The NHAI Crisis Part 3: What is wrong with NHAI?
In the first article, we established that we need better roads, in the second we described the ideal mechanism to achieve them. The question therefore remains as to what the National Highways Authority of India (NHAI) is doing wrong. Many things, which can be classified into three sets of problems – fundamental flaws, corruption and policy problems.
 
Fundamental Flaws
 
Within NHAI’s portfolio of projects, many suffer from poor selection of projects, bad design and planning, worse execution and worst monetisation.
 
Poor selection of projects is attributed to political influence, ministerial pet projects taking precedence, disregarding financial viability and necessity of the projects. Thus, wrong projects get prioritised. There arises a mismatch between the intention of project (connectivity projects with not much revenue scope) and actual infrastructure provided (rest stop infrastructure, etc.). Thus, electronic tolling, which should have been undertaken on war-footing is still languishing. Electronic automated weigh bridge should be installed at regular intervals across the highway network. Yet these have been installed only at the 300 toll plazas.
 
Bad design and planning are pervasive across all projects of NHAI. Even the golden quadrilateral (GQ) roads (particularly the east-west and north south corridors) have so many abrupt lane droppings and lane additions that it makes the flow of traffic problematic.  The supporting infrastructure – rest stops and facilities on these roads is not quite up to the mark. There is no provision for building logistic parks near major exits and cities.
 
Hardly any highway allows for one-entry-one-exit design. Consequently, using the highways and expressways portends no substantial advantage over using non-tolled roads.
 
I hope the connection between eastern peripheral expressway and Yamuna Expressway is seamless allowing traffic to move from Haryana side without exiting into the outskirts of the National Capital Region (NCR). 
 
Bad execution is of two types – one, quality control is bad and second, the necessary planned infrastructure is not constructed. The World Economic Forum reports rank India below 50 in quality of road survey. If actual quality is tested, we will fare far worse. State roads have fared worse in terms of quality primarily because of selection of construction contractors.
 
Massive Corruption
 
Corruption in land acquisition, construction contract award and tolling contract awarding, are not unique to NHAI. This problem is prevalent across all state and central infrastructure development. 
 
Corruption for land acquisition takes a nuanced form. Front running, i.e. buying the affected land by netas and babus is common. This land is later sold to NHAI by private negotiations. Other adjoining lands are appreciating in value and benefit the same parties. The Mumbai Pune Expressway was slightly curved to protect the interest of certain land owners.
 
Construction contracts award corruption is well known and the modus operandi has in fact shamefully become a standard operating procedure for procurement process by government bodies.
 
Corruption and fraud are rampant when it comes to tolling. For instance, MSRDC collected toll for 10 years without cash flow statements from contractors! There is no audit of the tolling companies. Traffic data is suppressed and so is toll collection.
 
In an interview with Moneylife Sanjay Shirodkar pointed out how in certain cases tolled traffic has been stagnant for 10 years. In the Mumbai Pune Expressway toll-traffic data, there are discrepancies of about 50% which the government says are because of VIPs and pass holders. With the current technology traffic measurement can be automated at very nominal cost. Yet, the method followed to measure traffic at toll plaza is by manual counting. The tolling contracts are extended without performance appraisals and audit.
 
IRB, the tolling contractor for Mumbai Pune Expressway provides no financial statements as to earnings from toll or expenditures on maintenance of the expressway. It however, increased the toll regularly as pointed out by Moneylife. The government agencies do not provide data under RTI. During an earlier RTI inquiry Moneylife had found data on toll uploaded on PWD and MSRDC sites but the same was not found when this author tried to access the same recently. We may only wonder as to why such data cannot remain in the public domain. In fact, capturing and uploading this data on a real time basis is possible using today’s technology.
 
The problem with toll collection is quite outlandish. The delays in toll plaza are because of lack of investment by toll contractors in collections of toll. The issue is simple, if toll is collected electronically, the corruption will end and that means end of the gravy train for all bureaucrats and politicians involved. Moneylife has reported on the 2013 study by the Transport Corporation which put the cost of delays at Rs60,000 crore. The transporters therefore offered to pay the entire national toll collection upfront so that there are no delays at toll collection points. Why the government did not take up this proposal is anybody’s guess!
 
Policy Challenges
 
Lack of coordination between the state and Centre has been a crucial failure of Indian infrastructure story. For example, when Maharashtra government announced MIHAN, the multimodal transportation hub in Nagpur, it was not connected by any transportation links. It needed a high-speed-high-capacity links to ports and consumption centres to make it successful. While Samruddhi Marg intends to connect it with a port, connectivity with GQ and EW and NS corridors is difficult. Similar is the case with state highways and national highways competing with each other. In a country that is deficient on infrastructure, it is hard to understand creating competing capacity to the detriment of both governments.
 
Lack of exit options for NHAI is also a policy choice. It is necessitated by choices of random project selections without regard to investment-return matrix. Recently, the minister for transportation shared the intention to divest the projects to Infrastructure Investment Trusts (InvIT), similar to REITs. This should have been the first choice and should have been functional by now. Even today there is no information as to the structure of InvIT.
 
As of now the plan is to make government entities like LIC and others hold assets under different names. This is poor execution of the concept. Ideally, the projects should be made saleable by completing the necessary infrastructure and sold publicly with predictable revenue streams.
 
The lack of proper financial and operating information makes exit almost impossible. NHAI being a government agency, does not report financials in the same way as a listed company does. That needs to change. In fact, we need a government financial reporting standard similar to GAAP or IFRS and all government entities including governments, local bodies and agencies like NHAI should report their financial performance. For government agencies, it should also be mandatory to report operational details like vehicular traffic at each tolled section etc. 
 
In Sum
 
The problems with NHAI exist at every level. These reduce the purchase of investment capital with NHAI. It means tax money is being misallocated in the economy only for the benefit of the corrupt. There is no concerted effort to rectify these problems and set in motion the performance improvement strategies. But if the government wants to improve, our next article should give them a starting set of suggestions. 
 
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(Rahul Prakash Deodhar is a private investor and Advocate, Bombay High Court. He can be reached at [email protected], on twitter at @rahuldeodhar or at his website www.rahuldeodhar.com)
Comments
Silloo Marker
2 years ago
Very interesting study of how the highly admired Mr. Gadkari seems to work. Business as usual, it seems.
Bipin Kochar
2 years ago
Wow - what a mess, Government should ask NHAI to stop all projects for which have not started or where less than 90% of land is acquired and use freed up funds to acquire land for projects where 90% of land is already acquired and to pay up on all arbitration dues as committed by Nirmala Sitharaman
shadi katyal
2 years ago
Very well researched the whole problem and one wonder how much money has been collected from toll booths.It seems all roads are almost not free anymore so where is the revenue gone? How much Netas have got cut from such Tolls collection.
The land acquisition shows how much corruption is there and we are told that Modi will punish such Netas but look around and see3 who are these people ,only BJP members.
The problem is that we are still unable to build proper roads despite technology available from Europe and USA.Is this lack of our technical know how or our mental behavior of SUB KUCH CHALTA HAI BHAI, Will we ever learn quality construction or just muddle along.'
Gadkari should be able to give full report of why such conditions prevail and why no one has taken care of the problems from day one.
Hudaf Shaikh
2 years ago
Excellent article - the entire system of highways development is flawed - with corrupt government agencies seeking to extract money at every stage without executing on their responsibilities - resulting in huge delays and cost escalations which have left banks shouldering huge NPAs.

The Mumbai-Pune expressway is a classic example - after taking over this highway on completion of the recovery of investment by the contractor, MSRDC continues to levy the same toll - and what is far worse is that the maintenance it is doing is so shoddy that many times commuters now have to spend hours in jams to reach Pune -

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