Q: How important will foreign investment and partnerships be to India's current roads and highways infrastructure project?
A: Limited government resources necessitate inviting private investment for development of the roads sector. In the roads sector we require an investment of more than $70bn over the next three to four years. Of this, private sector investment is expected to be $41.05bn. We are keen to have foreign investment in the sector and also to forge partnerships with foreign players. Foreign partnerships not only bring in foreign funds but also their experience and technical know-how in the construction and maintenance of highways.
We need technological upgrades in highway construction, and hence road construction companies from abroad that have expertise in the field would also need to be brought in. Separate world-class tolling companies to handle the tolls are also required since we have plans to introduce electronic toll collection in India from 2012. Hence the Indian government will be looking for a range of investor and construction entities from abroad to step into the highways construction space as investors and joint-venture partners.
Q: Tell us more about the project itself, such as what it will involve and why it is being carried out.
A: The Indian road network is the second largest in the world, behind the US. Roads carry 85% of passenger and 70% of freight traffic in India. We are planning to add another 10,000 kilometres of national highways, for which approval has been received in principle. National highways account for 2% of the road system but carry 40% of the total traffic. There is a huge potential for growth in the infrastructure sector in India and especially in roads, as only about 17% of the roads have four or six lanes, while the balance is either two-laned (54%) or single-lane (29%). The auto sector in the country is booming, with an impressive growth of about 37%.
We have a huge infrastructure deficit, because growth has preceded infrastructure in India, and the National Highways Development Programme [NHDP] was launched in 2000 with the objective of building quality roads and infrastructure in the country. In Europe and the US they talk about renewing infrastructure, but in India we are talking about catching up with the infrastructure deficit. And because of such a large deficit, we are not building for the future, we are catching up with the past.
The NHDP is the world’s largest public-private-partnership road-development programme. The seven phases of the NHDP will cover 54,454km. The Indian government has set a target of developing 7000km of national highways, or 20km a day. In order to achieve this target, the government needs to ensure work in progress of about 20,000km as a project normally takes three years to complete. We are making good progress towards achieving this target and by March this year we should have more than 20,000km of work in progress.
The road-development programme will involve an optimum mix of roads that serve the economically advanced areas as well as backward areas. My challenge is to ensure inclusive growth. We also want to ensure that important ports, airports, tourist destinations and religious places are well connected with quality roads. All state capitals are to be connected by four-laned national highways.
Q: What are the biggest challenges and obstacles to achieving these goals and what will you do about them?
A: We’ve set ourselves huge targets and we hope we’ll be able to meet them. The biggest challenge is building our own capacity to manage this huge programme. When you talk about development of this kind, you are talking about building up capacity to manage this programme. If you have 200 projects in the country, you require 200 project directors. You require the staff and the managers and you can’t have a project without having a bid. And you can’t have a bid without things such as feasibility reports. And that’s why our biggest challenge is building our own capacity.
Q: Another issue that has been evident in the media, especially recently, is that of corruption. On the internet investors can read some discouraging things that have happened in India in the past few months. What would you say to investors who have concerns in this regard?
A: We have so many foreign companies participating. And the way we have run the procedures is all on the internet. We are very transparent in that. It’s in the implementation stage that there can be problems, and we will take measures so that the systems have better transparency. That is the way to address that issue.
Q: What would you tell potential investors who have concerns over the potential risks versus the potential rewards of getting involved in this project?
A: By conservative estimates, roads sector investors in project equity stand to gain between 15% and 21% returns. This is the normal return that can be expected. If investors have a higher risk appetite and can stomach higher leverage on equity than the standard 70:30 split, then the returns could be higher. If the investor can put in superior project-management skills, return expectations can be pegged higher. With the Indian economy showing sustained growth and the rupee’s appreciation against other currencies such as the euro and the US dollar, the returns through currency appreciation can be quite rewarding in themselves. Combine all these and my hunch is that no investor is likely to be disappointed with investing in the roads sector in India.
There are three primary potential risks for highway investments, which are construction risk, traffic risk and political risk. For capable developers, construction risk really does not exist, there is no traffic risk in India and political risk is not limited to any one sector.
Q: There are also concerns over the operational standards and future maintenance of these roads, as in the past it seemed that money would be put down for the building of a road, but no clear plan was in place for its long-term maintenance. What are you doing about that?
A: In the concession period, the investor is responsible for maintenance. So with all the projects we’ve had, we’ve set quality standards and I think this issue will be resolved by using the best technologies. The contractor will ensure that the road it builds meets those specifications.
Q: How will the project affect FDI into India in the coming years?
A: We are hoping that the roads project will result in high interest from foreign investors. We are hoping to attract $10bn in FDI in the next three to four years. This will be a significant rise if we compare it with previous years. FDI into India in the roads sector from January 2000 to March 2009 was only $955m.
The government and other partners have conducted international roadshows in Asia, Europe and the US to attract investment into the sector. We are also looking at investors from this part of the world and are raising awareness of the potential of the roads sector in India. The roadshows held so far have received a good response. We also have memoranda of understanding [MoUs] with the UK, Finland and Malaysia, while MoUs with Japan, China and some other countries are in the pipeline.
Q: Should this project be a success that results in better infrastructure in India, it would certainly boost your profile in Indian politics. Have you thought about your future after your term expires?
A: Right now I’m just focusing on building roads.