Published Editorial

Which road to take?

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The Financial Express

by

Abhaya Agarwal
Partner & PPP leader,
EY

Over the past two decades, financing of road projects in India has undergone several changes. For the government, public-private partnership (PPP) has become the preferred route for construction of roads. The National Highways Development Programme (NHDP), the largest road programme in history, envisages the bulk of investment to come from the private sector.

A predominant feature of private financing is collection of toll. In India, toll rates are calculated taking into account the base toll rate and the wholesale price index and are indexed to the estimated project cost in the case of high cost structures.

Road users have to pay tolls in addition to paying a fuel cess and vehicle charges; yet they do not receive the desired level of service quality. Roads have been constructed in patches, leaving little impact on long journeys. In addition, a new plan has been finalised by the government proposing a levy of user charges on road users to enable efficient operation & maintenance of roads, till perpetuity.

Road users are now faced with multiple charge burdens without much improvement in the quality of road or a reduction in travel time. Motorists face delays extending up to several hours, congestion and long stoppages at most toll plazas.

According to a study by IIM Kolkata and Transport Corporation of India, delays at toll booths cause losses of around Rs 870 billion a year while toll collections amounted Rs 43.64 billion in 2009-10. A vehicle on an average takes around 65 hours to traverse the distance of nearly 1,400 km between Delhi and Mumbai. On this route, of the three hours of stoppage delays, the time spent at toll plazas is around 2.5 hours. The delays are even higher on the Delhi-Bengaluru corridor.

This again raises the question, which “road” should India take to make the tolling system efficient?

Unlike in the case of Robert Frost’s poem–The road not taken, where just two roads diverged in the woods—we are standing at a juncture where there are many roads each of which has its own share of freeways and speed-breakers. India needs to look at what other countries have done in the past to learn from them.

Global trends

Most countries have to rely on general taxation, or vehicle and fuel tax for financing their road infrastructure while tolled network typically comprises less than 5% of the road network. Often, drivers have the option of using a freeway or a toll route and tolls are generally levied on heavy goods vehicle. Various models ranging from large concessions to vehicle-distance travelled charges have been used by the countries to pay for construction of roads overcoming the challenges outlined above.

Germany

Germany started the satellite-based truck toll system. Sealed odometers or other measuring devices are installed in the vehicle to measure the distance travelled. All trucks exceeding 12 tons weight have to pay toll between 0.141 and 0.288 euro (depending on the emission class) for each kilometer travelled on Germany’s motorways and the federal trunk road network of around 13,085 km. The toll payment can be made online or manually. Trucks are installed on-board units, which enable payment to be calculated via the satellite tracking system. Since 2005, the operating costs have reduced by one-third while the overall collection rate remains at 99.9%. As on 31 June 2012, 942,000 trucks were registered.

Canada

Ontario’s 407 Express Toll Route is the first electronically-operated toll highway and is considered the most successful new toll road in North America. The highway is barrier-free and uses open road tolling. There are no toll booths along the length of the road. Radio antennas and automatic number plate recognition systems are used to identify entry and exit of vehicles on the highway. Toll rates and distance travelled are calculated electronically and monthly statements are mailed to drivers. The system not only saves on cost of tolling booths, but also saves users from losing time and fuel by waiting in queues at toll booths. More than 75% of drivers of 407 Express Toll route claim to save more than 15 minutes on each journey due to the electronic tolling system.

France

In a singular example, France conferred a high proportion of its network to the private sector. In contrast to a project-based approach in most countries, France established four large concessions, each managing a network greater than 500 miles (800 km) in length. The terms of tariff and investment plans are agreed with the government every five years considering the quality of service provided. This format allows the developer to incorporate changes with time and planning investment according to the demand.

Lessons for India

There is no single solution to India’s inadequate road infrastructure. The country can learn from the experiences and successes of other countries and replicate them to some extent in accordance with the domestic conditions to improve performance of PPP projects in the country.

* Like the Attica Tollway in Greece—which handles more than 300,000 vehicles on average every day with rush hour traffic of nearly 6,000 vehicles per hour per direction—that came up with loyalty programmes to increase the number of tag users, NHAI should incentivise people to purchase and use road tags, which can then be used across concessions.

* NHAI should devise ways to charge toll rates according to the quality of service by incentivising toll-road operators for good performance and penalising them for consistently low customer-satisfaction levels.

* In India a toll plaza is generally set up at an interval of 70–80 km on the highway. Concessions should be given for longer stretches to avoid larger number of toll plazas such as in France.

* Regular monitoring of the amount collected as tolls by private developers should be done. There should be a ceiling and floor defined for the toll collected.

It is too early to say whether India has taken the correct decisions or not; however, people are not getting the service they pay for. Therefore, the country should continue to evolve and innovate its road financing agreements rather than continuing on the current model so that the road users get better service. A user does not want just a new road, but a better road service.

(The author’s views are personal.)