The government is convening a meeting of financial institutions and banks against the backdrop of a possible viability problem in the future, given that some of the road developers’ aggressive bidding has led to an increase in the premium of projects for the National Highways Authority of India (NHAI).
“We are glad that the premium amount is increasing. All the same, we need to ensure that the project completion does not become an issue in the future,” a senior road transport ministry official said on Monday.
“We are planning to meet the financial institutions to understand the reason behind the kind of interest. We also want to get an idea about our total project cost.”
The meeting will be called after the current Parliament session gets over, he added.
In the recent past, NHAI — a 1988-founded autonomous agency under the government — has awarded 14 out of the around 45 projects with an annual premium of Rs 1,900 crore. This amount will increase at the rate of five per cent per annum for 25 years.
This is over and above the Rs 300-crore premium that the NHAI already earns.
The premium income increases by five per cent every year till the concession period comes to an end. The amount first goes into the consolidated fund of India.
It will be accounted for in the internal and external budgetary resources of NHAI, which is responsible for the management of a network of over 60,000 km of the country’s national highways.
Instead of quoting premium amounts to committing an annual payment to the government over a period of time, it would seeking a grant for building roads. Companies bid premium if they are confident that the toll revenue accruing to them would more than offset their costs.
For the current fiscal, NHAI plans to award projects covering 7,994 km with a total cost of around Rs 60,000 crore.
The bankers, however, feel the high premium war is happening because of less supply in the market. “As a banker,” says Sanjay Sethi head of the Infrastructure group at Kotak Investment Banking, “I will not have any problem in funding one or two projects that have been aggressively bid.” This will be so as long as the company has a decent number of projects in its portfolio, he adds. The only way to stop aggressive bidding is to have “enough projects in the market”.
There are problems with the estimation of total project cost by the highways authority. These also need examination. Project developers will be tempted to quote a premium, if the total project cost estimated is lower and contractors anticipate higher traffic.
