The Big Infra Challenge
With more than half the infra projects delayed, we will have to shell out an extra Rs 1.7 lakh crore or more for the cost overruns
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The good news is that the pace of infrastructure development in India has picked up, particularly in the last 24 months with over 1,260 central infra projects — the original cost of these projects was pegged at Rs 15.84 lakh crore — currently underway. But here is the bad news. There are major time and cost overruns. Simply put, over half of these projects are running behind schedule, posing an imminent danger of major cost overrun. One estimate puts the anticipated cost overruns at over Rs 1.7 lakh crore, others put it even higher. Sample this: out of the 1263 projects currently underway, 380 are mega projects (project cost exceeding Rs 1,000 crore), about 145 such projects have already reported cost overruns says a report by the ‘Infrastructure and Project Monitoring Division’ of the ministry of statistics and programme implementation. At a macro level, of the 1,263 projects, only 307 are on schedule, while 297 are delayed. Not so bad, some would argue. But when one looks at the big picture, 350 projects are reporting cost overruns, another 103 projects are reporting both time and cost overruns, and overall, more than 700 projects are delayed, which means more money will be required to complete them. “It is estimated that for these mega projects, we may end up with cost overruns north of Rs 1.7 lakh crore or even more,” says a senior government official.
Last year, the country saw the operational roll out of two key infrastructure projects that were delayed by several years. One: the 9.2-km-long Chenani-Nashri tunnel, India’s longest road tunnel that reduces travel time between Jammu and Srinagar by two hours. Two: the 30-km-long first phase of the Hyderabad Metro Rail Project. Both the landmark projects had missed their original completion deadlines and witnessed cost overruns. Can the time and cost overruns be reduced? What are the challenges of executing large infra projects and how can these be overcome? We visited the Chenani-Nashri tunnel to get a better understanding of how time and cost overruns can be reduced from those who have been involved with the projects since inception. We raised questions such as the correlation between DPR (detailed project report) and cost/time overruns? What is the role and significance of DPR? And whether lower spending on DPR lead to cost/time overruns?
Incidentally, the Indian arm of US-based infrastructure development consultants Louis Berger has been involved with both Chenani-Nashri tunnel and the Hyderabad Metro projects. It is currently also involved with projects such as the Navi Mumbai International Airport, Sabarimala Airport, Mumbai-Pune Expressway Augmentation, Mumbai Metro Line 4, Mumbai coastal road, Versova-Bandra Sea Link and Bhopal-Indore Metro among others. “Our core services include feasibility studies, concept designs, detail designs, tender documents for construction, project management, construction management and operations and maintenance management,” says Kshitish V. Nadgauda, vice-president and managing director (India and South Asia), Louis Berger.
Any infrastructure project starts with a very crucial piece of report called the DPR. Says Manish B, Agarwal, partner and leader, Infrastructure, PwC India: “A comprehensive DPR acts as the foundation for the project execution phase, and is critical to avoid major surprises during the execution phase.” Agrees Jaijit Bhattacharya, head of economic, regulatory and policy advisory at KPMG. He terms the preparation of DPR as a “critical milestone in seeking financial assistance for the project”. “A DPR also ensures efficient utilisation of financial and other resources. It assesses feasibility and forecasts profitability of the project. Also, a DPR provides guidance for budgetary allocation for a project,” adds Bhattacharya.
Challenges in Chenani-Nashri Tunnel:We turned to M. H. Patil, director and construction supervisor for Louis Berger. Patil was directly involved with the execution of the DPR for the 9.2 km-long Chenani-Nashri tunnel that replaced a 41-km mountain road. It is reckoned to be India’s longest and safest road tunnel. The tunnel begins at Chenani, which is 89 km from Jammu, and ends at Nashri. What was the role of Louis Berger in Chenani-Nashri tunnel? “Louis Berger was responsible for conducting the feasibility study, the detailed project report, including detailed engineering designs for the four-laning of Udhampur to Banihal section of National Highway 1A, now part of National Highway 44, which also included the Chenani-Nashri tunnel. The detailed project report included preparation of the highway design, pavement design, bridges, tunnel sections, cross-drainage, slope protection and stabilisation measures,” says Patil.
Recounting the early days of the project, Patil says: “Imagine where the tunnel is today, there was nothing but mountain, slopes, and no roads. Since the tunnel design required a thorough knowledge of the geology of the area and geotechnical properties of the strata, my team and I walked the entire length of the proposed tunnel but over the mountain to gain an in-depth understanding of the geology of the area.”
What were the main challenges for Chenani-Nashri tunnel? “The two major challenges for Louis Berger were the terrain and the type of rock in the mountains from Udhampur to Banihal. Preserving forests in the ecologically sensitive Patnitop area of the state, including the endangered Chinar tree forests, and minimised hill cutting were equally challenging while working on the DPR,” recalls Patil a civil engineer by qualification who has designed various infra projects across India, Afghanistan and Southeast Asian countries.
How did DPR help the project executing agency? “Because of the DPR and the (knowledege of the) nature of rocks and soil in these hills, we knew what kind of efforts would be required while undertaking the construction of the tunnels and we executed our plans accordingly,” says J. S. Rathore, project director of the Chenani-Nashri Tunnelways, the company that operates the tunnel. According to Rathore, the tunnel is the first in India to be equipped with world-class “integrated tunnel control system” through which ventilation, fire control, signals, communication and electrical systems are automatically actuated. All these features were part of the DPR prepared by Louis Berger, which also prepared the tender documents for the procurement of the construction agency.
Challenges in Hyderabad Metro:
As the independent engineer on the project, Louis Berger worked closely with the Hyderabad Metro Rail Corporation and the public-private partnership (PPP) concessionaire L&T Hyderabad Metro Rail (L&THMRL) to overcome challenges, leading to the successful opening of a 30-km section for commercial use on 28 November, 2017, says Kartikayan Singal, Louis Berger’s Rail & Transit Systems head for South Asia. Recalling one of the biggest challenges and the solution provided by the company, Singal says: “The last lap of the 11-km track was a major challenge as two rail overbridges and two major stations were still incomplete. It is important to note that L&THMRL completed 11 km of rail works by mobilising over 2,000 workers to finish the section before the April 2018 deadline. Had it not been for L&T, this near impossible target would have been difficult to achieve.” In terms of unique challenges to Hyderabad Metro, Singal says, like most old and historic cities, Hyderabad often had no drawings of existing utilities in certain areas posing challenges. “Some of the other challenges included viaduct structures built with less than 0.6-meter clearance from the nearest building or property under difficult erection conditions. Some of these curved spans had to be erected without any intermediate temporary support in between. The construction of eight rail overbridges was also successfully undertaken,” he says.
Navi Mumbai International Airport: According to Nadgauda, Louis Berger served as the ‘prime consultant’ for the project from April 2008 to December 2017. “We were responsible for carrying out a comprehensive feasibility study, airport master plan, DPR, business plan, providing assistance in obtaining ‘clearances and approvals’, the preparation of bid documents and the bid process management for procurement of a strategic partner to develop the airport on a PPP basis,” he adds. The Navi Mumbai International Airport is planned to be one of the world’s largest greenfield state-of-the-art international airports, with an estimated cost of Rs 16,000 crore ($2.35 billion). The City and Industrial Development Corporation of Maharashtra (CIDCO), a public sector undertaking, is the owner, and is developing the airport through a PPP contract. The airport is planned for a capacity of 60 million passengers per annum (MPPA) with two parallel Code 4F compliant runways (Airbus A380 capable) along with a provision for a cargo and maintenance, repair and overhaul facility. Infra developer GVK has been awarded the PPP contract for the development of the airport with CIDCO.
Problems & Solutions
As per government’s report, out of 297 delayed projects, 52 projects have overall delay in the range of one year, 63 in the range of one to two years, and 109 in the range of two to five years. “There are 73 projects that have reported a delay of over five years. Out of the 297 delayed projects, 154 projects have not provided any milestones, and in 92 cases the dates of completion of the milestones have already lapsed,” says the government official quoted before. But what is of utmost concern is that the expenditure has exceeded the approved cost in 149 projects, and in 924 projects milestones have not been reported, he adds. In such a scenario, is it better if those involved in the design of DPR/bid documents are actively involved in the design execution and implementation as it may reduce the time and cost overruns?
Experts are divided when it comes to awarding the execution of projects to those involved in preparing the DPR or the bid documents. Says J. Padmanabhan, director and practice lead of Transport and Logistics at CRISIL Infrastructure Advisory: “If a project is bid out, there is a clear conflict in having the same consultant advise both the authority and the developer. However, if the project is executed by the authority, an integrated contract can be done for both design and implementation. Timely implementation and execution can be achieved if there is a shared purpose, vision and buy-in from all the stakeholders.” However, Bhattacharya of KPMG says the reason those involved in design of DPR/bid documents are not involved in design execution and implementation in India is to “ensure transparency in the awarding of tenders for execution and implementation of projects”. However, some South American countries follow the practice of granting first right of refusal to the developer that prepares the DPR, says Bhattacharya.
So how can cost/time overruns be reduced? According to Bhattacharya, cost estimates tend to be more accurate for smaller projects that can be completed over a shorter period than for megaprojects. “These routine projects are less likely to get caught up in politicised decision-making processes that can surround high-profile megaprojects. “Hence, timely implementation and execution of infrastructure projects may be ensured by breaking up larger projects into smaller ones,” he proposes.
What about the low spending on preparation of DPRs? Is it true that the spend on DPR in India is much lower than in developed countries? “Yes, it is. India spends around 2 per cent of the project cost on DPR preparation. In comparison, England spends 5 per cent of project cost on DPR preparation, while the US spends approximately 6-9 per cent,” says Bhattacharya, adding that low investment in planning and engine engineering in India generally leads to high costs of implementation, resulting in cost/time overruns. What is the way out then? “The government may take steps to strengthen its in-house engineering teams, formulating performance monitoring and management systems, incentive mechanisms, etc. The DPR stage must be comprehensive, ensuring participation of all stakeholders, ensuring all internal and external risks are considered, ensuring utilisation of most recent estimates and projections for preparation of DPR,” adds Bhattacharya.
According to Padmanabhan, “at times we have seen unreasonable bids for some of the challenging projects. This is more prevalent when cost alone i.e. L1 (lowest cost) becomes the preferred bidder.” He says, “It is important to have a quality and cost-based selection for complex projects, giving due weightage to quality consultants who have experience in delivering similar projects. It is also important to have a post-project-completion analysis and take feedback/ explanations from consultants for any cost overruns. This will entail a sense of responsibility and accountability amongst the consultants.”
What do you suggest for a timely implementation and execution of major infrastructure projects? “Enhancing performance monitoring, reporting and information sharing, and applying innovative techniques to forecast costs can be some of the solutions,” says Bhattacharya. “Also, rewarding for good performance can provide incentives to private firms to ensure timely implementation of projects. For example, in Hong Kong and Singapore, firms found to be consistently high-performing in terms of quality construction and budget certainty on previous jobs are assigned extra points when their bids are evaluated. This incentivises firms to deliver projects on time and on budget,” he adds.