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Delhi-based KMP Expressways, a joint venture of DS Constructions and UK's Apollo Enterprises, is in the middle of a struggle to retain the Rs 2,000-crore Kundli-Manesar-Palwal Expressway project. Recent news reports suggest the Haryana government is preparing the ground to cancel the allotment of the project to the company and impose a penalty because of the tardy progress. The 135.6-km project has missed several deadlines, the latest being May 31, 2013. In fact, only two-thirds of the highway has been constructed so far. While the lenders have blamed the deteriorating financial health of the concessionaire for missing the completion deadlines, the company, on its part, has cited external factors for the delay.
KMP is not the only DS Constructions project that is in trouble. Last year, another subsidiary, Delhi-Gurgaon Super Connectivity, which operates the tolled highway that connects the suburb to the capital city, received termination notices from the National Highways Authority of India (NHAI) after users complained of inordinate delays at the toll plaza. NHAI also found irregularities in the manner in which the company had raised loans from IDFC and other financial institutions without its permission. The trouble with KMP Expressway has erupted at a time when DS Constructions is in the process of sorting out the issue with NHAI and lenders led by IDFC.
What went wrong with the KMP project? The project involved building an access-controlled expressway from Kundli to Palwal via Manesar in Haryana. Also known as the Western Peripheral Expressway, it intersects four of India's busiest National Highways: NH-1 near Kundli (Sonipat), NH-10 near Bahadurgarh, NH-8 at Manesar (Gurgaon) and NH-2 near Palwal (Faridabad). It was meant to ease traffic from places like Jaipur and Mumbai to northern cities like Chandigarh-after the completion of the project, there would have been no need for travellers bound to these cities to enter Delhi.
Since the entire project fell in Haryana, land acquisition and inter-state rivalry were not considered serious issues. The project involved construction of 47 underpasses, 31 cattle crossings, 61 pedestrian crossings, 33 agriculture vehicles overpasses, 26 bridges, four railway over-bridges and three grade separators. The original deadline for completion was July 30, 2009.
Missed deadlines
Several extended deadlines later, the project is still far from completion. "The project has been delayed considerably and we are exercising our rights under the agreement and have imposed damages on the company. They are yet to pay the penalty," Haryana Industries Minister Randeep Surjewala told The Indian Express recently. (The report also mentioned that DS Constructions has sought arbitration and has claimed damages of Rs 900 crore.) Over three years ago, the directors of KMP Expressways had said in their annual report: "In view of circumstances beyond the control of the company, it (KMP Expressways) has requested HSIIDC (Haryana State Industrial & Infrastructure Development Corporation) to extend the date of completion to December 2010, which has been agreed in principle by a high-powered committee of the Haryana government, though no formal order has been received. The directors are confident that the requisite approvals would be received and, barring unforeseen circumstances, the project would be completed within the extended schedule."
That clearly hasn't happened. The company has blamed external factors for the delay. "The directors share their concern that the project could not achieve completion on July 30, 2009, as envisaged in the concession agreement dated 31 January 2006, as there has been delay in obtaining approval of the Railways for drawings and designs of four over-bridges. The delay was further aggravated due to problems in acquisition of land for inter-change and change of scope defined by HSIIDC. Further delay in shifting of utilities also added to the delay," the company said in its annual report for 2010. There have also been allegations that the company is deliberately going slow on the project because, once it opens, it will eat into the business of the Delhi-Gurgaon expressway, a charge DS Constructions has denied.
Another key reason for the delay has been the dispute between the partners. At the bidding stage, DS Constructions, UK-based Apollo enterprises and Madhucon Projects were part of the consortium. However, when KMP Expressways was formed as a special purpose vehicle to execute the project, Madhucon did not figure on the list of promoters. Madhucon dragged the others to court and even got a stay on construction. By the time the matter was settled, precious time had been lost.
According to the concession agreement executed on January 31, 2006 with HSIIDC, the project cost of Rs 1,915 crore was to be financed by way of a term loan of Rs 1,149 crore from banks and financial institutions and equity capital of Rs 766 crore contributed by the two partners. By the end of 2009-10, the company had incurred a total expenditure of Rs 1,166.63 crore-60.92 per cent of the project cost. The banks, says a recent news report, have alleged that equity contribution from the promoters has almost dried up and they have given them one month's time to bring in money and restart work on the project. At a recent meeting on stalled projects called by Finance Minister P Chidambaram, IDBI Bank brought up the delays in the KMP expressway project and blamed the concessionaire's poor financials. IDBI Bank has extended over Rs 1,090 crore to the project.
Financial woes
While the lenders have begun to cry foul, the company has said it is working towards completing the project. According to the company's recent statements, it has brought in equity in excess of Rs 730 crore and is committed to the project. Filings with the ministry of corporate affairs show that the promoters had subscribed to fresh shares on six instances between 2008 and 2011, the last of these was in December 2011 when they brought in equity of Rs 74 crore. While initially the shareholding was 67:33 between DC Constructions and Apollo Enterprises, further infusions have changed it to 84:16 in favour of DS Constructions.
The company has also refuted suggestions that the project has been delayed because of poor financial health or any lack of commitment on its part. KMP Expressways does not prepare profit and loss statements as the project has not been commissioned yet and expenses incurred are capitalised. According to the latest financials for DS Constructions, the company made a profit after tax of Rs 52.50 crore for the financial year ended 2010, up sharply from Rs 3.9 crore in the previous year. Sales for the year more than doubled to Rs 1, 259 crore. Three subsidiaries, Viramgam-Mahesana Project, Delhi-Gurgaon Super Connectivity and DS Constructions Ventures, which operates the Raipur-Durg Expressway, had already begun making profits. While Delhi-Gurgaon Super Connectivity made a profit of Rs 134 crore in FY 2010, Viramngam-Mahesana Project earned Rs 6.46 crore and DS Constructions Ventures made Rs 1.36 crore.
Email questionnaires sent to KMP Expressways and DS Constructions did not elicit any response. KMP is among the many expressway projects DS Constructions is executing around the country. The name DS comes from Darshan Singh, the father of HS Narula and MS Narula, who run the company as chairman and managing director, respectively. DS Constructions, established in 1978, earned its stripes executing projects in West Asia and North Africa building roads, power stations and underground sewerage systems, among others. DS Constructions' India foray started in 2002 with a couple of World Bank-funded projects in Uttar Pradesh, according to its website. The Railways might have been a cause of its current troubles at the KMP project, but they gave DS Constructions its first break. A decade ago, the company made its headway into the world of public-private-partnership by bagging the Viramgam-Mahesana gauge conversion project. DS Constructions now counts several state-controlled entities such as Railways, NHAI, Delhi De
elopment Authority and a few state governments as its clients, executing/operating important road projects in cities such as Lucknow, Raipur and Jhansi, besides the Delhi-Gurgaon expressway.
