Andhra bars firms with debt problem from bidding for capital project

This is not the first time the infrastructure companies were barred by state govt's

Several big infrastructure companies, including those promoted by entrepreneurs from the Andhra Pradesh, won’t be able to take part in a new capital city construction project, according to one of the conditions listed in the maiden tender.

The Andhra Pradesh Capital Region Development Authority (APCRDA), the state government's nodal agency for the development of capital city region of Amaravati, has barred companies which had applied for corporate debt restructuring (CDR) or strategic debt restructuring (SDR) from taking part in bidding for development of basic infrastructure for layouts in a part of the Zone-1 area.

The agency had invited bids for an engineering, procurement, construction (EPC) contract with a total estimated cost of Rs 799 crore for Nekkalu and and a part of Shakamuru in Amravati’s Zone-1, covering about 2,149 acres (around 8.6 sq km) involving works including constructing roads, drains, water supply and sewerage, among others, along with operation and maintenance for a period of 10 years.

Setting other usual conditions as eligibility criteria, the authority has also said the bidder or any member of JV/consortium should have not applied for CDR and SDR during the past five years, besides being financially sound.

A number of top construction and infrastructure companies had undergone CDR and SDR in the past five years owing to several external factors. Even if some of these companies are in a position to meet the other basic criteria, including technical and the financial capabilities to execute the contract, they will not be able to take part. The present contract is only a small portion of what was in store for the infrastructure companies in Andhra Pradesh since the state government has been gearing up to build infrastructure across the entire 30,000-40,000-acre area, involving thousands of crores of rupees for the capital city project.  

This is not the first time the infrastructure companies which had gone for CDR were barred by state governments.

The government of Telangana had put a similar condition while awarding contracts pertaining to the Kaleshwaram Irrigation Project, estimated to cost little over Rs 80,000 crore or the drinking water grid project — Mission Bhagiratha, which was taken up at a cost of around Rs 35,000 crore.

“The Telangana government had barred the companies having the history of CDR/SDR from participating in the bids because they do not get fresh working capital loans from the banks. Without loan support from banks they will not be able to execute the projects,” an official working in the state irrigation department told Business Standard.

The irrigation department in the state has also put a similar condition involving some projects in the recent past, according to sources. The Rajasthan government has been strictly implementing this condition for projects across all the departments while the Gujarat government has been allowing such companies to take part in the contracts only with due approval from banks, according to an official working for a large infrastructure company. The companies with CDR history have been barred from the Delhi-Mumbai Industrial Corridor Project as well, according to the official. 

APCRDA officials said this condition was made a part of the eligibility criteria to avoid delays in case the company failed to execute the project in time due to financial reasons. 

Not everybody, however, agrees with this view. “The authorities will have to make sure that only those companies that have the necessary technical and financial capabilities are short-listed for an EPC contract such as this. 

However, CDR or SDR cannot be used as a yardstick to decide the eligibility of a company as long as it fulfils this basic requirement,” Manish Agarwal, leader, Capital Projects and Infrastructure at PwC India, said. "How will companies that have gone through difficult times will be able to turn around their operations if they do not get new projects?”

Y D Murthy, vice-president, corporate affairs at Hyderabad-based NCC Limited, expressed a similar view, even though NCC Limited is one of the few Hyderabad-based companies that have not faced any debt issues in the past.

Asked if companies which had applied for CDR/SDR be considered for awarding projects, Murthy said the Union finance ministry had written to all the state governments in the past saying such firms be considered when it comes to awarding new contracts. 

In the past decade, undivided Andhra Pradesh emerged as a hub of infrastructure companies that went on to build roads, ports and airports and power projects across the country. Many of these companies grew in stature after taking part in the infrastructure projects that were undertaken with massive public investments and also under public-private participation.