Land buys for roads slow, admits Kamal Nath

The United Progressive Alliance (UPA) regime, in its second term, is betting big on infrastructure for economic growth. Its target is to construct highways at an unprecedented pace of 20 kms a day and invest Rs 200,000 crore over the next two years. But the road ahead is replete with challenges such as those about land acquisition and policy.

The Union road transport and highways minister Kamal Nath, in an interview to Ashutosh Kumar of DNA, discusses the progress, issues and options. Excerpts:

What is the status of land acquisition for your Work Plan I, which envisages awarding Rs 100,000 crore project in 2009-10?
It is slow, but is moving. I am holding a meeting with the National Highways Authority of India (NHAI) on this soon. NHAI is acquiring land as per the provision of National Highways Act, 1956. Considering the delays and other constraints faced in land acquisition, we are examining changes to streamline the process. NHAI has planned to compress the timeframe for land acquisition from 18 months to eight months. Targets have been fixed for each project and will be notified between this December and March 2010.

In the last three months, NHAI has not been able to award a single project. And since you took over, only nine projects have been finalised. What’s up?
That’s because we needed to correct some rules like conflict of interest, termination and exit clauses in the model concession agreement to make it more attractive to investors. We also set up the B K Chaturvedi Committee. I wanted to do all those things ... you cannot award one project with one clause and another under a different clause. Now, we have corrected all that, including the conflict of interest clause. All the changes and recommendations will be implemented in the next seven days.  The conflict of interest threshold has been modified to 25%. But a section of developers is demanding its implementation on retrospective basis... We have to look at what is possible legally. NHAI is looking into this, and whatever is the best option will be taken up.

Coming to expressways, you have talked of models like clubbing real estate development with projects. But infra companies are sceptical because they see the businesses having two radically different types of income streams. How do you reconcile this?
Yes, they are two different streams. We have not developed the model yet and are looking at different options. The basic point is, expressways that come up will be greenfield projects. The participation of state governments will be crucial because the developments envisage residential townships, satellite clusters ... new industrial areas. Entrepreneurs will be developing around the expressways. A lot of stuff needs to be looked into.

What is the revenue model you have in mind for such projects?
It will be toll plus development. A large part of the capital cost has to come from developments along the sites.

Then what’s in it for highway constructors?
They will tie up with the real estate developers and state governments. It will have to be a holistic thing just like expressways across the world, where projects have led to further societal development. And they will also stop urbanisation. When there is an expressway, say just 50 km outside Delhi, people will stay 50 km out in a new self-contained township, in a better environment.

Financing for roads is critical. Why was the idea of Road Finance Corporation  scrapped then?
Currently, 85% of the finance for the road sector is being provided by public sector commercial banks. It was felt that creating another organisation at this stage to do the same financial intermediation for the same target audience isn’t exactly adding incremental benefits.

You have made five visits overseas to woo investors since taking over. What has been the response?
The response we got is highly encouraging. We have had a number of enquiries from private equity funds, sectoral funds investing in infrastructure and other large investors. Remember, India is a leading destination for infrastructure spend, and the roads sector offers tremendous growth potential. Global investors look at India as a favourable parking lot for their money. They know the highways sector offers the best returns. 

What will be the impact of highway development in the next five years?
India’s rapidly growing economy has been placing huge demands on power networks, roads, railways, and transport systems. Infrastructure bottlenecks have been eroding our competitiveness, While the national highways network has doubled lane availability between 1997 and 2009, soaring demand has far outstripped supply. The ripple effect of road sector development would be felt through the entire economy. I believe highways have the potential to contribute around 1.5%-2% of gross domestic product.

As a minister, how has the shift from commerce to infrastructure been?
Commerce is very conceptual, but infrastructure is very hands-on and domestic, and so very exciting.