PWD to repair roads on deferred payment basis

NAGPUR: Faced with shortage of funds, state public works department (PWD) has decided to get roads repaired on part deferred payment basis. The PWD has over 90,000km roads in the state. The condition of many roads is not good and need immediate repair. However, the department does not have required funds for this.
A government resolution (GR) issued by PWD stated that it wanted to repair 10,000km roads.The number of heavy vehicles has increased tremendously and hence the roads are in bad shape. However, it has only Rs12,000 crore at its disposal whereas the requirement is Rs30,000 crore. It therefore wants the contractors to raise remaining Rs18,000 crore from banks. This money will be paid to the contractors in six monthly instalments over the concession period plus fifteen years.
This is known as hybrid annuity model and is used by National Highways Authority of India (NHAI). Till now roads were repaired on engineering procurement construction (EPC) basis, wherein the contractor was given the entire amount after completion of the job.
As per the GR, 40% of the amount will be paid to the contractor in five equal instalments. The remaining 60% will be raised by the contractor, which will be repaid to pay with interest which will be bank rate plus 3%. The cost escalation will be calculated by taking wholesale price index (WPI) and consumer price index (CPI) into account at a ratio of 70:30.
The road contractors have reacted differently to this concept. Arun Lakhani, managing director of Vishwaraj Infrastructure Limited (VIL), said that it was an attractive model. “The NHAI had recently called tenders for NH6 on this model and around ten companies had bid for it. Unlike built, operate and transfer (BOT) basis, the contractor’s payment is assured. On the other hand, as the contractor does not get full payment he is bound to maintain the road in good condition,” Lakhani said.
Road contractor Dilip Rathi however, said that was an unreliable model. “What is the guarantee that the contractor will be paid the full amount? Unless the government sets up a dedicated fund, it is very difficult to raise bank finance. Many major road projects are stuck up because banks are not ready to lend in absence of guaranteed payment,” he added.
Rathi further said that the government by banning toll in wake of demonetization had made such schemes less attractive. “How will the contractor pay the bank’s loan instalment,” he further said.