For NHAI, work on road projects starts before an official go-ahead

Move raises concerns over early completion bonus

The National Highways Authority of India (NHAI) has advanced the date to start work by up to three months for at least three companies, though they received an official go-ahead only this month.
 

Ashoka Buildcon informed the exchanges on June 11 it had received the appointed date, March 7, for its Belgaum-Khanapur Road project. The letter from the NHAI informing the builder about this is dated June 10. 
 

“Appointed date” is the official date for the road developer to start work.
 

Dilip Buildcon, in a statement to the BSE on June 7, said it had received May 14 as the appointed date for its DBL-Bangalore Nidagatta Highways project. And in a statement on June 3, the company said it had received April 12 as the appointed date for its DBL Mangloor Highways project.
 

An NHAI official said: “If the two parties (the NHAI and the concessionaire) have mutually agreed on the terms, the appointed date can be advanced. It depends on their preparedness.”
 

In projects under the hybrid annuity model (HAM), road companies are entitled to an incentive annuity for completing projects ahead of schedule. The schedule, however, begins on the date of appointment. 
 

Dilip Buildcon has earned Rs 437 crore as early completion bonus between 2012 and 2019. 

Road developers, however, are not worried. “We have done preparatory work so we should not lose out on the incentive. We have received the letter and are okay with it,” said Satish Parakh, managing director, Ashoka Buildcon. 
 

At present, the company is still awaiting the appointed date for two of its projects. Parakh expects the approvals next month.

Industry experts and former NHAI officials, however, are surprised. “This looks irregular prima facie,” said a former NHAI official.
 

According to the timeline for road construction projects, financial closure and the appointed date are expected to be given at the same time. Industry experts, however, suggest there is a delay of more than four months between the financial closure of some projects and the receipt of the appointed date. 
 

The government authority awarding the project, in this case, the NHAI, needs to acquire 80 per cent of the land and transfer it to the developer to allot the appointed date. Companies are legally not allowed to start work on a project until an appointed date is received.
 

In the past there has been at least one case of appointed date regulations not being followed. The data sourced from a rating agency report showed IL&FS Transportation and Networks (ITNL) infused Rs 460 crore, more than 30 per cent of the cost, into its Gomti-Beawar (additional) project even before the road ministry gave it the contract letter.
 

Even while the NHAI is catching up, analysts have started listing delay in appointed dates as a downside risk.
 

“We have cut our target to factor in the high debt, delay in receiving appointed dates for 32 per cent of the order book, and limited visibility of monetisation of under construction hybrid annuity model (HAM) projects,” said analysts with HDFC Securities in a May 11 report on Dilip Buildcon.
 

Other awaiting appointed dates for projects include Sadbhav Engineering and IRB Infrastructure Developers. The data compiled from company disclosures made after the March 2019 results suggests Sadbhav Engineering is awaiting an appointed date for four of its projects. According to people in the know, IRB is awaiting the appointed date for two of its road projects.