NHAI may scrap projects where land acquisition is yet to be completed

The National Highways Authority of India (NHAI) might terminate projects where acquisition of land is yet to be completed by states, said a source. 

Contractors will be paid for the work they have done, but the remaining portion of the incomplete projects will be scrapped.

This was decided as the NHAI recently got entangled in various arbitration cases by contractors for delay in land acquisition. “The states will soon be informed about this,” said the source.

This policy will be implemented mainly for the engineering, procurement and construction (EPC) projects where construction began at least three years back but have been stalled because of delayed land acquisition. 

Experts feel this is a positive step, at least for projects that are yet to take off, because these can be bid out with a new alignment. 

“For under-construction projects, this could be a challenge for the developer as the termination payments are stacked up. They may incur significant losses,” said Jagannarayan Padmanabhan, director, CRISIL Infrastructure Advisory.

Hybrid-annuity projects would not be brought under this category. This model was introduced in 2016, and it came with an in-built pre-construction clause, according to which a contractor cannot begin work until 80 per cent of the land acquisition is complete. 

A similar condition was prescribed for new EPC projects — to allow construction to start only after 90 per cent of the land was acquired.

“The revised EPC documents even stated that land should be offered to the contractors for the construction within six months of the project being awarded,” said a former NHAI official, requesting anonymity.

He added that any state keen to have a national highway should be proactive in acquiring land for it.

The NHAI plan to scrap projects stalled by tardy land acquisition would also help check escalation of costs.

According of the NHAI’s latest annual report, there were 1,014 arbitration cases against it in FY18, much higher than 125 in FY17 and 119 in FY16. The value of claims in FY18 was pegged at Rs 55,344 crore, against Rs 42,074 crore in FY17 and Rs 30,071 crore in FY16. Data for FY19 was not available.

The NHAI also settled claims outside arbitration or courts. Recently, it was asked to pay a fine of Rs 750 crore in an arbitration case to West Haryana Highways Projects (WHHPPL), a road developer that had widened a national highway connecting the Delhi-Haryana border with Rohtak.

The project, awarded in 2007, should have been completed in two years, but was delayed on account of clearance and land availability. This added to the overall cost of the project.

Land acquisition has been delayed also because of the new 2015 law regarding compensation, said some analysts. In some cases, the cost of land acquisition overshot the overall project cost. One such case was the Eastern Peripheral Expressway — while the project cost was Rs 4,418 crore, the land acquisition bill was Rs 5,900 crore.

Easing financial woes
  • In August 2016, the Cabinet Committee on Economic Affairs approved various measures to revive the construction sector
  • According to the proposal, government agencies would keep 75% of the arbitration award amount in an escrow account against margin-free bank guarantee in cases where the award is challenged
  • The escrow account can be used to repay bank loans or to meet commitments in ongoing projects
  • It will allow recovery of loans by banks and enable construction companies to speed up execution of projects
  • It will also increase the ability of construction companies to bid for new contracts, and the resulting competition will be beneficial in containing the costs of public works

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