Roads and highways sector–Current trends and future road map September 2019 home.kpmg/in 2 Roads and highways sector - Current trends and future road map KPMG in India Foreword I am happy to share with you KPMG impact. In the realm of road is also a key requirement. New in India’s paper on ‘Roads and transport, the Motor Vehicles asset monetisation options like highways sector – Current trends (Amendment) Act-2019, enhanced Infrastructure Investment Trusts and future road map’. focus on road safety and adapting (InvIT)s and securitisation of toll technology enabled solutions also revenue are being considered. All The sector has been witnessing played major roles. above are expected to be taken high construction rates over the forward in a sustainable manner, last few years. A host of policy The current focus on construction keeping in mind green initiatives initiatives undertaken by the of roads and highways is expected and increasing focus on e-mobility. government in recent past covering to continue over the next five aspects like expeditious land to six years. Post that the focus CII INFRANET 2019: Building acquisition, solving operational is expected to shift to efficient Roads and Highways: IMPERATIVE issues, revival of languishing operations and maintenance FOR NATION’S GROWTH is projects and time bound resolution of roads and enhanced service an important milestone in the of disputes in an affordable manner provisions to road users. In addition journey to sustainable and focused have gone a long way in ensuring an to this, multi-modal integration development of the sector. enabling environment. In addition, is expected to gain further As the ‘Knowledge Partner’ to the launching of the Bharatmala significance, both in passenger conference, KPMG has prepared Pariyojana in 2017 and introducing and freight transport. Road safety this elaborate paper covering new project implementation and increasing use of technology various pertinent aspects of the models like the hybrid annuity, are other areas of priority for the roads and highways sector. operational asset monetisation government. Better utilisation models like Toll- Operate-Transfer of existing sources of funding I am confident you will find the (TOT) have also made a significant and searching for new avenues paper informative and thought provoking. Davinder Sandhu Partner and Head Transport Sector Infrastructure, Government and Healthcare © 2019 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3 CII Foreword India is one of the fastest growing the roads and highways sector agreed by arbitration panels and economies and is entering into an is commendable. India has against variations carried out after era where infrastructure will be undoubtedly become the fastest due approvals etc are causing too at the core of country’s economic highway developer in the world much of stress in the system. development. In recent years, the with 27 kms of highways built Similarly, methodology of TOT government has embarked on each day and the aim is to increase bidding, approvals for change of series of measures to accelerate this target to 40 Kms a day. New ownership of assets and modalities infrastructure development. bids have however slowed down of payments for considerably and many major Engineering-Procurement- As a result of some of these Detailed Project Report Construction (EPC) contracts need initiatives, India’s rank in terms of (DPR)s have been cancelled, immediate attention. Government overall infrastructure development raising questions about the should consider addressing as per the Global Competitive pipeline. industry’s apprehensions arising out Ranking of the World Economic of the recent news of NHAI’s role Forum, has vastly improved from The sector is confronted by as developer or only asset manager. 87th position in 2015 to 63rd a number of challenges viz. Lenders’ reluctance to provide position in 2018. competing demands leading to credit or non-fund based support is insufficient budgetary support, The Roads and Highways Sector also resulting in more challenges. contracting companies in plays a critical role in the growth of financial stress, lack of feedback Therefore, there should be broad Indian economy as around 64.5 mechanism, challenges in bidding based consultations with active per cent of goods are transported process, shortcomings in DPR involvement of all the stakeholders via road and nearly 90 per cent of preparation amongst others. to chalk out a long term strategy for passenger traffic is by road. The Pending payment against routine roads and highways. Government of India’s efforts to bills, against awards already fasten pace of construction in Parvesh Minocha Chairman, CII Northern Regional Committee on Infrastructure Chairman, CII INFRANET 2019, Group Managing Director Feedback Infra Pvt Ltd © 2019 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Table of Contents © 2019 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1. Executive Summary................................................................................... 06 2. Introduction to the roads and highways sector ................................... 08 2.1 Sector background 10 2.2 Sector trends 12 2.3 Current priorities for the sector 14 3. Evolution of PPP in roads and highways .............................................. 16 3.1 Risk Perception in highway projects 18 3.2 Evolution of PPP in road sector in India 21 3.3 Future of PPP in India 22 4. Roads and highways sector issues ........................................................ 24 4.1 Overview of issues in the sector 26 4.2 Financing issues 27 4.3 Operational issues 27 4.4 Other issues 28 5. Recent policy initiatives by the Government ....................................... 30 5.1 Operational initiatives 33 5.2 Revival of languishing projects 33 5.3 Amicable dispute resolution 34 5.4 Other initiatives 34 6. Road sector financing in India ................................................................ 36 6.1 Fund requirement 38 6.2 Sources of fund 38 7. Global perspective in highways sector ................................................. 40 7. 1 Information, Communication and Technology (ICT) in roads 42 7. 2 Funding from multilaterals 43 8. Recent technological advancements in the sector .............................. 44 8.1 Types of technological advancements in the sector 46 8.2 Technological initiatives in road infrastructure 47 8.3 Technological initiatives in public transportation 47 8.4 Technological initiatives in road safety 47 9. Investment/ business possibilities ......................................................... 48 9.1 Stakeholders involved in roads and highways sector 50 9.2 Opportunities for developers, developers and operators 50 9.3 Opportunities for investors/lenders 51 9.4 Opportunities for consultants 51 10. Road map for the roads and highways sector ....................................... 52 10.1 Way Forward 54 © 2019 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6 Roads and highways sector - Current trends and future road map © 2019 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7 01. Executive Summary India has the second largest road Trusts (InvIT) and securitisation approach levers are to better costs network in the world. Ministry of toll revenue are also under across the various phases of road of Road Transport and Highways consideration. development, improving existing (MoRTH) is planning to develop sources of funding and exploring MoRTH is targeting completion around 60,000 km of roads in the new avenues and policy reforms of 60,000 km of NH in the next next five years at about 40km/ including new PPP models. five years1 at an average road day. Road construction and award construction rate of 40 km per day. Global trends in infrastructure trends in recent years also give Assuming average construction indicate increased focus on optimism of achieving such high cost of approximately INR30 crore innovations, use of technology targets. Focus continues to be per km (including land acquisition tools based on data and analytics to on Bharatmala Pariyojana, with cost), and factoring in inflation unlock operational efficiencies, shift added stress on multimodal for road construction cost at a of focus to developing economies integration, road safety, increasing conservative 3 per cent, the total and mainstreaming of sustainability. use of Information Technology funding requirement over five Roads and highways sector is not (IT) applications, augmentation years is estimated at approximately an exception. The role of roads of existing funding sources and INR19 lakh crore which amounts to and highways sector in the overall emphasis on green initiatives. average annual fund requirement transport