India’s expressways, too short at just 200 km at present, may get a huge development incentive to reach the 18,637 km milestone 12 years from now. Strategic thinkers at the national highways authority have taken a leaf out of another great ‘builder’ of modern India – UP chief minister Mayawati – to rope in real estate developers to speed up work on inter-city speedways.

The UP government is rolling out the 165 km, six-lane Taj Expressway linking Noida, on Delhi’s eastern fringe, with tourism hotspot Agra. For this, it has roped in infrastructure and real estate major Jaypee Infratech. Jaypee is being allowed to erect five urban agglomerations along the stretch on cheap land provided by the state government.

The union road transport and highways ministry believes the Taj Expressway is a good model to follow; it wants real estate developers to join hands with highway contractors, to fund and speed up work on its expressways projects across the country with a little help from state governments, and to make expressway constructions viable revenue propositions.

Participation of real estate developers would bring down the viability gap funding (VGF) of the National Highways Authority of India (NHAI) for these projects. Cooperation of state governments would mean easier land acquisition for expressways and real estate development.

“Developing real estate around expressways is one of the options being considered to exploit the commercial potential of expressways. We may allow a real estate firm to tie up with a road developer to bid for expressways. They would be given a choice to identify locations for residential, commercial or any other establishments on a particular stretch,” Brahm Dutt, secretary, road transport, told Financial Chronicle.

Officials from the ministry are slated to meet their counterparts from the planning commission and state governments and other experts on Monday to look into the nitty-gritty of financing expressways.

The ministry plans to ramp up expressways to 18,637 km by the end of the 13th five-year plan from 200 km now. The projects are to be executed in three phases -- the first 3,140 km by 2012, the next 3,690 km by 2017, and 6,031 km by 2022 -- on build, operate and transfer (BOT) basis. Another 5,300 km or so would be taken on annuity in the third phase.

Under a BOT agreement, a concessionaire constructs the road and collects toll over a specific period of time. Once the concession period is over the road is transferred to the government. Under the annuity plan, a concessionaire is promised a fixed return every year by the government or road development authority.

It costs an estimated Rs 14 crore per km for a four-lane expressway, while a six-lane expressway may cost up to Rs 20 crore a km. The government cannot spare enough funds to build roads and highways on its own, and so, has been roping in private partners.

A private sector developer may obtain a VGF of up to 40 per cent of a project, depending on its viability. Since, expressways are costly, they need huge investments both from concessionaires and the government.

NHAI has already proposed a subsidiary called the Expressway Authority with an initial corpus of Rs 10,000 crore, to be used for VGF.

“The townships, institutional or industrial set-ups around expressways would enhance the viability of these projects. They would ensure better traffic and costs could be recovered faster. Once that is assured, infrastructure companies would seek lower grants from the government,” Vishwas Udgirkar, executive director, PricewaterhouseCoopers, said.

The 165-km, six-lane Taj Expressway is expected to cost over Rs 9,700 crore. To make the project viable, the UP government has allowed Jaypee Infratech to develop 6,175 acres along the expressway for residential, commercial, amusement, industrial and institutional purposes at five locations. It also acquired the land parcels for Jaypee's real estate venture and transferred them to the company at acquisition cost.

“Surely, we would be interested in similar projects elsewhere. It is a very good model. After UP, other states such as Karnataka are thinking of similar arrangements. Had it not been for this, the Taj project would have been unviable," Rahul Kumar, chief finance officer of Jaiprakash Associates told this newspaper.

Other realtors too are trying to grab similar opportunities. "We will certainly be interested in participating in expressway developments. There is huge business potential in and around such projects because the surrounding infrastructure becomes excellent compared with other places, leading to local employment options, industrial growth and an opportunity to create satellite towns,” Manoj Goyal, vice-president, strategic planning, and group company secretary, Raheja Developers, said.

Even road infrastructure companies believe collaborating with real estate developers could be a win-win proposition for both. "The involvement of real estate companies would cross-subsidise the capital cost. They can part fund road projects from profits made in their real estate venture. Their townships and other establishments would push more traffic on the expressways," Isaac George, GVK group's CFO, said.

The government plans to develop another 1,000 km expressways under the National Highways Development Programme (NHDP) phase VI. In November 2006, the road ministry had proposed four expressways -- Vadodara-Mumbai, Bangalore-Chennai, New Delhi-Meerut and Kolkata-Dhanbad -- to be developed under NHDP.

A senior road department official said that though the ministry wanted to consider real estate option for these projects as well, it may not be possible to do so given the time constraints. The ministry wants to award these projects during its work plan for 2010-11. “The feasibility study for these projects would be completed by June. The ministry has already moved an agenda to the Cabinet to award these projects during 2010-11. If that is how it is to be done, there is no time to involve real estate developers,” the official said without wanting to be named.