Thursday , 14 November 2019

Contracting, construction and technology trends

Roads in India:? Today & Tomorrow

Biren Parekh, Partner, Ernst and Young India Pvt Ltd, takes a detailed look at the tolling system in India vis-?-vis road infrastructure, trends and framework. He also compares the Indian situation with a few initiatives taken in a few countries.

From Adam Smith to the late Herb Mohring, economists have waxed lyrical about congestion pricing and road developments, thereby contributing to the development of the concept of transport economics. We explore this concept with regard to tolls to identify how players need to evolve and be equipped with the advancements in the sector. We study the present scenario in India and then move on to identifying the trends in the key elements such as construction methodology, tolling technologies, corridor management and incident management.

Trend for tolls

The concept of tolls is leading the evolution in roads and thus, there is a need to understand where we are, what the global trends are and what we need to do to catch up.

The socio-economic value of tolls for a country depends on the stage of its economic development. In the developing stage, the tolls are used to transgress natural impediments by connecting land masses, lakes, mountain passes, etc. Simultaneously, they are used to connect urban rural areas and sew the country?s networks. Example: Mumbai?Pune Expressway, Yamuna Expressway, etc.

After this, as a country develops further, tolls are used as a means to regulate traffic in congested metros through congestion pricing. Increased vehicle density and road expansion programmes, paced with economic growth, lead to the development of electronic tolling technologies like the RFID systems. Finally, in developed economies, there is a cultural shift where the toll fare is charged to curb the negative externality of congestion and is seen positively by the public at large due to increased social and environmental awareness. It involves regulating the demand for travel with supplementary costs and reinvesting the revenues generated in promoting public transport by making it cheaper. Example: Singapore Area Licensing, London Congestion Charge, Milan Ecopass Scheme, etc.

Present Scenario in India

The 12th five-year plan envisions USD 120 billion worth investments in roads. The NHAI targets to build 9,500kms in 2012-2013 @ 20 kms per day; 100% FDI allowed; Training centres for construction workers, and a grading/rating system for construction firms have been established. Negatives – 347 road projects still delayed awaiting green clearances; Equity returns from BOT road projects have reduced from 22% in 2008-09 to 14% in 2010-11 due to the increase in premiums. While the rest of the world is moving towards the concept of safer, greener, smarter roads we are busy despising our road infrastructure and being recognised as the country with the maximum road accidents in the world.

Framework in India

The Central Government looks after the National Highways through the Ministry of Road Transport and Highways (MORTH). They comprise 2% of total road network but carry 40% of the total traffic. The MORTH is in charge of implementing the National Highway Development Programme (NHDP). State highways are managed by State Governments through the Public Works Department while Rural Roads and Urban Roads are managed by Rural Engineering Organisations, Local Authorities like Panchayats and Municipalities. The NHDP is the largest road development plan undertaken by a single entity in the world. It involve widening, upgrading, and rehabilitation of about 55,000kms. The various modes for financing these projects are: Government budgetary allocation, grants through the Central Road Fund, lending by international institutions, private financing under PPP model ? BOT/DBFOT, BOT (Annuity), SPVs (Equity participation by NHAI) and market borrowings.

Apart from the fact that land and pre- construction related costs will be covered by the government, the special benefits being currently provided to private players are: Subsidy of up to 40% of the project cost under Viability Funding Gap, duty free import of certain construction equipment, 100% tax exemption in any 10 out of 20 years of the concession period and relaxed external commercial borrowing norms. Special road development programmes, grants through Central Road Fund and tax free infrastructure bonds are also some notable initiatives working well for the road sector.

But on the other hand, construction companies, developers, suppliers and potential entrants still face constraints due to delays in land approvals, withdrawal of tax benefits, working capital constraints and unavailability of skilled staff. Contract management, clarity in dispute resolution, quality and procurement cost of material and equipment are some areas which are still not being given their due.

Parts of India, mostly the rural interiors, are entering the second stage of the aforementioned tolling trend while the rest of the urban and metropolitan areas are entering the third stage requiring congestion pricing. India has 3.34 million kilometres of road. 85% of the country?s passenger traffic and 65% of its freight use roads as a means of transportation (as per MORTH). NHAI plans to convert 20,000kms of single lanes to double lanes. Vehicle population growth is forecast to grow at 12% p.a. while traffic on roads is growing at 7-10%p.a. As per Business Monitor International forecasts, real growth for road infrastructure is going to average around 11.5% p.a. between 2012 and 2016.

So considering where we are and where we seem to be going, we need to strengthen our ability to increase supply and regulate demand which has to be done by the government, NHAI and private parties through the system of Tolls. In order to do that, we need to understand trends in terms of contracting, construction and technologies at play?

Along with the above trends some other key developments in road construction have been as follows: Noise absorbing road materials, automated pavement testing technologies (allowing in-field testing of asphalt and automatic mix modification), double/triple-drum mixers (improved drying of aggregates), infrared road construction material (enhancing night visibility) and acrylic based resin system for road markings and anti skid surfacing.

Eco-Friendly Initiatives

  • The road authority in Victoria, Australia compiled a sustainability rating tool named INVEST (Integrated VicRoads Environmental Sustainability Tool) for raising sustainability benchmarks across construction projects. It encourages investigation and implementation of innovative ideas and also recognises outstanding sustainability practices.
  • Greece is famous for its mandatory Environmental Impact Assessment (EIA) procedures for new projects. The aim is to ensure that decision makers consider the environmental impact likely to flow from a project before deciding whether or not to proceed. The application consists of three elements: EIA report, consultation procedure and the final decision. The report examines possible issues exhaustively. The consultation procedure involves the public and administrative departments with relevant environmental jurisdiction. Though time consuming, these processes increase acceptability for the projects.
  • In UK, an application for adapting to Climate Change Application (ACCA) was created which basically identifies potential impact of future climate change on road construction projects. It measures the risk, probability and magnitude of influence changes may have.

As the number of vehicles on the road rise, it becomes necessary to adapt to such technologies to systemise toll collections, manage traffic, handle accidents and reduce the transit time. These tools assist in reducing the touch points between a commuter and a road operator, thereby standardising the travel experience of a commuter. Vehicles can be tolled electronically, directed to enter into low congestion lanes, warned for breaching speed limits, refuelled using vehicle details and also monitored for movements, etc. Though the setup costs for this level of infrastructure would be high, the benefits will result in reduced, toll violation rates, accidents, bottlenecks and operational costs. The scope for development in this front is immense; hence all we need to do is stay aware.

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