In a meeting on June 6, Prime Minister Manmohan Singh identified a few infrastructure projects for fast-track implementation. Beginning today, Business Standard starts a series on the status of these projects and the key challenges these face.
Earlier this month, Prime Minister Manmohan Singh scaled up the target for building national highways, from 8,800 km announced in this year’s Budget to 9,500 km. Industry, however, is not so impressed by this new sense of urgency.
The situation isn’t like 2008, when companies facing a liquidity crunch did not come forward to take up highway projects. Still, the National Highways Authority of India (NHAI) has been facing a lack of market appetite. It had planned to award projects covering 1,500 km in the first three months of the current financial year, but has been able to award projects covering just 99 km. The fact that less than 40 per cent of the targeted projects were to be awarded on an engineering, procurement and construction (EPC) basis was no consolation. Framing of a Model Concession Agreement (MCA) for EPC projects has been delayed by disagreement between the road transport ministry and the Planning Commission. It is now going to be put up for Cabinet approval. "Of the total 9,500 km, around 4,000 km of projects are to be awarded on EPC but that may not happen soon, due to delay in clearance of the MCA,” said a senior NHAI official, who did not want to be identified.
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Liquidity is a concern, as a number of projects awarded in 2011-12 would require funding. “A lot of companies which got projects recently are busy arranging funds and will not show much interest in those up (now) for award unless funding for their (ealier) projects is ensured,” the official said.
Some believe that financing becomes an issue due to problems in project preparation. “The reports prepared by NHAI and consultants differ hugely, making banks reluctant to lend. This reluctance is impacting the financial closures of road projects,” said M Murali, director general, National Highways Builders Federation (NHBF). He said the target of awarding 9,500 km of road projects ths year was possible if the government accepted the detailed project report (DPR) prepared by companies. Murali favours allowing independent consultants to prepare the DPR.
Awarding projects on an EPC is easier because the contractor does not have to arrange the finances that have become difficult in today’s market. In an EPC project, the government provides complete funding and the contractor has to just build the road. "Funding EPC projects is not an issue, since NHAI has enough money. Besides, we have government clearance to again raise Rs 10,000 crore through tax-free infrastructure bonds this year," he says.
The road transport ministry, with NHAI, awarded the highest-ever figure og road project km, 7,957 km, in 2011-12. However, a repeat performance looks difficult. A major chunk of projects bid last year were of road widening (from four-lane to six-lane) on the Golden Quadrilateral stretch. "The demand was high because traffic is not an issue on these stretches and the developer is also allowed to collect the increased toll from the moment it starts work on the project,” the official said.
Of the 51 projects awarded by NHAI in 2011-12, as many as 31 were at a premium. This is not the case with those readied for award this financial year, since a substantial chunk is for two-lane road projects. Quoting a premium amounts to committing an annual payment to the government over a period of time. Companies bid a premium if they are confident the toll revenue accruing to them would more than offset their costs. That level of confidence wouldn’t apply for two-lane road projects.
