How to get those crucial highway projects going

The policy of public-private partnership for highway projects calls for thorough overhaul to avoid delay. Now, it is welcome that the panel headed by C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, has called for flexibility in premiums (read, charges) payable by the project promoters, to factor in unforeseen cost escalation and projections of lower traffic and toll collections following the slowdown in overall growth. Note that road developers bid to pay premiums to the Centre in build-operate-transfer projects on the assumption of high future returns.

But we surely need proactive policy to tackle not just the symptoms but also the cause of delays in road projects. The point is that processes for obtaining environmental and forest clearances and carrying out land acquisition can mean grave uncertainty for road projects, and systematically delay them with the result that costs go haywire. It is true that to incentivise private sector participation in roads, the government does provide a number of fiscal incentives, including bearing the cost of project feasibility study, environmental clearance, compensatory afforestation, etc. But the vital need is for the Centre to do the initial spadework like getting prior approval for environmental and forest clearance and land acquisition and only then to invite bids, so as to boost investor interest.

Twenty projects worth Rs20,000 crore awarded before 2011 face 30% cost escalation because of delays in garnering the requisite approvals. True, despite upfront clearances, lower toll collections can still hamper road projects. But to tackle such risks, there is provision for revenue shortfall loans from the Centre, and anyway, these commercial risks can be better managed than outright uncertainty over approvals.