 "We'll keep up project roll-out momentum: Raghav Chandra")
Less than a year into his tenure as chairman of National Highways Authority of India (NHAI), Raghav Chandra is looking forward to a real time recovery in the highway sector. NHAI has not only managed to set the ball rolling for fresh fund infusion into languishing projects, it sees big companies returning to the sector soon. In an interview with Megha Manchanda & Jyoti Mukul, Chandra says the spill off effect on other sectors like cement, bitumen and steel have started showing. Edited Excerpts:
Are signs of revival visible in the highway sector? Have the investors started coming back?
There is a lot of traction in the highway sector in terms of private sector investment and also enthusiasm from both the government and NHAI. This can also be gauged from the consumption of material and sales of connected equipment. Private sector investment last year (2015-16) was 40 per cent more than it was the previous year (2014-15). If we look at government sector spending, including NHAI, it was also 40 per cent last year. Both in terms of project award and construction, in the first quarter (April-June) of the current financial year, we have performed better than the corresponding period, last year. So far, we have bid out 55 projects totalling a length of about 3,000 km and cost of about Rs 45,000 crore, of which 11 have been awarded, 30 are under evaluation and bids have been invited for another 14. I am hopeful in the coming weeks there would be some further movement on those projects. And if we look at sale of equipment, most of the construction equipment players say their sales have gone up by 40 per cent. Cement sales have gone up by 5 per cent and last year's bitumen production figures were 35 per cent more than the previous year. I would like to say that things are going out in full steam and we shall be able to maintain this momentum because there are projects to do, there are projects which were not done and we need to do them.
Are big companies coming back to bid?
Recently, Sanjay Ubale, CEO and MD, Tata Realty, came and also wrote to us showing the company's interest. There is also Larsen & Toubro. A lot of companies are interested in hard core BOT toll projects because that is where they say the risk is and they have pockets to match the risks. They have, in fact, said we should have more projects on BOT toll and not so much on EPC or annuity. China Railway Construction made a presentation and apprised us about skill sets.
Is there also a backlog of projects?
Of the total 55 projects that we had bid out, there are about 20 projects that have been officially designated as languishing. Work had started on those projects but could not be completed because of several factors, primarily unavailability of land. State governments did not cooperate in the process, like in the case of West Bengal, land for the Krishnagar-Berhampore project was given after four years. For several other projects along NH-34, land acquisition was delayed. There were several other projects across the country that suffered. Many other projects were affected due to managerial inefficiencies on the part of the promoters. Banks had stopped funding those projects as the milestones of achievement or conditions precedents were not being met and meanwhile the cost of the projects and interest on the project went up. Even though we obtained the land and forest clearances in most cases, it was too late and as a result of this these projects became languishing.
The Government has approved the scheme for fund infusion in languishing projects to help revive them. Under it, we have finalised three projects with the State Bank of India
What happens in the case of remaining 17 projects?
If SBI is coming forward in a positive way to take a minor haircut and help us in taking this forward, we will now have to motivate other banks. I have already held several rounds of discussions with other banks that are chiefly are Central Bank, Canara Bank, Punjab National Bank. We are also meeting them constantly on project by project basis. My managers, chief general managers and members are meeting them.
What do the banks lose in return?
It is not actually a haircut. They profess to be taking a haircut at 11 per cent but my view is that it is not a correct yardstick. They should take 9 per cent. It is easy for me to terminate the projects but then no one gains from it.
Is this bail-out being driven by banks themselves like in the case of power and steel sectors?
It is a case of NHAI driving it since it is okay if a coal mine is not developed, there are no lives being lost but here unfinished roads are unsafe.
Are private banks also in the picture? Is it easier to get PSU banks to join the scheme than the private ones?
No it is the private banks that are more flexible unlike PSU banks that have a cautious approach and less flexible, possibly because they have more scrutiny and there is less institutional understanding. ICICI and Yes Bank are involved in discussion. Private banks arrive at decisions faster. But government banks, once they decide they stick by it.
What happens to those highway projects that have chronic problems? How do you plan to deal with them?
There are cases like that say the Jaipur highway where IDBI is not coming forward because costs have gone up and land acquisition was delayed. We will have to work it out.
Has the land acquisition process improved in general?
It has. One of the reasons of their improving is that we are coordinating more vigorously with the state governments and not bidding projects unless we have 80 per cent land. In lot of cases, the monitoring by Prime minister through Pragati has also helped because I also attend the videoconferencing with the chief secretaries. We can raise issues there.
We should be able to push through a lot of these projects and a lot of them should be able to improve. Odisha, Madhya Pradesh, Maharashtra, Rajasthan and Gujarat are positive charges but there are some states like Tamil Nadu, West Bengal, Kerala, Goa and Karnataka where land issues are not easy to settle.
For all the money we pay for land, 10 per cent of that goes to the state as administrative, managerial and supervision charges. We have written to the states that let us reserve some part of this money and allocate it to the districts concerned from where the land is being acquired and use it for safety features for roads in their land. This will incentivise the district. Last year, we spent Rs 18,000 crore on land acquisition of which Rs 1,800 crore would have gone to state's consolidated fund so that is the kind of money available from which we can use some for safety and other features.
What has been the increase in land cost?
It has risen by double or 2.5 times in some cases because of the new land acquisition law. Land is 35-40 per cent of project cost. In smaller projects, like those in city, it is 50 per cent.
Are signs of revival visible in the highway sector? Have the investors started coming back?
There is a lot of traction in the highway sector in terms of private sector investment and also enthusiasm from both the government and NHAI. This can also be gauged from the consumption of material and sales of connected equipment. Private sector investment last year (2015-16) was 40 per cent more than it was the previous year (2014-15). If we look at government sector spending, including NHAI, it was also 40 per cent last year. Both in terms of project award and construction, in the first quarter (April-June) of the current financial year, we have performed better than the corresponding period, last year. So far, we have bid out 55 projects totalling a length of about 3,000 km and cost of about Rs 45,000 crore, of which 11 have been awarded, 30 are under evaluation and bids have been invited for another 14. I am hopeful in the coming weeks there would be some further movement on those projects. And if we look at sale of equipment, most of the construction equipment players say their sales have gone up by 40 per cent. Cement sales have gone up by 5 per cent and last year's bitumen production figures were 35 per cent more than the previous year. I would like to say that things are going out in full steam and we shall be able to maintain this momentum because there are projects to do, there are projects which were not done and we need to do them.
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Recently, Sanjay Ubale, CEO and MD, Tata Realty, came and also wrote to us showing the company's interest. There is also Larsen & Toubro. A lot of companies are interested in hard core BOT toll projects because that is where they say the risk is and they have pockets to match the risks. They have, in fact, said we should have more projects on BOT toll and not so much on EPC or annuity. China Railway Construction made a presentation and apprised us about skill sets.
Is there also a backlog of projects?
Of the total 55 projects that we had bid out, there are about 20 projects that have been officially designated as languishing. Work had started on those projects but could not be completed because of several factors, primarily unavailability of land. State governments did not cooperate in the process, like in the case of West Bengal, land for the Krishnagar-Berhampore project was given after four years. For several other projects along NH-34, land acquisition was delayed. There were several other projects across the country that suffered. Many other projects were affected due to managerial inefficiencies on the part of the promoters. Banks had stopped funding those projects as the milestones of achievement or conditions precedents were not being met and meanwhile the cost of the projects and interest on the project went up. Even though we obtained the land and forest clearances in most cases, it was too late and as a result of this these projects became languishing.
The Government has approved the scheme for fund infusion in languishing projects to help revive them. Under it, we have finalised three projects with the State Bank of India
What happens in the case of remaining 17 projects?
If SBI is coming forward in a positive way to take a minor haircut and help us in taking this forward, we will now have to motivate other banks. I have already held several rounds of discussions with other banks that are chiefly are Central Bank, Canara Bank, Punjab National Bank. We are also meeting them constantly on project by project basis. My managers, chief general managers and members are meeting them.
What do the banks lose in return?
It is not actually a haircut. They profess to be taking a haircut at 11 per cent but my view is that it is not a correct yardstick. They should take 9 per cent. It is easy for me to terminate the projects but then no one gains from it.
Is this bail-out being driven by banks themselves like in the case of power and steel sectors?
It is a case of NHAI driving it since it is okay if a coal mine is not developed, there are no lives being lost but here unfinished roads are unsafe.
Are private banks also in the picture? Is it easier to get PSU banks to join the scheme than the private ones?
No it is the private banks that are more flexible unlike PSU banks that have a cautious approach and less flexible, possibly because they have more scrutiny and there is less institutional understanding. ICICI and Yes Bank are involved in discussion. Private banks arrive at decisions faster. But government banks, once they decide they stick by it.
What happens to those highway projects that have chronic problems? How do you plan to deal with them?
There are cases like that say the Jaipur highway where IDBI is not coming forward because costs have gone up and land acquisition was delayed. We will have to work it out.
Has the land acquisition process improved in general?
It has. One of the reasons of their improving is that we are coordinating more vigorously with the state governments and not bidding projects unless we have 80 per cent land. In lot of cases, the monitoring by Prime minister through Pragati has also helped because I also attend the videoconferencing with the chief secretaries. We can raise issues there.
We should be able to push through a lot of these projects and a lot of them should be able to improve. Odisha, Madhya Pradesh, Maharashtra, Rajasthan and Gujarat are positive charges but there are some states like Tamil Nadu, West Bengal, Kerala, Goa and Karnataka where land issues are not easy to settle.
For all the money we pay for land, 10 per cent of that goes to the state as administrative, managerial and supervision charges. We have written to the states that let us reserve some part of this money and allocate it to the districts concerned from where the land is being acquired and use it for safety features for roads in their land. This will incentivise the district. Last year, we spent Rs 18,000 crore on land acquisition of which Rs 1,800 crore would have gone to state's consolidated fund so that is the kind of money available from which we can use some for safety and other features.
What has been the increase in land cost?
It has risen by double or 2.5 times in some cases because of the new land acquisition law. Land is 35-40 per cent of project cost. In smaller projects, like those in city, it is 50 per cent.