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Executive Summary
We travelled more than 8,500 km by road, air, and railway and visited various road projects across North, South, East, and West India. We met developers, contractors and subcontractors executing projects at a cumulative cost of ~INR 65 bn. Our mission was to find answers to the following pertinent questions: What are the ground level issues in road project execution? Do land acquisition issues continue to hamper the pace of project development? What are the impediments in the land acquisition process? How smooth is the process of getting regulatory approvals in forest / environment / utility shifting? What is the likelihood of reducing cost/time overrun in future projects? Are there constraints in manpower/equipment/raw material availability?
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Our modus operandi .................................................................................................... 3 Why focus on execution? .............................................................................................. 4 Land acquisition .......................................................................................................... 6 Utility shifting and other local clearances ...................................................................... 13 Railways, forest & environmental approvals .................................................................. 16 Resource availability issues ........................................................................................ 18 Cash contracts continue to get delayed ........................................................................ 22 Outlook on road projects execution.............................................................................. 23 Major project details .................................................................................................. 24 Dhule-Palasner Project ............................................................................................ 24 Hyderabad outer ring road project ............................................................................ 26 ISIEmergingMarketsPDF in-universal from 203.123.142.250 on 2011-10-05 03:13:58 EDT. DownloadPDF. Pimpalgaon-Nashik-Gonde project ............................................................................ 29 Ranchi ring road project .......................................................................................... 31
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Table 1: Covering entire spectrum of road projects We covered every type of road project possible
Scope of projects visited 2 lane 4 lane 6 lane 8 lane access controlled expressway Regions visited North India West India South India East India
Mode of projects visited BOT toll project BOT annuity project State govt EPC project District road project Cost of projects visited < INR 1 bn INR 1 - 5 bn INR 5 - 10 bn INR 10+ bn
Source: Edelweiss research
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ISIEmergingMarketsPDF in-universal from 203.123.142.250 on 2011-10-05 03:13:58 EDT. DownloadPDF. Over FY09-10, the government has initiated many steps which have enhanced the
attractiveness of road projects for developers and ensured pick up in the pace of project awards. With most regulatory issues being sorted out and ~ 26,000 km of projects to be awarded over the next 4-5 years under NHDP, we believe project award is unlikely to be a major dampener going forward (even if pace of project award may not be uniform). This leaves execution issues on road projects as the principal irritant in improving the pace of road development.
How big an issue is execution and what are the costs involved?
As per the government, ~68% of projects undertaken by the National Highway Authority Most road projects witness time/cost overruns of India (NHAI) so far have been delayed (includes both completed and under implementation projects). The World Bank had carried out a time and cost overrun analysis on on-going and completed national highway and state highway contracts a couple of years ago. The results of the study are given below: Table 3: Time and cost over-run details
% Overrun [over original estimates of time and costs] NHAI and <25% state govt contracts 25-50% 50-75% 75-100% >100%
Completed contracts (%) Time 29.4 15.0 33.0 15.0 7.6 Cost 55.8 40.5 3.7 0.0 0.0
Completed + ongoing Contracts (%) Time 10.4 9.7 38.1 29.5 12.3 Cost 53.7 31.6 9.7 5.0 0.0
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The study indicates that 90% of all contracts had a time overrun of more than 25%; 46% had a cost-overrun of more than 25%. The cost overrun figures for completed contracts do not include a large portion of pending claims and arbitration orders. As per Execution is a big concern in road development estimates, ~ INR 100 bn is locked in disputes between the government and contractors. Thus, execution remains a major issue in road development; the final costs of road project implementation are much higher than initially envisaged.
Resource availability issues Manpower availability Raw material availability Availability of financing Equipment availability Sub-contractors availability
Our trip was aimed at getting to the root of the execution issues listed above.
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Land acquisition
How big is this problem?
Land acquisition is the biggest issue in road development As per World Bank, on an average, it takes 50% more time than scheduled to hand over encumbrance-free land to contractors for national highway projects. Also, according to a survey of 190 infrastructure projects facing delays, 70% were delayed due to land acquisition problems. This indicates that land acquisition is arguably the biggest hurdle afflicting road development. Fig. 2: Delayed due to reluctance of farmers to hand over land Fig. 3: Problems due to protest over demolition of structure
Source:Edelweiss research
Land acquisition for development projects in India happens through the Land Acquisition Act (LAA), 1894. However, land acquisition for national highways is carried out under a separate law known as the National Highway Act (NHA), 1956. State governments sometimes constitute a specific law for land acquisition (land acquisition in India is a Concurrent subject as per the Indian Constitution which gives state governments the right to legislate on the matter).
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What is the process for land acquisition?
The various steps involved in the process of land acquisition for National Highways are given below: Fig. 4: Land acquisition process for national highways
Govt expresses its intention to acquire the land (3A notification)
Carrying out of surveys, inspection etc., setting out of boundaries and intended lines of work
Physical possession
We learnt from our visit that there are multiple reasons behind difficulties in land
Institutional framework and dependence on local authorities: When land is to be acquired under the NHA, 1956, the NHAI generally relies on the district administration since the relevant land records are with the revenue department. The district administration appoints an Additional District Magistrate or Sub-Divisional Magistrate as the competent authority for this purpose. Sometimes, there is delay in the appointment of a competent authority by the state government which further delays the process. Also, this means that NHAI is dependent on the district administration for the land acquisition process. Since NHAI has no control on district administration (for which land acquisition is not a priority issue due to other responsibilities), the entire process becomes dependent on the proactiveness of district officials. Sometimes, local officials are transferred, which again hampers the process.
Special land acquisition cells enhancing coordination but local authorities still the key: Over the past year, NHAI has set up local cells to enhance coordination in land acquisition with local authorities. These units carry out the following functions: Prepare the notification under section 3A (Intention to acquire land). Prepare the notification under section 3D (1). Disburse the compensation to land owners. These units coordinate with local officials to ensure that the process of land
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acquisition is smooth. Our interaction with developers reveals that there definitely has been improvement on the ground level with the setting up of such cells. However, in case district administration officials are not dynamic and cannot handle various problems which emerge from time to time with regards to land acquisition, the entire process is still delayed. Indeed, developers raised serious concerns regarding the motivation levels of local authorities. Fragmented land holdings: The fragmented nature of land holdings in rural areas means that a large number of landowners need to be compensated for their land. According to data from the Ministry of Agriculture, 62% of farmers have land holdings of less than one hectare. This creates problems in land acquisition. Fig. 5: Land acquisition delayed due to nearby farm land Fig. 6: Land acquisition stuck due to dispute over compensation amount
Source:Edelweiss research
Lack of clear land titles: Unclear land titles and absent/incomplete revenue records in villages are the biggest constraints in timely land acquisition. The process gets bogged down due to the problem in finding the rightful owner of the land. This is because land records are generally outdated, inaccurate and/or incomprehensive.
This gives rise to frequent disputes, which result in litigation. This is a problem which no amount of NHAI/developer involvement can solve. For e.g., news reports suggest that land acquisition progress in Jharkhand had been hit due to inadequate land revenue records reflecting ownership; the maps were as old as 1912 and the state government is now developing land records by way of physical verification. Similarly, in case there has been an informal division of land amongst family members, it is not reflected in records of the revenue department. Also, in case the land belongs to tribals, the acquisition process further suffers since there is restriction on sale of land from tribals to non-tribals. Inadequate land acquisition plans: Many a times, land acquisition plans as formulated according to the detailed project report (DPR) are inadequate; this is because the professionals involved in preparing DPRs do not have sufficient knowledge of land acquisition. The design consultants do not have sufficient expertise in preparing proper land acquisition plans; also, land acquisition plans are unrealistic due to deficiencies in on-the-ground verification of the design/alignment.
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Lack of uniformity in state government regulations: There is lack of uniformity across state governments in terms of statutes. For e.g., the Uttar Pradesh government had earlier imposed a condition that NHAI will have to guarantee development of a 10 m wide strip of plantation along either side of highways if the Institutional framework for land acquisition is inadequate project involves felling of existing trees. This affects land acquisition progress. Lack of adequate compensation and methodology of computation: We understand that compensation for land acquired is also a big issue impeding land acquisition. The bone of contention here is both the eventual quantum of compensation and the methodology used to arrive at the figure. The NHA, 1956, provides for compensation based on: (a) market value of the land on the date of publication of 3A notification; (b) extra payments for trees, crops, houses, or other immovable properties; and (c) payments for damage due to severing of land, residence, or place of business. A lot of discretion is vested with state authorities during the entire process and, many a times, there is lack of clear cut procedures for the same. This results in grievances against authorities which delays actual possession of land by the government. Various problems related to compensation are detailed below: Sometimes, valuation of land, as determined by authorities, is based on sale deeds recorded with revenue offices; this is way below prevailing market prices and is a cause of heartburn for the landowner. Over the past couple of years, land prices EDT. DownloadPDF. ISIEmergingMarketsPDF in-universal from 203.123.142.250 on 2011-10-05 03:13:58 in some parts of rural India have increased sharply due to expansion of rural roads and improvement in accessibility. This has resulted in many landowners demanding higher compensation than the official acquisition rate. Also, sometimes, there is a dispute between state and central governments over the manner of compensating affected land owners. This is also because many states have their own land acquisition and rehabilitation laws, which differ from NHA, 1956. This means that even after publication of 3D notification signifying the acquisition of land by the government, the valuation of the land, approval of the same, disbursement and physical possession of the land by the developer takes a long time. In theory, the land acquisition is complete as soon as the relevant government notification is issued; however, in practice, developers have to wait for a long time in getting unencumbered access to the land.
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developers have themselves acquired certain stretches of land which were proving to be problematic so as to ensure speedy completion of the land acquisition process. Developers indicate more efforts from state government could help: While most developers indicated that NHAI emphasis on land acquisition has improved, Developers want more efforts from state governments they also highlighted that developer involvement is not the panacea of all problems; beyond a particular level, land acquisition progress ultimately depends on the level of state government involvement. They highlighted that states where authorities are proactive (Gujarat, Rajasthan) are the best places to work. On the other hand, projects in certain states like West Bengal, Kerala, Uttar Pradesh, Orissa etc., continue to face problems. Thus, overall while there has been some progress on the land acquisition front, it is sporadic in nature and still depends on developer involvement. Land acquired is not continuous but piecemeal: Developers indicated that many a times, land parcels acquired are not continuous , i.e., they are piecemeal and at quite a distance from each other. This creates problems in execution since it leads to increase in inefficiencies due to less than optimal utilisation of equipments. Unencumbered access to land still a problem: As highlighted above, even after acquisition of land, various encumbrances mean that developers ability to undertake work in a continuous uninterrupted manner is constrained. Unencumbered access to land thus still remains a problem. Land acquisition process needs to be initiated earlier in project lifecycle: Currently, the land acquisition process continues well into the execution period, thereby affecting the construction schedule. Developers suggested the process needs to be initiated at the design stage itself, well before the beginning of civil work. ISIEmergingMarketsPDF in-universal from 203.123.142.250 on 2011-10-05 03:13:58 EDT. DownloadPDF. To this end, a comprehensive land survey should be completed before land acquisition schedules are prepared and included in DPRs.
Our view
We believe that while the land acquisition process has improved, many issues remain to be tackled before pace of road development picks up. Our key learning from the visit is as follows: Land acquisition continues to remain the single biggest issue faced by developers Project execution could reduce by up to six months, if land acquisition is completed within schedule Our interaction with developers/contractors indicated that land acquisition continues to remain the single biggest issue troubling developers. This was the unanimous feedback received across all projects that we visited. Most developers indicated that execution time of projects could be reduced by up to six months in case land acquisition is completed in the scheduled time. However, this is hardly the case with developers having to contend with numerous delays due to non-availability of land. Cost/time overruns in future projects may not be substantial and likely to be lesser than past projects With developers lending a helping hand to the government, project execution was on the right track for most BOT projects we visited. This leads us to believe that cost/time overruns in future BOT projects may not be substantial and is likely to be lesser than in past projects. Calculation methodology of land acquisition needs closer scrutiny The revised guidelines for road project awards announced last year state that a LoA will be issued only when 80% of the land required is under possession. However, the calculation of this figure needs a closer look. The Right of Way (RoW) or the land
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required for any project includes the portion of the land for existing road as well, i.e., for a four laning project, the RoW includes the land of the existing 2 lane project. As a result, a substantial quantity of land required is available upfront. For e.g., the RoW of ~40-45 m required for a 4 lane road includes the existing 2 lane road (usually 10 m wide). Thus, any figure with respect to land acquisition progress needs to be considered in the proper perspective. Recent news flow suggest that governments efforts bearing fruit Recent news articles suggest that governments efforts on the land acquisition front have resulted in improvement. News articles point that: NHAI took possession of 3,022 hectares in Q1FY11. This is almost half the size of the total land possessed (6,244 hectares) by NHAI in 2009-10 which itself was a huge improvement over the 3,120 hectares acquired in 2008-09 and 3,684 hectares acquired in 2007-08. The total land acquired by NHAI was at a relatively higher level at 5,513 hectares in 2006-07. Under section 3G of the NHAI Act, which makes the government liable to pay compensation to the land owner, NHAI has issued notification for 2,204 hectares in Apr-Jul 2010, compared with 3,605 hectares in the previous fiscal. Out of the total 60,500 hectares land required for various stages under the NHDP, the government has managed to acquire around 25,000 hectares. Enhanced support from state government the key
Enhanced support from While NHAI and the roads ministry are doing all they can to improve the land state governments is key acquisition process, on big kicker can come only if the respective state ISIEmergingMarketsPDF in-universal from 203.123.142.250 the 2011-10-05 03:13:58 EDT. DownloadPDF. to speedier road governments pull up their socks and improve coordination at the ground level. In execution this context, the signing of state support agreements (SSAs) by 24 states and Union Territories with the roads ministry is a step in the right direction. The agreement empowers the concessionaire with access to the site and right of way in accordance with the provisions of the respective concession agreements without hindrance from any government agency or person claiming it. Proposed National Highway Amendment Bill will be a key monitorable The proposed National Highway Amendment Bill is being keenly watched with regards to changes in the regulation regarding national highways. News reports suggest a couple of important recommendations as per the draft bill. If a planned road is abandoned, the original owner will reserve the right to buy back the land by returning the money paid by the government for purchase. Further, the owner will not have to pay the appreciation price but only that received when he or she sold the land. It has been proposed that a two-step mechanism be introduced for calculating cost of land at the time of acquisition by NHAI. In the first step, price of the land will be calculated on the basis of the average land price of top 50% sales (in terms of value) in the past three years. The land cost will also be estimated according to the price guidelines for the area maintained by the collector in charge. After arriving at the two values, the higher of the two will prevail as the price that the NHAI will pay to the land owner. Currently, the land price is calculated based on the average price of all land sales in the area in the past three years. The new mechanism proposed, however, takes into account the top 50% values of land sale in three years.
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It is also proposed that the person who sells the land to NHAI should get solatium for better rehabilitation and resettlement. It is proposed that the land owner gets 60% of the agreed sale price of the land as compensation for displacement in addition to the land price. Land acquisition will be an important parameter in determining the success of the 20 km/day initiative It is proposed that a time limit of three months be imposed for the aggrieved to approach an arbitrator in the case of land sale. The current form of bill places no such time limit, leaving it open ended. The arbitrator will also be required to give a decision within six months.
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Various clearances involved
Utility shifting: When it comes to utility shifting, major problems are shifting of transmission towers, electric wires, telephone cables, water pipes, etc. Local clearances: Various local clearances required are given below: Table 4: Various local level clearances required
Sl. No. 1 2 3 4 5 6 7 8
Description of permits/licenses required Labour license Registration under building and other construction workers' act Blasting permissions Approvals from village panchayat for installation of crusher, batching plant, asphat plant etc Approval from Pollution Control Board for installation of crusher, batching plant, asphat plant etc Blasting permission from District Collector License for use of explosive from Chief Controller of explosive Permission for installation and operation of HSD consumer pump
Source: Edelweiss research
Agencies involved
For utility shifting, developers need to coordinate with various government departments like the telecom department, the local municipal board and local bodies for water and power maintenance. ISIEmergingMarketsPDF in-universal from 203.123.142.250 on 2011-10-05 03:13:58 EDT. DownloadPDF. Lack of proper coordination between For other local clearances, entities involved are the village panchayats/municipal board, govt departments delays District Collector, Pollution Control Board and other government bodies. utility shifting
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Developers giving a helping hand to government - Like land acquisition, developers have also become involved in utility shifting/other clearances. They have themselves approached the concerned authorities to ensure smooth coordination Better coordination between various agencies can enhance road development between various entities.
Our view
We believe the challenges in utility shifting are far lower than those in land acquisition as the factors involved are less complex. Also, with a little improvement in coordination between various agencies, there can be a marked upturn in the pace of road project development.
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ISIEmergingMarketsPDF in-universal from 203.123.142.250 on 2011-10-05 03:13:58 EDT. DownloadPDF. Apart from the central government represented by the MoEF, developers have to face
additional conditions imposed by the forest department in the state government. For environmental clearance, the proposal needs to be submitted at the feasibility stage itself. A complete assessment of the environmental impact is done and the project is examined by an expert committee. The whole process can easily take up to an year. In the recent past, many projects have been stuck due to delay in approvals in one of the above parameters. For e.g., news reports suggest that only recently, the standing committee of NBW, rejected NHAIs proposal to divert 85 hectares of forest land for fourlaning in an 85 km stretch on national highway No. 6.
Our view
After interacting with project managers, we believe that railways and forest approvals are emerging as major choke points. Even the proactive efforts of NHAI or developers usually fail in front of these departments since they follow their own procedures which usually take time.
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Fig. 9: Project delayed due to construction of an ROB for which permission was pending for long
g i n g M a r k e t s P D F i n We had a chance to examine delays due to ROBs firsthand. In a project, which has been
under implementation for the past four years, the entire road widening part of the project has been complete for some time now. The only portion where work was still pending were a couple of ROBs.
Fig. 10: Project stalled due to delays in approval for cutting trees
Fig. 11: Project delayed due to delays in approvals from forest department
Similarly, the process for environmental clearances involves a number of NGOs; a single objection from them can cause a major delay. Sometimes, project alignment itself has to be changed to accommodate demands of the forest department.
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Also, raw material constraints are few; in fact, resources mobilisation was in full swing in practically all locations that we visited even before the work at the site was started/scheduled to start. Even in areas where there were some issues with raw material availability, contractors had the foresight of planning for this beforehand. Fig. 14: Raw material is easily available Fig. 15: No problems in raw material supply
For e.g., in Haryana where the state government has imposed a ban on mining of major minerals in Faridabad, Gurgaon and Mewat districts for 10 years, alternate supply arrangements from Rajasthan were already in place. This ensured that project ISIEmergingMarketsPDF in-universal from 203.123.142.250 on 2011-10-05 03:13:58 EDT. DownloadPDF. implementation was not affected.
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Fig. 16: Sub-contractors have good quality asset base Fig. 17: Sub-contractors have adequate technical acumen
These sub-contractors also had their own laboratories for ensuring the quality of work being undertaken. Fig. 18: Quality check at a sub-contractors site
When it comes to the selection process undertaken by developers for choosing subcontractors for any project, the asset base and past work are crucial parameters. Traditional developer-sub-contractor relationships changing: Also, some subcontractors indicated that developers had started giving them incentives for upgrading execution capabilities in terms of asset base and manpower resources. This was being done by developers in the form of assuring the sub-contractor of a minimum volume of work every year for a fixed period of time. We believe this is a
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win-win situation for both parties involved as sub-contractors get to enhance their execution capabilities and also learn from project management skills of experienced developers; for developers, the benefit is in the multiplier effect brought in by subcontractors. Fig. 19: Sub-contractors have built up execution capabilities and asset base over the years
Funding not an issue: We enquired about the ease of availing financing for purchasing equipments etc. Here again, sub-contractors indicated that they were not facing any shortage. They had relationships with multiple banks and fund availability was not an issue. Interaction with financial institutions corroborates findings: We also
interacted with a couple of financial institutions who fund sub-contractors. They corroborated sub-contractors feedback and were optimistic about future growth prospects of these sub-contractors. These institutions had witnessed growth trajectories of these sub-contractors for the past many years and sounded confident in their ability to scale up their business.
Our view
We believe there is no shortage of resource availability, be it manpower, equipments, raw materials, financing or sub-contractors. Even if there is any temporary resource There is no shortage of resource availability, be it manpower, equipment, raw materials, financing or sub-contractors crunch, the entrepreneurial spirit of contractors ensures that these are taken care of adequately. Also, with multiple providers of these resources (in terms of equipment manufacturers, banks and other financial institutions etc.), the timeliness and cost efficacy of supply is also reasonably ensures. One more positive thing is that even the small sized entities have access to these resources; also, these resources are not geographically concentrated. What this means is that if the regulatory side of approvals is taken care of, ramping up execution will not be too challenging.
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The delay in cash contracts is also due to the fact that the incentive payment for an early completion of a cash contract project is minuscule as compared to those for BOT projects (bonus annuities or early toll collection). Hence, contractors are also not proactive in completion of cash contracts on time. Data from NHAI corroborates our hypothesis. Of the 136 projects which were running late w.r.t. their original implementation schedule at Sep 2010 end, only 28 were on BOT basis (toll or annuity), balance were all cash contracts. It needs to be kept in mind that only ~ 9% of projects in the NHDP work plan for future (approved last year) are proposed to be completed under the EPC mode. This means that future delays in NHAI projects may be lesser than the past due to smaller share of cash contracts. However, for state government roads and district roads which continue to be implemented on EPC basis, there is no such ray of hope.
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Dhule-Palasner project
Key project specific details: Developer: Hindustan Construction / Sadbhav Engg / John Laing consortium Project scope: Design, engineering, finance, procurement, construction, operation and maintenance of 4/6 laning of Madhya Pradesh/ Maharashtra border-Dhule Section of NH-3 from km 168.500 to km 265.000 in Maharashtra under NHDP Phase III A on BOT (Toll) basis. The concession period is 18 years including construction period of 30 months. Client: NHAI Project award date: Jan 2009 Scheduled completion date: June 2012 Total project cost: INR 14.2 bn Significance of the project: The project involves expansion of an existing 2 lane stretch on NH-3 into 4 lane. National Highway 3 (NH-3), which is commonly referred to as the Mumbai-Agra Highway, is a major Indian national highway that runs through the states of Uttar Pradesh, Rajasthan, Madhya Pradesh and Maharashtra. The highway originates in Agra in Uttar Pradesh, travels South-West through ISIEmergingMarketsPDF in-universal from 203.123.142.250 on 2011-10-05 03:13:58and Indore in Madhya Pradesh, and Dhaulpur in Rajasthan, Gwalior, Shivpuri, Guna, EDT. DownloadPDF. Dhule, Nashik, Thane and terminates at Mumbai in Maharashtra. NH 3 runs for a distance of 1,161 km. The project starts from the city of Dhule. At Dhule, NH-3 crosses National Highway 6 (NH-6) which is a busy national highway that runs through Gujarat, Maharashtra, Chhattisgarh, Orissa, Jharkhand and West Bengal. NH-6 passes through the cities of Surat, Dhule, Nagpur, Raipur, Sambalpur, Kolkata, running over 1,949 km from Hazira to Kolkata. Fig. 22: Location of the project Fig. 23: Project stretch
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Key observations from site visit: Land acquisition problems and forest clearance big challenges: We learnt that the project faced land acquisition problems in the beginning. This was primarily due to resistance from land owners who were demanding a higher compensation for their land. There was some opposition amongst people due to compensation rates being different from village to village. Also, land acquisition was not lateral in nature. Moreover, since the project passes through a stretch which has forests, clearance from MoEF was required. This took some time. Local resistance led to design changes: Since the project passes through an urban area, there was a demand from the local population to include certain underpasses which were earlier not part of the original scope of the project. This issue has been sorted out now. The changes have been incorporated and the additional cost to be incurred has also been approved by the client. Project designed keeping future needs in mind: The project has been designed keeping in mind the expected traffic growth in the future. As a result, even though the project will be a 4 lane road after completion, various structures such as flyovers, bridges etc., which are being built will have 6 lanes. We believe this is a step in the right direction to ensure that the project can handle the increase in traffic ahead and that future capacity expansion will not be difficult. Fig. 24: Execution underway on a major bridge Fig. 25: Construction in full swing on a bridge across a river
Despite challenges, project running ahead of schedule: Despite the challenges mentioned above, the project has been running ahead of schedule. This is primarily due to the developers proactive attitude, aided by the NHAI. The developer mobilised resources as soon as the project was awarded. Also, a major effort was put in identifying the challenges in land acquisition, forest clearance etc., in the initial part of the project itself. Close coordination with various government departments has ensured that all local clearances have been achieved; design changes have also been incorporated. Significant progress on the land acquisition front has also been achieved. As a result, currently the project is ahead of schedule.
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Fig. 26: Execution on track after resolution of land acquisition issues Fig. 27: In spite of heavy traffic, construction is ahead of schedule
The progress on the project is commendable considering that the stretch lies on a busy route. There was heavy traffic on the road; despite this, construction was in full swing. Crushers, wet mix plants, batching and asphalt plants were in operation; similarly, machines like excavators, pavers, graders etc., were also working.
maintenance of an eight lane access controlled expressway from Kollur to Patancheru (km. 12 to km 23.70). The project is on BOT-annuity basis under Phase II programme of Hyderabad outer ring road (ORR). Client: Hyderabad Growth Corridor (HGCL), an SPV formed for development for the Hyderabad outer ring road by the state government. Date of commencement: Dec 2007 Total project cost: INR 5.01 bn Significance of the project: The Hyderabad ORR is aimed at the development of well planned and well connected urban settlements around the Hyderabad Metropolitan area. The 159 km long ring road provides connectivity to various state and national highways to bypass the city of Hyderabad. The proposed corridor is expected to relieve congestion in the metropolitan area and inner ring road, provide orbital linkage to radial arterial roads, provide link to the proposed MRTS and bus system and provide quick access to the international airport from strategic parts of the city.
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Fig. 28: Outer ring road project in Hyderabad city Fig. 29: Project stretch (Cyberabad expressway)
Key observations from site visit: Major portion of project completed: Work on majority of the project stretch has been completed. Construction is still going on a small stretch of the road. Fig. 30: Completed portion of the expressway Fig. 31: Work going on a small stretch of road ISIEmergingMarketsPDF in-universal from 203.123.142.250 on 2011-10-05 03:13:58 EDT. DownloadPDF.
Land acquisition problems delays project: The project has been delayed due to land acquisition problems. Our interaction with project personnel indicated that majority of the work has been completed. However, land acquisition problem for a small stretch of land has meant that the work is incomplete on that portion of the project.
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Fig. 32: Project stalled due to land acquisition issues Fig. 33: Progress hampered by delays in land acquisition
A look at the website of Hyderabad Metropolitan Development Authority indicates that this indeed is the case. Of the RoW of 11.7 km required for the project, only 11.2 km has been handed over. Utility shifting: Apart from land acquisition, the project progress was also hampered by delays in utility shifting. This happened due to delay in getting approval for shifting power transmission lines.
ISIEmergingMarketsPDF in-universal from 203.123.142.250 on 2011-10-05 03:13:58 EDT. DownloadPDF. Fig. 34: Shifting of power transmission lines delayed Fig. 35: Utility shifting hampers project completion
project execution schedule
The developer has been coordinating with HGCL for getting the approval for this purpose. Timely land acquisition could have avoided the delay: The project has been delayed by more than three months due to delay in land acquisition/utility shifting. To put things in perspective, an identical project on the same road by the same developer has been completed six months ahead of schedule i.e. Hyderabad Expressway is a 13 km stretch of Hyderabad ORR from Bongulur to Tukkuguda. This project (again an access controlled 8 lane expressway) being undertaken by a consortium headed by Gayatri Projects has been completed 6
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months ahead of schedule. This was possible due to timely handover of land required for the project. Key learning: Despite being close to an urban area which raises its own set of execution challenges, the developer has been able to build a good quality road ahead of schedule when RoW was available; however, when land acquisition/utility shifting is delayed, the project is delayed too despite the best efforts of the developer.
Pimpalgaon-Nashik-Gonde project
Key project specific details: Developer: L&T / Ashoka Buildcon consortium Project scope: Design, engineering, finance, procurement, construction, operation and maintenance of 6 laning of Pimpalgaon-Nashik-Gonde Section of NH3 from 380 kms to 440 kms in Maharashtra under NHDP Phase III A on BOT (toll) basis. The project involves construction of 452 lane kms of roads. The concession period will expire in January 2029. Client: NHAI Project award date: Jan 2009. Construction began in January 2010. Scheduled completion date: July 2012 Total project cost: ~ INR 17 bn Significance of the project: The project involves expansion of an existing 2 lane stretch on NH-3 into 6 lane. The project runs from Pimpalgaon to Gonde via Nashik with Gonde lying on the busy ISIEmergingMarketsPDF in-universal from 203.123.142.250 on Nashik today 03:13:58 the fastest growing cities in India Mumbai-Nashik highway. 2011-10-05 is one of EDT. DownloadPDF. and has been identified as a tier-2 metro. The city's economy is driven chiefly by the engineering and manufacturing industry; many auto majors and original equipment manufacturers have their plants here and have spawned a huge network of auto component suppliers and engineering ancillary services. Fig. 36: Location of the project Fig. 37: Project stretch
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Key observations from site visit Land acquisition and utility shifting a key test: Since the project passes through the city of Nashik, land acquisition and utility shifting have emerged as a key test for the developer. We surmise that many small commercial establishments will have to be shifted to get the land required for road widening. Management of existing traffic will be the key: Since the project passes through a heavy traffic density area, developers have to undertake the construction work along with managing existing traffic. The project also contains an elevated corridor for traffic to bypass the underlying city congestion. Execution happening on both sides of the road: The existing road is 2 lane. Due to heavy growth in traffic, it is being directly widened to 6 lanes (instead of the more usual 2-to-4 laning in the first part and 4-to-6 laning thereafter). As a result, construction is being carried out on both sides of the road. Despite the challenging task, we believe the developer was carrying out work admirably. We did not see any disruption in traffic; work was going on smoothly.
Raw material availability enhances efficiencies: The project benefits from easy and cost effective raw material availability as the sources of raw material are close to the project site. This has in turn led to smooth resource mobilization. Ashoka Buildcon has two captive RMC plants with a capacity of 60 and 120 cubic meters per hour which are being used in execution of the project (Source: IPO prospectus).
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Fig. 40: Adequate asset base helps in resource mobilisation Fig. 41: Convenient raw material availability near project site
Project progress on track: In spite of the project lying on a busy route which brings traffic management into the picture, execution was on track. Construction was going ahead at full speed, aided by easy raw material availability and adequate resource mobilisation. Land acquisition challenges have been adequately met with good progress on land parcels located within the city. As a result, construction on the project is progressing satisfactorily.
Key project specific details: Developer: IL & FS Transportation Networks Project scope: The project is concerned with improvement of the Ranchi ring road (Sec III, IV, V and VI). It involves design, engineering, finance, procurement, construction, operation and maintenance of 6 lane divided carriageway on BOT (annuity) basis. The length of the project is 36.2 km. The concession period is 17.5 years (including construction period of 30 months). Ranchi ring road is part of the Jharkhand Accelerated Road Development Programme (JARDP) which involves development of select road stretches in the state of Jharkhand. The total length covered under the programme is 1002 lane km; of this, phase I involves 3 projects (Ranchi ring road, Ranchi to Patratu road and Patratu to Ramgarh road) spread over 466 lane km while the balance comes under phase II. The Jharkhand government is a stakeholder in JARDP with it holding 26% equity in the SPV for the project. Client: Road construction department, Govt of Jharkhand Date of commencement: March 2010 EPC cost: INR 4.77 bn EPC contractor: Sadbhav Engg Significance of the project: The project aims to ease traffic congestion in and around the city of Ranchi, the capital of the mineral rich state of Jharkhand. Ranchi boasts of a number of industrial facilities which are located in and around the city. With rapid growth in trade, commerce, and industry in the city, the traffic has jumped sharply.
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Key observations from site visit Involvement of state govt helped in land acquisition: Since the state government holds a stake in the project SPV, there was a high degree of involvement from state officials in the project. This has helped in regulatory i n g M a r k e P D F i n approvals like land acquisition, utility shifting, t etc. s Intensive project monitoring on the part of developers: The developer has given the EPC contract to a third party contractor. Developers involvement is in terms of design and value engineering, project development, consultancy and management as well as operations and maintenance management. To this end, the developer is intensely involved in all the facets of the project including review of the project construction also. There are regular review meetings to take stock of progress as well as to assess and to plan for future milestones. Well qualified EPC contractor(s): The EPC contractor(s) engaged in the project are well qualifiedboth in terms of having a substantial equipment base and technical/human resources. This has helped in the smooth implementation of the project. The plant/machinery deployed at the site included batching plants, excavators, graders, compactors, tippers, pavers, rollers, transit mixers, crushers etc.
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Fig. 44: Excellent asset base with EPC contractors Fig. 45: Equipment strength not lacking in case of contractors
Construction in full swing: The project involves construction of various structures like flyovers, RoBs/RuBs and major/minor bridges. At certain points, it intersects existing national highways as well. Regulatory approvals for various structures were in place and execution was in full swing. Overall, the project is progressing as per schedule. Fig. 46: Work on structures is going on I S I E m e r g i Fig. 47: Execution is progressing as per schedule a r k e t s P D F i
Key learning: In case the state government is actively involved, getting regulatory approvals becomes easy. Also, regular project monitoring and review along with intensive developer involvement is the key for a project being on the right track. This, when supported by well qualified contractors, leads to smooth project execution.
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Edelweiss Securities Limited, 14th Floor, Express Towers, Nariman Point, Mumbai 400 021, Board: (91-22) 2286 4400, Email: research@edelcap.com
Vikas Khemani Nischal Maheshwari Head Head Institutional Equities Research vikas.khemani@edelcap.com nischal.maheshwari@edelcap.com +91 22 2286 4206 +91 22 6623 3411
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