1. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online),
Volume 5, Issue 4, April (2014), pp. 100-105 © IAEME
100
IS IT END OF ROAD FOR PPP IN ROAD INFRASTRUCTURE IN INDIA?
Dr. S Kasturi Rangan
Professor,
Department of Management Studies, Padmashri B V Raju Institute of Technology,
Narsapur, Medak, Andhra Pradesh
ABSTRACT
Public Private Participation(PPP) model has been touted as the panacea for development of
the Road infrastructure in India. Several projects have been devised by National Highways Authority
of India and many projects are completed or under implementation. However, there have been
serious issues plaguing the sector which has not only affected the implementation of the projects but
had spill over effects in the banking sector.
This paper analyzes some of the reasons for the serious setbacks in road infrastructure
projects under PPP mode. The paper has identified the challenges faced by all the major players in
the PPP of Road infrastructure i.e. Policy makers, project developers and bankers.
INTRODUCTION
The one sector which touches everyone’s life is the infrastructure sector. Everyone uses the
roads, power, water etc. Infrastructure consists of two aspects, the hard (physical) infrastructure and
the soft infrastructure. Physical infrastructure consists of Transport, Telecom, Power etc. while the
soft infrastructure consists of water, education, health etc.
Transport sector consists of Roads, Ports, Airports and Railways. Of these, the road sector is
of particular interest and importance. India has the second largest network of Roads in the world with
about 46.90 lakh KMs consisting of National Highways, State Highways, major district roads, rural
and other roads.1
.
Table 1: Length of Road network
Type of Road Length (Lakh KMs)
National Highways/Expressways 79,116
State Highways 1,55,716
Other Roads 44,55,010
Source: Annual Report 2012-13, Ministry of Road Transport
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2. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online),
Volume 5, Issue 4, April (2014), pp. 100-105 © IAEME
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Roads touch our lives everyday either for traveling or for carrying goods. In India, the Road
Infrastructure is used by over 60% of the freight and 85% of the passenger traffic2
. The development
of the road sector i.e. road transport and highways is under the Ministry of Road Transport and
Highways..
The investments in Road infrastructure3
during the past 10 years is given below in table 2
Table 2: Investments in Road Sector
Tenth Plan (2002-2007) Eleventh Plan (2007-2012)
Rs Crores $ million % share Rs Crores $ million % share
Centre 71,536 17,884 46.87 1,55,637 38,842 42.94
State 68,143 17,036 44.65 1,34,246 33,561 37.10
Private 12,937 3,234 8.48 72,209 18,052 19.96
Total 1,52,616 38,154 100 3,61,822 90,456 100
Source: OECD
Section II
BACKGROUND
The Union Government is responsible for the development of National Highways. Even
though National highways constitute a very small portion of the total road length at about 1.7%,
these roads carry about 40% of the total road traffic4
. Hence the importance of National Highways in
India.
There have been several studies highlighting the importance of road sector development to a
nation and also the PPP models for infrastructure development.
In his paper on PPP, Teshome Tafesse (2014)5
has studied the institutional framework of PPP
in South Korea. He has concluded that government of Korea has given considerably higher attention
to involve the private sector in infrastructure development. He has also concluded that “the role
played by the committed S Korean government in involving the private sector in creating an enabling
environment particularly in the legal and institutional framework is extraordinary”
Pagano (2010)6
had analyzed the alternatives of PPP in transportation. His study had
concentrated on various approaches of PPP like design build, BOT, DBOT etc. His study had
concluded that PPP “offers the prospect of achieving the desired social benefits of transportation in
the most efficient manner possible”
Gupta etal (2013)7
had studied the risk variation in Indian Road PPP projects. The study had
focused on risk identification and evaluation of road projects under PPP mode in India. The study
had concluded that “riskin BOT projects rise up as project progresses and the project faces the
highest risk during construction phase”
OBJECTIVES
Given the importance of the road sector, the government’s aim on the growth of the economy
and the government’s intent on improving the road sector, the PPP model should have been a roaring
success in India. But by end 2013, the PPP model was in shambles along with the government’s aim
of improving the road connectivity. This paper analyzes the reasons for this sorry state of affairs by
tracing the development of the PPP model in India and the reasons for the despair in the PPP sector.

3. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online),
Volume 5, Issue 4, April (2014), pp. 100-105 © IAEME
102
Section III
THE PPP MODEL
In the past, the government had been the sole agency for development of the road sector. But
slowly, the governments both at the Federal level and at various state levels were running an
increasingly unmanageable budgetary deficit and found it difficult to provide funds for the ambitious
program of development of the road sector. One way which had attracted the attention of the policy
makers was to involve the private sector in the development of the road sector. Accordingly, the
public private partnership (PPP) mode was accepted as a mode of development. In this model of
development, the might of the public sector and the efficiency of the private sector was sought to be
welded together in order to achieve the ambitious program of developing the road sector at a fast
pace and also with the requisite quality. In any infrastructure project, maintenance is as important as
the development of the project. Hence in all the PPP models, the maintenance of the roads so
developed were also sought to be included in the project.
The models put in place for the purpose of implementing the projects under the PPP are:
DBFOT; Design, Build, Finance, Operate and Transfer Model
In this model, investments in the road project is made by the private sector and the returns on
the project is available through collection of Toll fee and other user development fee
BOT (Annuity) Build, Operate and Transfer Model
In this model, the private sector is compensated through annual / semi annual payments at pre
determined amounts by NHAI or other agencies. The amounts and conditions would be as stated in
the bid documents.
Special Purpose Vehicles (SPV)
A SPV, as the name indicates is a vehicle which is created exclusively for the purpose of
executing the project. NHAI would also contribute to the Equity of this SPV. This method is not
popular.
Section IV
The NHAI was the nodal agency for planning and deciding on the private sector participation
in the road sector. In the early years of initiating the PPP scheme in road sector, it was greeted with
much fanfare and great enthusiasm by the private sector. The expectations were that this scheme had
opened up a totally new opportunity worth several billions of dollars and with a ready made market.
Hence it attracted a host of players big and small into the development of the road sector.
Unfortunately, the global financial crisis reared its head around 2008 and its shock waves hit
India too. As the effects of the crisis took its toll, the initial enthusiasm slowly started evaporating
among the private sector participants in PPP model in the road sector. Today the PPP model of
development is having a bumpy ride due to a variety of reasons fashioned by the main players
involved i.e. government, private sector and bankers. In the mythology Mahabaratha, Karna, a side
hero, was killed not by one person but by several people at different stages of his life. Same is the

4. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online),
Volume 5, Issue 4, April (2014), pp. 100-105 © IAEME
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case with PPP in the road sector. The role played by each of the player in creating hindrances for
smooth implementation of PPP scheme is set out below.
PRIVATE SECTOR
Many companies in the private sector went overboard in taking the PPP route to growth.
These companies bid aggressively at the tendering stage without considering many of the risk factors
due to lack of experience in the road sector. This was one sector where the government had taken full
responsibility for the various risks, earlier. It was a fact that there would be no marketing involved
since people will have to use the road and it would be a comedy if someone tried to market usage of
roads.
The target of NHAI was 20 KM/day that is 7300 KMs per year. This was a stiff target but
NHAI started working on the target. In their quest for growth, many companies bid for too many
projects offered by NHAI since it was available for the asking. Financial closure was not an issue
since many banks and other institutions were ready with their moneybags and of course with their
terms and conditions. This led to a situation of biting more than that can be chewed. Cash
management was slowly becoming difficult but was still not considered a major problem. Though
not spoken directly, CFOs of many organizations would have been uncomfortable with the pace of
growth in projects.
Many organizations involved in the PPP for roads, laid too much stress on BOT models. It is
common knowledge that these BOT models were long gestation projects and that would not bring
positive cash inflows for about 10 years. Inspite of this knowledge, many smaller companies bid for
BOT projects aggressively and created problems for themselves and for the system.
It is suspected that many companies bid for BOT projects in order to overcome their cashflow
problems. It is a common practice in BOT models that the tendering company would get some
advance for execution of the project. So was the case with NHAI. Many companies which bid for the
PPP model were provided with advances by NHAI on standard terms and conditions. These funds
provided by NHAI were probably used to bridge the cashflow deficit of the companies and
ultimately created more problems for the execution of the project. When the project does not develop
to the desired state after commencement, naturally NHAI would slap notices which invites further
problems for the company.
REGULATORY MATTERS
One of the most contentious issues in infrastructure development is the role played by
agencies charged with the responsibility of according approvals for projects. Due to involvement of
multiple agencies, more often than not, agencies were working at cross purposes. In the process, the
execution of the project was delayed inviting the wrath of NHAI and also other financiers of the
project. For instance, the environment ministry has its own decision making objectives while the
Highways ministry may grant approval for a project.
There have been several debates about the policy paralysis during the past few years which
have held up several projects including infrastructure projects. These delays by statutory authorities
lead to cost escalations and in the process creates problems for the funding agencies as well as the
project developer.
Land acquisition for road projects have been a contentious issue with politics playing a major
role thus leading to unacceptable delays after commencement of the road project. With the recent
Land acquisition bill, the cost of road development will increase exponentially and also lead to
potential long drawn litigation in existing projects.

5. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online),
Volume 5, Issue 4, April (2014), pp. 100-105 © IAEME
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Added to this is the relentless media glare on policy decisions taken by the government.
Whenever the Comptroller and Auditor General (CAG) presents his report to the parliament, there is
invariably heated discussion on slippages in implementation of various policies and norms of the
government. This method of conducting ‘external audit’ had taken its toll and slowed down decision
making. As mentioned above, the slow down means cost escalation and the consequential negative
effects of project implementation.
FUNDING AGENCIES
Banks have been in the forefront of the financing PPP mode of road infrastructure. The
outstanding bank credit to Road infrastructure was at Rs. 1313 Billion by end 2012-13. The banks
were happy that they could deploy funds profitably and the comfort that NHAI had awarded the
projects. But expectations soured when project delays started rearing its head. There were delays in
meeting the financial obligation by the Road infrastructure borrowers to the funding agencies. The
banks had to make provisions for these delayed payments / defaults. These provisions for NPAs
dented the profitability of the banks. A glance at the status of applications for restructuring of debt
issued by the CDR cell of the banks gives a scary picture.
Industry-wise Classification of Live Cases as on 31/03/2014
Sr. No. Industry No. Aggregate Debt
(Rs. crore)
Debt in %
1 Infrastructure 25 50239 20.72
2 Iron & Steel 53 43538 17.96
3 Power 15 26314 10.85
4 Textiles 45 20138 8.31
5 Ship-Breaking/Ship Building 4 16792 6.93
Source: CDR cell progress report
The infrastructure sector has about 21% of the aggregate debt under restructuring. This is
exclusive of several other players who have applied for restructuring or whose applications have
been turned down.
It is but natural that banks would tighten the screws on road infra players. But the question to
be answered is what happens when a BOT project fails?. How will the banks get back their money.
Can the banks take possession of the projects under SARFESI act?
These questions would be haunting the banks and thus the banks had stopped funding the
projects. This led to liquidity issues for the road infrastructure developers and the cycle of delay-
deterioration- failure has started.
SUGGESTIONS
Based on the discussions above, a few policy suggestions can be made which are implementable:
There has to be a single window clearance for road infrastructure projects. The government
or its agencies should take the lead for ensuring all clearances within a time bound period say 6
months from the award of the project. Once this clearance is obtained there shall not be any more
clearances required for implementation of the project. It takes about 4 months to achieve financial
closure for implementing a project. Since the single window clearance and financial closure will be

6. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online),
Volume 5, Issue 4, April (2014), pp. 100-105 © IAEME
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running parallel there could be time saving for project completion. Also there has to be penalty
clause for getting single window clearance but financial closure not achieved and also for not getting
the single window clearance within the time period stipulated.
A trading mechanism has to be devised for trading of projects on the lines of Stock
exchanges. Road infrastructure projects are long gestation projects. Any project starts with certain
assumptions which can change as time progresses. Hence a project may be viable today but one year
down the line, it may be unviable due to circumstances beyond the control of the developer or the
funding agencies. At the same time there could be some other players who are capable of managing
the project more efficiently. The players who have entered the project should have an opportunity to
exit in a transparent manner. Hence the need for trading mechanism which is information efficient
and transparent.
The pricing for usage of roads under BOT (Toll) and BOT (Annuity) has to be market
related. There are challenges to be faced because the roads are used by the common man. Atleast a
start can be made by trimming the list of exempted vehicles on National highways. The exemption
list has to be restricted only to the President of India, PM, Governor, the CM along with one or two
vehicles of their convoy. In addition emergency vehicles like fire engine, ambulances etc should be
exempted. All other vehicles should be made to pay the road usage charges.
All road infrastructure projects should have a plan B at the tendering stage. Instead of
awarding the contract to one party, another party should also be involved in the project right from the
design stage. The second party should be in a position to takeover the project should the first party
delay / default in implementation under predetermined conditions. As a compensation, the second
party should be paid a certain fixed percentage of premium just like insurance. This will reduce the
uncertainty in implementation of the road projects.
REFERENCES
[1] Annual Report 2012-13, Ministry of Road Transport and Highways.
[2] “National Highways Development Project – An overview”, Lok Sabha Secretariat, Reference
Note No.23/RN/Ref/August/2013.
[3] “Public Private Partnership in National Highways: An Indian Perspective”, OECD,
Discussion Paper No. 2013-11
[4] Outcome budget 2013-14, Ministry of Road Transport and Highways, Govt of India.
[5] Tafesse, Teshome, “Public Private Partnership in Development: Lessons in devising Legal
and Institutional Framework from S Korea”, Public Policy and Administration Research,
Vol 3, No.4, 2014.
[6] Pagano, Anthony M, Journal of Transportation Research Forum, Vol 49, No.2, pp 77-89.
[7] Gupta, Anil Kumar etal., Risk Variation Assessment of Indian Road PPP Projects,
International Journal of Science, Environment and Technology, Vol 2, No 5, 2013.
[8] Dr M.A.Lahori and Mohd Siham, “Relevance of Ethics in Business-A Study on Public
Transport System”, International Journal of Management (IJM), Volume 4, Issue 2, 2013,
pp. 227 - 235, ISSN Print: 0976-6502, ISSN Online: 0976-6510.
[9] Christine Kowal Chinelli, Carlos Alberto Pereira Soares, Orlando Celso Longo and André
Bittencourt Do Valle, “Relevance Transportation Project Performance Management”,
International Journal of Management (IJM), Volume 4, Issue 6, 2013, pp. 84 - 91,
ISSN Print: 0976-6502, ISSN Online: 0976-6510.