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IL&FS Transportation Networks (ITNL) has said grant-based highway projects were as badly hit by the economic slowdown as projects earning premia.
“Government’s plan to allow restructuring of premium to be paid by private developers has its own pros and cons. Once government approves the restructuring of premium, there could be a possibility that few players who have won the project on Viability gap funding could also raise their hands, because the cost of borrowing, the cost of construction had gone up and they are also having less traffic which is main reason for looking into premium projects rapidly in the recent years” said Mukund Sapre, Executive Director of ITNL.
A few months ago, the Union government decided to restructure the payment schedules of highway projects that had paid premium to the National Highways Authority of India (NHAI). When competition in the highways sector was high, especially from 2008 to early 2010, many developers had promised to pay upfront to win a project, assuming a heavy growth in traffic. However, as falling economic growth started taking a toll on traffic, many such projects became unviable.
The average cost of projects since their bidding have changed, affecting the financial viability of projects. “The cost structures of projects have changed with huge escalation in bitumen prices and other commodities. They are not workable now. This should be reconsidered by NHAI,” said Sapre.
The slowdown in the Indian economy did have an impact on the road sector; many companies have to borrow at higher interest rates. Projects won in high interest regime are based on assumptions of high interest and the moment interest goes down the internal rate of returns (IRR) of such projects will improve significantly.
Consequent to changes in traffic growth projections, the competition in the sector has also come down drastically. ITNL feels that it is good news. “Earlier, there were 18-20 bids for a project. Now, there are around six bidders,” said Sapre. This regime, though advantageous for companies looking to grow, is not helping much as NHAI is bringing in fewer projects to the bidding stage.
ITNL is currently implementing projects worth Rs 13,000 crore. It is also looking beyond India for growth opportunities. It has already invested in 49% equity in a Chinese toll project, and claims that its returns are as per its expectations. Now, it is looking at highway restructuring contracts, that also come with five years of maintenance and toll collections.
Such opportunities exist in African countries like Nigeria, Botswana, East Timor and also some Eastern European countries like Ukraine. “We are looking only at World Bank and Asian Development Bank (ADB) funded projects,” said Sapre. The company believes that such projects are less riskier than local government funded projects.
The size of such maintenance based projects that ITNL is looking at is around $70-100 million. “If we were to go for a build, operate and transfer (BOT) project, the size we would prefer would be $500 million,” said Sapre.
“Government’s plan to allow restructuring of premium to be paid by private developers has its own pros and cons. Once government approves the restructuring of premium, there could be a possibility that few players who have won the project on Viability gap funding could also raise their hands, because the cost of borrowing, the cost of construction had gone up and they are also having less traffic which is main reason for looking into premium projects rapidly in the recent years” said Mukund Sapre, Executive Director of ITNL.
A few months ago, the Union government decided to restructure the payment schedules of highway projects that had paid premium to the National Highways Authority of India (NHAI). When competition in the highways sector was high, especially from 2008 to early 2010, many developers had promised to pay upfront to win a project, assuming a heavy growth in traffic. However, as falling economic growth started taking a toll on traffic, many such projects became unviable.
The average cost of projects since their bidding have changed, affecting the financial viability of projects. “The cost structures of projects have changed with huge escalation in bitumen prices and other commodities. They are not workable now. This should be reconsidered by NHAI,” said Sapre.
The slowdown in the Indian economy did have an impact on the road sector; many companies have to borrow at higher interest rates. Projects won in high interest regime are based on assumptions of high interest and the moment interest goes down the internal rate of returns (IRR) of such projects will improve significantly.
Consequent to changes in traffic growth projections, the competition in the sector has also come down drastically. ITNL feels that it is good news. “Earlier, there were 18-20 bids for a project. Now, there are around six bidders,” said Sapre. This regime, though advantageous for companies looking to grow, is not helping much as NHAI is bringing in fewer projects to the bidding stage.
ITNL is currently implementing projects worth Rs 13,000 crore. It is also looking beyond India for growth opportunities. It has already invested in 49% equity in a Chinese toll project, and claims that its returns are as per its expectations. Now, it is looking at highway restructuring contracts, that also come with five years of maintenance and toll collections.
Such opportunities exist in African countries like Nigeria, Botswana, East Timor and also some Eastern European countries like Ukraine. “We are looking only at World Bank and Asian Development Bank (ADB) funded projects,” said Sapre. The company believes that such projects are less riskier than local government funded projects.
The size of such maintenance based projects that ITNL is looking at is around $70-100 million. “If we were to go for a build, operate and transfer (BOT) project, the size we would prefer would be $500 million,” said Sapre.
