The project would continue to be bid on BOT (toll) until the project yields returns equal to the stipulated level of 16% with a maximum VGF of 60% of the total project cost. This would require the approval of the Public Private Partnership-Appraisal Committee (PPP-AC).

Only if the project does not yield the acceptable level of returns with a VGF of 60% would the project be bid on BOT (annuity) basis. The National Highways Authority of India would develop the project on EPC basis if bidders are unwilling to assume traffic and O&M risks and demand a higher VGF or annuity than what the government deems acceptable.