 "Hybrid annuity picks up but road ahead not clear")
Around 21 highways projects worth around Rs 15,000 crore have been bid out under the hybrid annuity model approved by the government in January this year, but analysts say a turnaround in the sector can only be expected after the financial closure of these projects.
Interest by private players picked up after the government approved the hybrid annuity model for road construction, under which 40 per cent of the project cost is borne by the government and the rest is made by the project developer.
Private players were interested because the risk element was shared, Biswanath Bhattacharya, partner, KPMG Advisory, said. He added the investment cycle in the sector would turn once financial closure of these projects started.
The companies that have bagged projects include APCO Infratech, Sadhbhav Infrastructure, MBL Infrastructure and Welspun Enterprises. A joint venture between MEP Infrastructure Developers and Sanjose India Infrastructure & Construction has also been awarded two projects.
The size of the companies that have bagged hybrid projects is small to medium, but the industry is of the view that it is a step in the right direction. The balance sheets of these companies are not heavily leveraged and, therefore, securing loans for hybrid annuity projects will not be difficult, according to Vinayak Chatterjee, chairman, Feedback Infra.
Some of the big players in the infrastructure sector like Larsen & Toubro, IL&FS Transportation Networks, GVK Power and Infrastructure, GMR Infrastructure, IVRCL, Gammon Infrastructure Projects, Hindustan Construction Co, Tata Realty and Infrastructure, and Ashok Buildcon are staying away from highway projects.
These companies do not have the appetite to bid for hybrid annuity projects as their balance sheets are highly leveraged, making it difficult for them to secure loans. Once the big players come back to invest, the pace will pick up, according to an expert.
Prior to the hybrid annuity model, two other models for road construction were adopted by the government. Under the build, operate and transfer model, a road developer builds a highway, operates it for a stipulated amount of time and then transfers it back to the government. This model is implemented on annuity or toll basis. In the case of annuity, the government pays a fixed sum to the concessionaire over the duration of the concession period, thereby reducing the company’s risk. Under the toll mode, the operator collects toll on its own, so the traffic risk is borne by the company.
Under the engineering, procurement and construction model, the highway developer executes the project on behalf of the government. The hybrid annuity model is a blend of the two. The ministry of road transport and highways has set a target of awarding 25,000 km of highways contracts in 2016-17.
GAINING PACE
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21 highways projects worth over Rs 15,000 crore bid out under the hybrid annuity model
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Small to mid-size companies bagged majority projects
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Some of the big players in the infrastructure sector like Larsen & Toubro, GVK Power are staying away from the road projects
- Experts feel new model will pick up post financial closure of awarded projects
