EPCs will throw a lot onto government’s turf

Feb 16 2013, 02:10 IST
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SummaryThe alternatives were continuing with item rate contracts or annuity models.

The road transport ministry and National Highways Authority of India (NHAI) have a good reason to switch to the Engineering Procurement and Contract (EPC) model for awarding projects from now. The alternatives were continuing with item rate contracts or annuity models. The former is the principal reason for delays in projects. A sample analysis of 20 highway projects made by the NHAI shows they took an average of 61 months to complete against less than half, 29 months by projects that ran through public private partnership.

The other alternative, annuity is not possible given the mega road expansion plans set out in the 12th Five Year Plan. Annuity based projects are costlier and the finance ministry just cannot finance project support on such scale. The only option also supported by global experience is adopting the EPC mode. But this means awarding 4,000 km of projects in the current fiscal is impossible.

Officials claim they will be able to award projects for just about half that length in the time available till March 31, or 2,000 km but that too seems difficult, as the ministry has cleared approvals for only 140 km so far.

Beyond the pace of approval, the issue with EPC is ownership of the project, once it is completed. The contract period for the project post construction is only two years, as per the EPC model agreement. So for premium projects, the government will have to collect tolls to recover the costs. Just imagine a political party picking up the nerve to do it. Projects under the build operate transfer mode had pushed this responsibility on to the operators so far. EPC will also need the government to assign maintenance engineers to inspect the quality of the work done. In short the difficult issues for road projects are now all back on the government’s turf.

Mihir is a Principal Correspondent based in New Delhi.


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