June 17, 2011 / 9:04 AM / 8 years ago

INTERVIEW - India eyes record road network expansion

NEW DELHI (Reuters) - India will award a record 7,300 kms of road building contracts this year worth about $12 billion, as a huge privatisation drive makes developers more willing to take on projects and foreign funds eager to invest, a top official at the National Highways Authority of India said on Friday.

Traffic moves along a busy road in Chennai February 1, 2011. REUTERS/Babu/Files

The new contracts will help India meet its target of building 20 kms of roads per day as part of a massive overhaul of its infrastructure sector, boosting the country’s economic growth, said J.N. Singh, member (finance) at the NHAI.

“Compared to the last 4-5 years, the sector has substantially matured,” Singh told Reuters in an interview.

“Whichever side of India you go, you will see road building at a very hectic pace going on right now.”

Overseas private funds such as the UK-based 3i and Morgan Stanley are showing a greater appetite for investing in projects while domestic constructors are getting more and more capable of taking on big projects, he said.

INVESTOR FRIENDLY REFORMS

Investments in India’s road-building with the NHAI will rise about 40 percent to $10 billion in this fiscal year compared to the last, Singh said, of which about 60 percent will come from private funds.

NHAI will also aim to raise at least $445 million in bonds in the same period, he said.

An uptick in interest will give a boost to the government’s ambitious target to pour $1.5 trillion into infrastructure in the 10 years to 2017 to help unclog its congested roads and ports, and build world class airports and underground metros.

“The development community has reached a good amount of maturity,” Singh said. “The smaller players are becoming middle sized players, and the middle sized players are willing to take a big role.

“We are seeing a good number of players having gotten an equity contribution from private equity players as well as venture funds.”

Investor friendly reforms also helped attract cash, Singh said. For example, the government recently tweaked building contract rules to give more flexibility to companies wishing to sell their project to another developer, he said.

However, hurdles from land acquisition hassles to bureaucratic red tape continue to smother faster construction and funding, with many of the government’s targets missed. Losses from poor infrastructure have long been seen as a brake on growth in Asia’s third-largest economy.

About 20-25 percent of current road projects under construction have been delayed by months or years, Singh said, often because of land acquisition problems. “It continues to be as tough as it was,” he said of purchasing land for projects.

India built about 1,800 kilometres of roads (1,120 miles) of roads in the fiscal year 2010/11, about five kms a day, a knock-on effect of the global financial crisis, Singh said. India will build at 20 kms a day by 2014, he added.

India’s road network is the world’s second largest, but its densely populated cities are heavily congested and inter-city highways clogged up with trucks, tractors and even livestock in more rural areas. Slow delivery times raise business costs for companies and help stoke the country’s high inflation.

The government has pushed privatisation in infrastructure. In roads, New Delhi has all but stopped paying a company to build on contract. Rather, firms now bid to build a road and operate it themselves, collecting toll fares for a fixed period under a model known as build-operate-transfer (BOT).

That trend has helped slash construction delays, he said, as there is an incentive for road builders finish the job as quickly as possible and start collecting tolls.

“There has been a dramatic shift to the BOT mode,” Singh said. “Earlier there was no incentive to finish the project on time.”

($1 = 44.9 rupees)

Editing by Ranjit Gangadharan and Malini Menon

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