The ribbons of tar and concrete that have been laid out across the country over the past five years seem to be paying off, both for individuals as well as for the economy as a whole. Let me give you two examples to show why it makes sense to keep investing in new and broader highways.
A journey from Mumbai to Pune takes a little over two hours today. It used to take 4-6 hours to travel by road between the two cities, till the new six-lane expressway was built at the beginning of this decade. On bad days, you could find yourself on the road for as long as 10 hours, frustrated and tired. So, in terms of travel time and ease of driving, the benefits of modern highways such as the Mumbai-Pune expressway are pretty obvious.
It is the other benefits that often escape public attention. A journey in an air-conditioned bus between the Mumbai and Pune used to cost around Rs 100 at the turn of the last century. It now costs around Rs 150. Remember: fuel prices have increased sharply over the past five years. There is a stiff toll to be paid today. And the old rickety buses have been replaced by fancy Volvos. At Rs 50 lakh a bus, they cost more than twice the buses they have replaced.
Why has the price of a bus ticket not increased in tandem with the cost of buying a bus and running it? The answer: the new expressway allows bus operators to use their fixed capital (the bus) more efficiently and run it on less working capital (petrol). Higher speeds and less travel time ensures that far less fuel is burnt than before. Also, a bus can make several journeys between Mumbai and Pune in a day — the capital asset can be turned over several times a day. A bus could make about four journeys in a day before the new road was built. Today, it can make upto eight journeys. It is such capital efficiency that makes it possible for bus operators to cap ticket prices despite a steep increase in costs. The final beneficiary: the consumer.
Now, the second example. The new British Petroleum Statistical Review of World Energy 2006 has some revealing data on oil consumption in various countries. Oil consumption in India fell by 3.5 per cent in the year 2005. China’s oil consumption increased by 2.9 per cent over the same period. The Asia Pacific region as a whole reported a 1.5 per cent increase in oil consumption. There are very few countries that have, like India, consumed less oil in 2005 than they did in 2004. India is more the exception than the rule.
On the face of it, this seems a bit odd. There are several good reasons why India should actually have been consuming more oil in 2005. The economy has been growing at an average of 8 per cent over the past three years. There is an ever-increasing number of cars and trucks on the road. The government has not increased domestic petrol and diesel prices to bring them on par with international prices, so the ability of the price mechanism has not been adequately used to discipline oil users. All this should have meant higher consumption of oil. What we have actually had is lower consumption.
Why? I suspect the reason why oil consumption has fallen despite strong economic growth and relatively low prices is that we are using oil more sensibly than before. Better roads are one catalyst of higher energy efficiency. In simple terms, we need less oil than before to move goods and people around the country. You could call this the infrastructure dividend. Be it the price of a bus ticket or oil consumption in the economy as a whole, there is reason to believe that the improvement of the road network in recent years has benefitted us all.
Add to that future improvements in ports, power and airports. The infrastructure build-up has the potential to spark off dramatic leaps in capital and energy efficiency. If supply-chain discipline, investments in technology and lay-offs of excess workers drove the corporate productivity surge in the late 1990s, better physical infrastructure could drive the second surge in the years ahead.
Niranjan Rajadhyaksha
Another related story:
The government is planning to link toll rates to be paid on highways to inflation. According to the recommendations of the sub-committee on toll policy, when inflation is below 5 per cent, road operators may be allowed more than 100 per cent compensation.
The sub-committee headed by expenditure secretary Adarsh Kishore has suggested an increase of 3 per cent per year. In addition, the tariffs will be linked to the extent of 40 per cent of the inflation. This means if the annual inflation is 4 per cent, operators can increase their toll rates by 4.6 per cent (3 per cent plus 40 per cent of 4, which works out to 1.6 per cent).
An official involved with drafting of the policy said with changing price level the gains could be cancelled out by losses (when inflation crossed the 5 per cent level) in the long run.
Earlier, the Planning Commission had suggested 40 per cent linkage to inflation, but had not recommended a standard increase of 3 per cent a year. But the road transport department pointed out that with only 40 per cent linkage with inflation, it was not financially feasible for operators.
The sub-committee, which has been working on the policy for nearly six months now, has also recommended tolling of the upgraded two-laned highways at a discount of 30 per cent. Also, government staffers on duty will have to pay toll money if the draft recommendation is to go by. However, MPs and ministers are still in the list of free travellers.
A Committee of Secretaries (CoS) was appointed early this year to prepare the toll policy, which in turn constituted a sub-committee to prepare the report. This, after being considered by the CoS, will soon be submitted to the Committee of Infrastructure headed by Prime Minister Manmohan Singh.
Interview with the NHAI Chairman:
The National Highway Authority of India (NHAI) spearheads India’s largest road development programme. But tardy progress in recent times has seen it court quite a few controversies. What’s more, it now faces the uphill task of attracting over Rs 70,000 crore of private investment. Till now it it has raised less than Rs 4,000 crore. NHAI chairman Santosh Nautiyal, who is nearing the end of his three-and-half-year tenure, talks with BW’s Vishaka Zadoo about the difficulties and challenges that NHAI has been facing. Excerpts.
Why the delays in NHAI projects?
I do not agree that the [construction of the] Golden Quadrilateral was slow. Given NHAI’s share of problems and sheer volume of projects, it was not a bad performance.
We had terminated five contracts that had to be reawarded. Besides, many projects were stuck in litigation. Then, there was a problem of non-performing contractors. Seventeen of them have been labelled and will not be eligible to bid for any of the highway projects now. Today, there still are 160-odd km with such contractors. However, we have managed four- or six-laning of more than 6,000 km and have another 6,000-7,000 km under implementation.
Will the North-South-East-West Corridor or the second phase of the National Highway Development Project (NHDP) meet its 2008 deadline?
No. I expect it to be completed by first quarter of 2009 only. I can only ensure that it will be substantially complete by 2008. One of the main reasons will be the change in the alignment of the corridor through West Bengal at the last moment. We have not got the project report yet. I’m not very sure about the stretches in Jammu & Kashmir due to difficult terrain and shortened working period.
Can NHAI handle construction of seven phases simultaneously?
We will need to restructure. There is a genuine shortage of civil engineers. The move towards build, operate and transfer (BOT) projects, in a way, helps us, as then we need contract engineers. We have to look at innovative ways. Many state governments have come up with their construction authorities. We are mulling tying up with them.
Is there scope for private players?
Till now, we have had the BOT model on a very limited basis and projects were more government funded or on annuity basis. Now, a whole new era for NHAI will start. One basic problem will be getting enough bids. Even though the going has been smooth so far, there have been some projects where bidding process had to be repeated due to lack of response.
Have you been able to complete land acquisition, which was one of the main causes of delays for the GQ?
No. But as much as 98 per cent of land has been acquired for the GQ. The remaining 2 per cent should not be a cause for worry as it is the land for service lanes that is yet to be handed over.
Will the new model agreement that 80 per cent of land should be acquired before private operators start work help overcome delay?
The only difference now will be that the pre-construction activities will take more time. It is not that this cannot be done, but it will require some time before we reach that state of preparedness. We will try to acquire 50-60 per cent of land at the time of the signing of the letter of intent, and try to take over the remaining 20 per cent in 6-9 months till the financial closure.
When can NHAI ensure private operators the required land for construction of highways?
It is difficult to set a deadline. The alignments need to be finalised before we even know the amount of land that needs to be acquired. If we go ahead with the 80 per cent provision, it can only be after the alignments are known.
How would you curb instances of underperforming contractors?
Underquoting has been a problem. We are hoping that contractors have learned their lessons and will refrain from doing so. Some countries have adopted a band approach (where contractors can bid within a specific limit) but, again, that is not very transparent. NHAI is looking for transparent solutions. Till then, we are relying on contractors learning from their experiences. But under-quoting has reduced after Golden Quadrilateral.
