The government has decided to raise the viability gap funding (VGF) for certain projects under the fifth phase of the National Highway Development Project (NHDP V), owing to poor response to the first few projects put up for bids in December last year.
NHDP V aims at six-laning 6,500 km of highways, and projects for 3,700 km were to have been awarded in 2008-09. No project was awarded in the last financial year, with bidders demanding a higher VGF -- or the grant the government extends to private developers to meet the gap between cost and expected returns.
For NHDP V -- which includes six-laning the Delhi-Agra highway -- the VGF on individual projects was capped at 10 per cent of project cost and was supposed to average 5 per cent for the entire phase.
Last month, however, a meeting of a committee of secretaries under the chairmanship of the cabinet secretary, allowed the Public-Private Partnership Appraisal Committee to consider revising the upper limit on a case-by-case basis.
The recommendation was made because out of the nine projects opened for bidding under NHDP V, three projects received no bids and one received just one bid. The remaining five projects received two or more bids but private developers for these demanded a VGF of 35 to 38 per cent, citing lower traffic projections owing to the economic slowdown and high interest costs.
The department of economic affairs, however, said offering such a high VGF would make it impossible for the National Highway Development Authority to bring down the VGF for NHDP V to the 5 per cent average. Also, no money would be left for extending the VGF to other projects at a later stage.
Meanwhile, the government has also decided to restructure the projects to lower costs like reducing the number of new bridges, converting the construction of costly underpasses to overbridges and reducing the design parameters for which the highway has to be sustained from 20 to 10-15 years.
This, it is hoped, would reduce the project cost by 5 to 15 per cent and encourage more players to bid. The move is seen as yet another effort by the government to kick-start large infrastructure projects to sustain economic growth, which is expected to slow this year after several years of 9 per cent growth or more.
The demand for higher VGF has been aired by construction companies for other NHDP schemes. This was reflected in the fact that around 36 of the 60 projects that were opened for bidding under other schemes received no bids.
In 2008-09, for instance, the NHDP III saw only around 600 km awarded against a target of 6,047 km. In cases in which bids were opened, the VGF has been as high as 40 per cent.
