Regulatory body needed for road projects: FICCI

New Delhi, Aug 5: Industry body FICCI today strongly pitched for setting up of a regulatory body and improving arbitration process to bridge the phenomenally high cost and time overruns in road projects.

FICCI also called for lifting the cap on viability gap funding mechanism from 20 per cent to 40 per cent to give a fillip to the infrastructure sector.

FICCI, while pointing out the rapid growth in the participation of the private sector in highways development, said a regulatory mechanism needed to be put in place to ensure orderly growth of the massive requirements of the road sector.

''Speedy implementation is at the core of getting full mileage out of an infrastructure project and making it economically viable and investment-worthy,'' the chamber said, favouring a speedy resolution of problems like land acquisition, law and order issues, encroachments, tardy pace of obtaining clearances and legal wrangling.

The body believes that an independent regulatory authority, coupled with efficient arbitration mechanism, would help resolve the issues at a faster pace, it added.

While acknowledging the contribution of road network that accounts for 65 per cent of freight and 80 per cent of passenger traffic, Ficci also suggested a six-point agenda for overcoming the hurdles hindering the growth of the sector and pruning time and cost overruns while executing the road development projects.

It said 'Viability Gap Funding' (VGF) was a remarkable initiative taken by the government to make the highways development project more attractive for private sector participation, but made a strong case for raising the gap support. It is currently capped at 20 per cent of the project cost.

''This can be increased upto 40 per cent, if required. In certain projects, which otherwise seem to be unenviable for private sector participation, it should be raised upto 70 per cent,'' it said.

In this regard, the industry chamber pointed out that the National Highways Authority of India (NHAI) had given Rs 2,072 crore as VGF but also received Rs 1,900 crore as a negative grant.

FICCI said there was also the issue of project design, and cited the case of the Delhi-Gurgaon Expressway project. ''One of the main reasons for the delay in this project was the change of design.

Therefore, the project, which was originally scheduled to be completed by mid-2005, would be completed by September this year.'' It suggested that project awarding authorities should stick to the original design and refrain from altering the design of projects after work had started for their implementation.

''FICCI is of the view that all the deliberations related to technical matters and also traffic projections should take place before the project begins,'' it said.

Another measure for speeding up projects could be vesting project superintendents with adequate powers to resolve issues at their level, while only matters of importance should be referred to headquarters, suggested Ficci. There is also a skilled manpower shortage in the construction industry. With around Rs 2.20 trillion of investment slated for highways development over the next seven years, the scale of activities would be huge.

''The demand for the manpower engaged in construction industry is expected to double, considering an array of activities planned over the years. The industry is already facing the shortfall of skilled manpower. The Industrial Training Institutes (ITIs) are not producing enough employable skilled manpower,'' it said.

In such a situation, the industry could resort to short-term measures like increasing the retirement age of its employees, said Ficci. ''However, upgrading ITIs and training institutes, promoted by corporate houses, holds the key for the continuous supply of employable manpower on a continuous basis in the long term.'' Yet another problem hobbling the growth of road sector is land acquisition and the resultant rehabilitation of families and the relocation of utilities.

''The state governments need to play a proactive role in sorting out these issues, and for this, coordination between NHAI and state governments must improve,'' it said.

Ficci said the Indian economy, riding on the spectacular performance by manufacturing and service sector, had witnessed a phenomenal average GDP growth of 8.6 per cent during the last four years, but crippling infrastructure, including roads and highways, posed a serious threat for maintaining and accelerating the pace of economic growth.

Lauding the government for projecting infrastructure as one of the key areas of focus, it said projects like NHDP are very credible steps to build a strong national highway network across the country.

The work on the Golden Quadrilateral (NHDP Phase I) is nearing completion while it is also in full swing on the East-West and North-South corridors. The government has planned huge investment in the highways development project in the next seven years.

With the new model concession agreement (MCA) in place, the private sector participation in national highways development has increased from 31 per cent of the total investment in Phase I of NHDP to 41 per cent of Phase II.

In future, most of the investments in various NHDP phases are expected to come from the private sector. However, its response in the state road development projects is a cause of concern. Except for a few states, the road development programmes have not made the desired progress.

Even the NHDP is characterised by delays, causing cost escalation.

The target dates for completion of the Golden Quadrilateral and the North-South and East-West Corridors have been revised several times.

''In the given scenario, an independent regulatory authority, coupled with efficient arbitration mechanism, is an absolute necessity for a speedy resolution of problems for overcoming the hurdles in speedy development of the road and highway network,' it said.

UNI