The Maharashtra government is the first state government in the country to adopt the hybrid annuity model (HAM) for road projects introduced by the Centre. Taking cognisance of the challenges the Centre faced, Maharashtra has revamped the model and already secured financing commitments from State Bank of India, Bank of India and India Infrastructure Finance Company (IIFCL) as it sets a target to award 10,000 km under the new method. Chandrakant Patil, the state’s minister for revenue, relief, rehabilitation and public works (PWD), talks to FE’s Rouhan Sharma about the new model and provided an update on the proposed Rs 46,000-crore Nagpur-Mumbai expressway project.
Why have you tweaked the hybrid annuity model that was introduced by the central government?
We have to make it positive for the contractor. Unlike the central government’s model where developers receive a 40% grant, we will give 60% of the total project cost as grant in the first two years. This will be given in installments on completion of certain milestones (physical progress) in the construction phase. We will ensure that maintenance would be a compulsory factor by building in a road-renewal contract in the agreement itself. By this, I mean that developers will have to compulsorily go in for new layering of the road in the fifth and ninth years of the project. Apart from this, they will have to do annual maintenance. These are some of the changes we have made. After completion of construction, the annuity will be given every six months.
What is the cost to the state exchequer?
The total cost the state will bear on account of this grant is Rs 18,000 crore. We are arranging this finance within the next two years. I can give you details later. However, the proposal has been accepted by the Chief Minister’s Office and also by the state’s finance ministry.
State government projects do not enjoy the same credit rating as national highway projects. Do you think this can hamper developers from raising funds at economically viable rates?
For this, the state government is giving a guarantee, which is a big thing. There will be a tripartite agreement, which will make the bank financing quite safe. We are holding talks with lenders on the model. We have already held a round of talks in the presence of the chief minister to give confidence to them. Our projects may not be rated high but interest rates are dependent on how the loans are secured. With the government guarantee, the banks are totally secured.
How have lenders responded to your model?
Already, last week, the PWD principal secretary has got a commitment from India Infrastructure Financing Company (IIFCL) for an amount of Rs 2,000 crore. Based on the state government’s guarantee, they will provide the financing to the concerned contractors. Moreover, State Bank of India as well as Bank of India are also ready to finance the HAM road projects under the Maharashtra state government. In this model, big bank loans are not required. Each package will be about 50 km with an average cost of Rs 3 crore per km. This means the total project cost for such a stretch would just be Rs 150 crore, in which there is not much equity a developer needs to put in anyway, compared with the national highway projects.
What about land acquisition?
The best thing is there is no need for any land acquisition at all because this land is with the PWD for so many years. These are all going to be two-lane roads. In most cases, we will be expanding the existing lanes to up to 15 metres. At present, they are of varying width, up to a maximum of 7 metres, and poorly constructed and maintained.
How many packages are you going to bid out and what is the overall plan?
There are 150 packages to be bid out in the first lot. For the state, the PWD has 96,000 km, of which 22,000 km is to be upgraded to national highways, of at least four lanes each, with the central government set to spend about Rs 1,06,000 crore on them. Already, Rs 20,000 has come for land acquisition. Then, we have 10,000 km under HAM. Moreover, the Centre has announced 6,500 km as part of the Bharatmala project, which is going to be six lanes. Within three years — I am not claiming two years because land acquisition is needed for the four and six-lane projects — we will cover 38,500 km, so the whole picture in Maharashtra will change.
What is the update on the Nagpur-Mumbai expressway?
So far, we have concrete assurance for Rs 22,000 crore from various financial institutions. We can obviously start work with this amount. Land acquisition is also completed to the extent of 50%, but we will have to go up to 80% before we can commence work, otherwise there are risks of interruptions like in the case of the Panvel-Indapur stretch, where the work has been going on for the last seven years. To go up to 80%, we will require time till May 2018.