IL&FS arm put Rs 4.6 billion into Rajasthan's road project before contract

Among the interesting stories coming out of the Infrastructure Leasing & Financial Services (IL&FS) conglomerate is one where a group entity, IL&FS Transportation and Networks (ITNL), put Rs 4.6 billion in a project in Rajasthan that was not formally given to it. The amount was close to a third of the entire estimated cost of the project, a four-laning expansion of the Gomti–Beawar stretch. 

The project was being put through a special purpose vehicle named ITNL Road Infrastructure Development Company (IRIDCL) for the Ministry of Road Transport and Highways. ITNL put in the money for four-laning the entire stretch, though it had the rights to only 75.45 km of the 116-km stretch; the rest was yet to be handed over as of end-December 2017, says a July 12 note of CARE Ratings.

 “In March 2012, the company received a letter of intent from the ministry for the four-laning... Pending declaration of the appointed date for the expansion, the company had already started mobilising the site,” went the note, in which CARE also assigned a default rating to IRIDCL’s debt. Appointed date is the formal one to start work on a project, when the authority in question hands over its contract letter to a developer or concessionaire. 

Around 800 km of execution is at risk this financial year because many hybrid annuity model projects are still awaiting their appointed dates for up to seven months after they were awarded, rating agency CRISIL says in a separate note. Mostly, the delays are due to problems in land acquisition or regulatory clearance.

The officials concerned at ITNL refused to comment. “The company seems to have shown funds infused in projects that do not have an appointed date, which is necessary for a concessionaire to officially take charge of a project site,” said a retired government official.  

This is apparently an indication of liquidity issues at the parent company. “It is an unethical practice and companies indulge in this mostly to be able to draw funds from banks at the parent level. The funds are drawn as advances taken to meet expenses shown at the specific project subsidiary, where according to the company, work has started," said an expert, who did not want to be named.

According to an ITNL analyst presentation dated August 2018, the project involved four-laning of the existing two-lane section on the Beawar-Gomti stretch of National Highway-8, at a cost of nearly Rs 13.9 billion. It was a build, operate, transfer (BOT) contract. The presentation said financial closure for the project was still pending. All project milestones are linked to the appointed date and it is unclear how the company will recover the funds infused. More so, as in August this year, ITNL said it had started the process of project termination. 

According to the company, the project was first for the development of two lanes with aggregate length of 248 lane km, with an option to construct a four-lane highway. The contract was awarded for an initial 11 years, extendable to 30 years if the company exercised the option to construct four lanes within seven years from the appointed date of October 28, 2009, for the two-laning. 

The presentation showed three projects had financial closure pending, of which the Beawar-Gomti section's additional four-laning was pending the appointed date. IRIDCL also developed and operates the two-lane stretch. 

In an earnings call the same month, officials from ITNL told analysts, “In three projects wherein the work is going on, financial closure has not been achieved. ITNL has invested more than Rs 10 bn in excess of what it was supposed to invest in (these) projects. The work is continuing and we have put money because financial closure is yet to happen.”  An opportunity, they maintained, as additional liquidity would be released once the financial closure took place.