Home > Roads > A Road Less Taken… A look at the fresh net worth criteria for road projects

A Road Less Taken… A look at the fresh net worth criteria for road projects

Kamal Nath, road transport and highways minister, is termed as the “man in a hurry”. Just after he took over the ministry in June 2009, he announced a plan to build a road network of 20 km per day, 7,000 km each year and 35,000 km in the next five years. This target was set in spite of a not-so-impressive track record of the National Highways Authority of India’s (NHAI) which has built only 5-6 km of roads per day over the financial years 2005-09. Shockingly, NHAI was reported as taking an average of three years to award a contract and another three to complete the construction!! With this backdrop, his target of achieving 20 km a day seemed like just another target set by a ministry. However, the minister has taken some concrete steps towards  enabling development of road network. One such step includes alteration of the net worth criteria announced in March end.  

Until now, the bidder was required to have a net worth of 25% of the project cost, irrespective of the project cost. This criteria holds true for projects up to Rs 2,000 crore. However, net worth limit requirements have been raised in tandem with the project size. Projects in the region of Rs 2,000-3,000 crore will require bidders to have net worth equal to 25% of the project cost plus 50% of the cost exceeding Rs 2,000 crore. In addition, NHAI has introduced a clause which states that in case of a consortium, each individual bidder too must have a net worth of at least 12.5% of the cost.

Apart from issues like land acquisition and red-tape, financial closure is also a cause of time and cost escalation. However, the ministry expects the larger companies to have better credentials that will help them complete financial closure faster than small entities, and hence the move to alter net worth criteria.

According to the two work plans prepared by NHAI for the first two years, it is likely to award 11,928 km of projects till June 2010 and another 11,721 km in the next financial year. Media reports, however, state that 8,959 km out of the 11,721 km are two-lane highways that are not financially viable.

Awaiting NHAI to publish its data until March 2010, to get a better understanding of the achievement of the minster’s ambitious plans.

Categories: Roads
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