Fund infusion, monetisation key to success

The NDA government’s ambitious Bharatmala project — an umbrella programme for the highways sector — would heavily rely on financial impetus from the government’s bank recapitalisation plan, besides the monetisation of operational assets, for a successful run. 

The government would need Rs 5.35 lakh crore for the first phase alone, covering 34,800-km roads. Though the private sector’s expectations are high on the project, Road Transport and Highways Minister Nitin Gadkari said the EPC (engineering, procurement and construction) contract mode, wherein the government puts in the entire money, would be preferred. 

“The first priority would be given to the EPC projects and then to the hybrid-annuity mode (HAM) and so forth,” he said on Wednesday.

The minister’s statement is an admission of the fact that big construction companies like Larsen & Toubro (L&T), GMR, GVK, and Reliance Infrastructure have been missing from bidding for highway projects under the public-private partnership (PPP) mode. These companies prefer EPC contracts. Smaller players like Ashok Buildcon, MEP, PNC Infratech and Sadbhav Engineering have been bagging PPP projects that are now given out on a HAM basis. 

According to a CARE Rating report, however, mobilising large quantum of funds required, especially from the private sector, would be vital for successful implementation of these projects. “The government would have to draw a definitive roadmap for timely completion, fund mobilisation as well as streamlining of bottlenecks, like land acquisition, for the programme to be beneficial,” said the report. 

When asked about the amount of private investment Bharatmala would attract, Y S Malik, secretary, road transport, said, “Private investment in the range of Rs 1.25-1.5 lakh crore is expected under Bharatmala.” 

If the private sector investment component is added to the government funding for Bharatmala it may be even more than Rs 7 lakh crore. According to a press statement, Rs 3,77,045 crore would be coming from the government, of which the Central Road Fund (CRF) support for Bharatmala and existing schemes from 2017-18 to 2021-22 would be capped at Rs 2,37,024 crore. Another Rs 59,973 crore would be direct budgetary support, Rs 34,000 crore from expected monetisation through toll-operate-transfer route, and Rs 46,048 crore collected as Toll-Permanent Bridge Fee Fund (PBFF) by the NHAI.

The government expects to go big time into the monestisation of operational projects; funds raised from them would be reinvested into the highways sector. Besides, the Rs 2.11-lakh crore bank recapitalisation initiative for public sector banks, approved by the Cabinet on Tuesday, would help in funding the private players who face funding constraint. 

“It would reorient the banking sector. It would do two things—bring more lending and help reduce interest rates,” said Jayant Mhaiskar, vice-chairman and managing director, MEP Infra. The company, which has six HAM projects in its kitty, currently has 10 operational projects — six toll collection projects in six states, three operate-maintain-transfer projects and one BOT project. 

Once large companies are able to expand their balance sheet, they can take up bigger contracts. “They can divide them into packages to be executed by the small and medium sized companies,” said Vishwas Udgirkar, partner, Deloitte Touche Tohmatsu India LLP.  

Seven to eight bidders are already taking part in the tender process for HAM projects. “If you have to build 45 km a day under the new programme, more companies would be needed. Even international players, who have been shying away from highways, would need to come back,” said Mhaiskar. 

Malaysian companies like IJM were earlier bagging projects in India but are now confined to some state highway projects, he pointed out. He said Korean companies could also come in besides funding from sovereign funds and PE investors.

The total project size of new projects would be Rs 3.85 lakh crore, with another Rs 1,50,00 crore being spent on balance road works under the National Highway Development Project (NHDP), a programme launched by the first NDA government under Atal Bihari Vajpayee in 1998.

“NHDP execution suffered both on account of funding and approval-related issues. The dependence on the private sector investments for the new programme is low when compared to the 12th five-year plan. This could result in faster awards; securing right of way by complying with the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act is going to be a challenge. Therefore, the success of the programme critically hinges on the pace of land acquisition along with other requisite approvals,” said Shubham Jain, vice-president and sector head, Corporate Ratings.

Mhaiskar said HAM should be the preferred mode since it had proved to be successful with 60-70 projects awarded under this mechanism. Of these, construction on 40 projects has already begun. 

Former road secretary Vijay Chibber said though Bharatmala opened up a lot of opportunities for private companies, there would be more EPC projects on offer. EPC, he added, would help bring liquidity to companies. “If the companies see big opportunity, they will even be interested in the hybrid-annuity contracts,” he said.

Gadkari said highways works worth Rs 8 lakh crore would begin before the end of 2018 under the Bharatmala Pariyojana. It would be a new umbrella programme focusing on optimising efficiency of road traffic movement across the country by bridging critical infrastructure gaps. 

The programme has been designed to bridge the gaps in the existing highways infrastructure. 

In addition to Rs 5.35 lakh crore for Bharatmala phase-I, there is a requirement of Rs 1.57 lakh crore for ongoing schemes like National Highway (O), SARDP-North East, EAP and LWE under implementation. Thus, the overall outlay for Bharatmala and all existing schemes put together would be Rs 6.92-lakh crore over a period of five years.

Projects under Bharatmala phase-I are to be implemented through the NHAI, National Highways Infrastructure Development Corporation Ltd, the Union road ministry, and state public works department. Mhaiskar said the delegation of powers to the NHAI and the ministry would help speed up work. 

All public private projects (toll) where no grant (or VGF) is given to the concessionaire and the construction and maintenance is financed by toll revenues will be appraised and approved by the NHAI board. All EPC projects implemented by the NHAI will be approved by the NHAI board after proper appraisal, within the budgeted financial resources approved under this programme, said the government statement.

The NHAI board would be authorised to suitably delegate its powers on appraisal and approval of projects within the NHAI.