Some further remarks on Making “unprofitable roads” profitable

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  Yesterday Economic Times(July 29,2009 ) article on Private Investment in highways by Dr Ram Singh argues that bundling unprofitable roads along with profitable roads for bidding as suggested in some section, may not work as this will bring down rate of return combined projects. However if period of concession itself becomes a bidding point as suggested in preceding posting (scroll down below to read) then combined projects is possible but apparently not necessary. But still combing them may help to spread risks. Secondly if number of kms of roads completed under BOT scheme in rural-semi urban areas is added as enhancing the technical qualification and commitment of bidders , it may help to win prestigious projects. Timely completion of rural /semi urban schemes will signal many positive qualities about the bidder
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  Rights to develop adjacent low value properties and large potential jump its value in fast growing economy is critical to making unprofitable rural semi urban roads profitable. The profitability can be further boosted if government authorities allow developers to siphon off part of taxes/dutes/cess( one time or recurring) on properties that come up in predetermined zones( as in radius of X km all hospitals hotels, educational institutes, commercial concerns that come up independently). The argument is similar to baseline argument put forward in CDM projects for climate change. Many such commercial establishments would not have come up in absence of rural roads hence they should pay developers even if they are located outside “right to develop property” zones awarded to developers. However instead of levying new taxes which can dampen development of rural economy, governments should share or let go certain taxes/duties etc on such new properties for certain number of years.
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  However it is easier said than done. This can work best if there are no competing developers in the same zone( which road network facilitated investor interest in commercial property development?). It is not irresolvable issue. (feeder roads may closer to one section than others). What is more difficult is will of government authorities to make necessary legal changes allowing sharing of revenues from commercial property deemed to be outcome of newly developed roads