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Sounding the alarm on lending to road-sector projects, the National Highways Authority of India (NHAI) has sought from State Bank of India (SBI) its reasons for providing to a concessionaire more funding than was required for constructing the 291-km Panipat-Jalandhar expressway.
In its letter to SBI - in what appears to be the first time it has questioned a financial institution over funding - NHAI has sought the reason for extending to concessionaire Soma-Isolux a loan of more than Rs 3,300 crore, an amount double the actual requirement according to the authority.
"We have written to the bank questioning its providing excess funds. We do not usually write to banks but we felt excess money being paid was actually a factor holding back projects. According to our estimate, in this case, the requirement was about half of what was paid," a senior NHAI official told Business Standard.
NHAI had awarded the project to Soma after the company offered to pay it 20 per cent of the toll collected - the share was to rise by one per cent every year. SBI is the lead banker of a consortium that lent to the project. NHAI had last year terminated the contract with the company following complaints about the highway's maintenance and toll collection. At present, the concessionaire is contesting the matter in the Supreme Court.
SBI and Soma officials confirmed that SBI had received the letter and sent a reply. "SBI has explained the reasons for providing the funds to Soma. In this case, the time difference between NHAI's assessment and ours is the reason for the increase in cost estimates," a senior SBI official said, asking not to be named.
Banks, which often provide funding to concessionaires to undertake projects, have stayed away from the road sector in recent times, as infra projects have been held up due to land acquisition delays. NHAI terminating contracts awarded to concessionaires over toll collection and maintenance complaints has also been a deterrent.
"Banks fund more than is necessary. But when a project is terminated and NHAI takes it back, the compensation it pays is in line with its own estimates. This is why banks have been staying away from funding road projects," the NHAI official added.
For the Panipat-Jalandhar expressway, NHAI had estimated the cost of the entire project at Rs 2,747.5 crore. But the concessionaire estimated a total cost of Rs 4,518 crore, to be financed by lenders and through equity. The consortium led by SBI provided Rs 3,389 crore for the project, while equity contribution was Rs 623.43 crore. The remaining amount was to be brought in through internal accruals from toll collection.
"NHAI had estimated the cost way back in 2006-07, at the time of preparation of the detailed project report. The cost break-up was not evaluated properly for a project of this magnitude. On the other hand, our cost estimation was done in February 2009. The price of all construction materials had increased steeply during this period. The estimated total cost of Rs 4,518 crore was vetted by the lenders and their consultants before financing the project. The financial model and financing documents were filed with NHAI in early 2009 itself and was accepted without any objections. The regulator had not questioned the total project cost then; it seems to have come as an afterthought," Soma Vice-President (Highways) P Ramchander Rao said in an emailed response.
Soma has also said that the project was delayed largely because of the failure of NHAI and local authorities in providing encumbrance-free right of way and approvals, as required in the concession agreement. "In spite of these delays, we completed six-laning of 228 of the 291 km, achieving 78 per cent progress. About 20 km of work front is unavailable to the concessionaire due to land acquisition, utilities and design approvals. The project is stuck also because of NHAI's refusal to relocate the toll plazas according to our rights in the concession agreement. The matter is currently sub judice in the Supreme Court," Rao added.
Soma is also in the middle of a debt-restructuring programme and has sought from its lenders a moratorium of about two years on term loans.
CHINKS IN THE ROAD
* Rs 2,747.5 cr NHAI's project cost estimate
* Rs 623.43 cr Equity funding
* Rs 4,518.17 cr Concessionaire's project cost estimate
* 78%: Concessionaire has so far completed six-laning of 228 of the 291 km
* Rs 3,389 cr Funding from lenders
* Rs 288 cr Approximate annual toll collection on the highway
Status: The Punjab High Court has asked NHAI to take over the project; the matter is currently sub judice
