Government open to buying equity in highway projects, puts PPPs on hold

July 16, 2014

The government is open to buying equity in some of the 189 stalled highway projects where Rs 1.8 lakh crore is locked up due to myriad pending clearances, in a bid to jumpstart the highway sector, which it believes can push up the country’s growth rate by at least 2 per cent over the next two years.

The NDA government has also decided to put all public-private partnerships (PPPs) in the road sector on hold for two to three years as just a few infrastructure firms have any capacity to invest in new projects.

With banks having stopped lending to the infrastructure sector, Prime Minister Narendra Modi and finance minister Arun Jaitley are also looking at alternative long-term and lower-cost financing from pension funds like theRs 7.5 lakh crore Employees’ Provident Fund, or EPF.

Most developers are either restructuring their debts or are saddled with projects that have turned into non-performing assets.

“Today, the country has just 4-5 developers who are not in CDR (corporate debt restructuring) or in NPA lists. For the rest, band baaja baj gaya hai, aisi haalat hai (they are in a shambles)… So the PPP model is not possible at all,” said highways, road transport and shipping minister Nitin Gadkari, Instead, the focus would be on new highway building through EPC, or engineering, procurement and construction, contracts for which the government foots the bill.

The PM has tasked Gadkari to lead a panel that would review all projects stuck in the infrastructure to lead a panel that would review all projects stuck in the infrastructure sectors of ports, roads, railways and airports every month and try to disentangle the mess left behind by the UPA government.

“I don’t want to blame anybody but the previous government didn’t even acquire 10 per cent land or procure forest clearances, yet work orders were given. The contractors achieved financial closure also, but they couldn’t start work for over two years, so banks withdrew their financial sanctions,” said Gadkari, explaining the logjam in highway projects.

The ministry has already resolved problems facing projects worth Rs 40,000 crore through intensive deliberations with developers and bankers and hopes to remove hurdles facing the rest of the projects worth Rs 1.4 lakh crore so that work can start on most of them by August 15.

“Most players want to pay a 1 per cent fine to abandon their projects and run away. I have told them, I will levy a 10 per cent penalty and blacklist

you so you won’t be able to do a single project for the rest of your life,” Gadkari said.

The four big reasons that projects are stuck, the minister said, were land acquisition, forest and environmental clearances, defence land tracts on highway alignments and delays in clearances for rail overbridges from the railways.

The road ministry is also creating a shelf of road projects worth Rs 2-3 lakh crore for which it would initiate work on obtaining green clearances and land along with detailed project reports,so that they can bid out as the sector revives.

Gadkari said that infra projects in today’s environment can only become viable if they get low-cost funds, since construction costs have gone up while traffic revenues have dipped. Bank lending rates are at 13 per cent while infrastructure bonds offer funds at 9 per cent.

“We are talking to countries where bank deposit rates are low, and hope to get around Rs 1 lakh crore from them for which we will give them 26 per cent equity in projects. I have also written to the PM and the finance minister to open up pension fund investments in infrastructure sector,” he said.

The minister said that a decision has been made to link the one lakh kilometres of national highways with optic fibre cables, gas pipelines and power transmission lines, preferably underground.

“We have decided to go for cement roads as they can now be 4 per cent cheaper than bitumen roads. I have spoken to four cement companies to consider this and have warned industry not to form a cartel and raise prices,” he said.

“American roads are not good because America is rich. But America is rich because American roads are good. So, I will try to raise the country’s GDP from 4.5 per cent by at least 2 per cent in the next two years through the highway and ports sector,” the minister said, speaking at an interaction with industry experts on Tuesday.

source: Economic Times

IRB Infra preferred bidder for Rs 1,500-cr road project

December 18, 2013

Company has emerged as a preferred bidder for the project of four laning of Solapur to Yedeshi section of NH-211
Press Trust of India  | New Delhi 

IRB Infrastructure Developers Ltd today said it has emerged as a preferred bidder for a Rs 1,500-crore road project in Maharashtra.
“The company has emerged as a preferred bidder for the project of four laning of Solapur to Yedeshi section of NH-211…In the State of Maharashtra,” the company said in a filing to BSE.The project, to be executed on design, build, finance, operate and transfer (DBFOT) pattern, falls under phase four of the national highways development programme, the company said.

The construction period of the project is fixed at 910 days and the company has sought Rs 189 crore as viability gap funding (VGF) from National Highways Authority of India.

VGF is typically provided in competitively bid projects. Under VGF, the central government meets up to 20 per cent of capital cost of a project being implemented in public private partnership (PPP) mode by a central ministry, state government, statutory entity or a local body.

“The concession period is 29 years,” the company added.


Govt to woo Chinese, Australian firms to build roads in India

November 8, 2013

 Move in the wake of domestic developers keeping away from bidding for road projects

With developers in India staying away from bidding for road projects, the Ministry of Road Transport & Highways plans to conduct road shows abroad to attract foreign firms to take up projects here.

According to sources, the road shows are expected to be conducted in China and Australia, among others, over the next few months.

A senior official in the ministry told Business Standard the ministry has prepared a presentation to be made to the Prime Minister shortly and “one of the proposals is to do road shows abroad to ask investors to participate in PPP (public-private partnership) projects in India”.A National Highways Authority of India (NHAI) official also confirmed that such a proposal is being studied.

The proposal comes at a time when many private road developers, including infrastructure majors GVK, GMR and Larsen & Toubro, have stopped investing in road projects owing to land acquisition problems and funding constraints, among other reasons. Some other developers have also walked out of road projects due to funding concerns.

With the general elections approaching and road construction turning out to be a crucial factor, reviving construction activity is a priority for the government. It has managed to award only less than 1,000 km so far this year.

Experts, however, say the government will need to sort out problems plaguing Indian companies before inviting foreign developers.

“The Indian road sector is at a crossroads and we need to take policy decisions to help Indian companies. Once the internal problems are sorted, will we be able to see some fruits from the decision to do road shows abroad,” said Vishwas Udgirkar, senior director at Deloitte India.

Private road developers in India have also been plagued by the quantum of premium that companies have to pay to NHAI. The firms have been asking the government to reschedule the payments so as to provide a breather for them. Private developers owe close to Rs 1.51 lakh crore to NHAI as premium over the next 20 years. The government has set up a panel under the Prime Minister’s Economic Advisory Council chairman C Rangarajan to decide the terms and conditions of the premium rescheduling.

Premium is the amount a concessionaire pays NHAI for a build-operate-transfer project, on the assumption the returns will be very high. This is usually decided on the basis of future traffic flow at the time of bidding.


Bids for road projects worth Rs 17,000 crore likely by October-end

October 10, 2013


By October-end, six annuity projects worth Rs5,784 crore and four toll-based projects worth Rs11,274 crore will be opened for bidding.

(By October-end, six annuity projects worth Rs5,784 crore and four toll-based projects worth Rs11,274 crore will be opened for bidding.)
NEW DELHI: Road projects worth Rs17,000 crore are to be awarded in the next five weeks after nearly 18 months of muted activity. The fate of these projects would be a good indicator of private investors’ willingness to bet on the government’s renewed push to infrastructure sector in recent weeks.By October-end, six annuity projects worth Rs5,784 crore and four toll-based projects worth Rs11,274 crore will be opened for bidding.

This also includes the Rs9,654-crore Agra to Lucknow eight-lane expressway project, which will be implemented by the Uttar Pradesh Expressways Industrial Development Authority (UPEIDA).

“This can be a good barometer to judge the market sentiment. There are people who are hungry, but only financially viable projects which have land and requisite clearances in place will find takers,” said Abhaya Agarwal, Partner and Leader, PPP, at EY.

The pace of award of highway projects has been slow because of issues like poor market sentiment, shortage of equity, lenders’ demand for 100% possession of land, delays in getting clearances, banks reaching their exposure limit towards the infrastructure sector and a ban on quarrying of stones and minig of ordinary earth used in road construction.

This year the National Highways Authority of India (NHAI) has awarded only 479 km against its target of 3,000 km by September. In the previous financial year, projects for only 1,116 km were awarded against the target of 9,500 km.

However, Shravan Shah, senior research analyst at The Market Financial Intelligence, is optimistic. “The projects being opened for awarding could bring a ray of hope.

Most of these projects including those in Assam, J&K as well as the Agra-Lucknow expressway are largely ready and there is a high chance that developers would pick them up,” said Shah.

The drastic slump in market sentiments prompted Prime Minister Manmohan Singh to address things personally. The PM promised to kickstart several stalled infrastructure projects worth Rs 1.5

lakh crore including two new ports, eight new airports, new industrial corridors and rail projects. “We have recently taken many steps to speed up the process of government clearances for industry, build an environment more conducive to trade and industry and increase investment in the economy.

A special cell has been set up to help big projects with clearances. The Cabinet Committee on Investment is working to remove hindrances in the way of stalled projects,” said the Singh in his Independence Day speech, adding that investments would increase because of these efforts in the coming months.

Bids for road projects worth rs 17,000 crore likely by Oct-end

Several of the issues have been addressed with the government allowing de-linking of environment and forest clearances, relaxations on mining of ordinary earth and so on. It has also approved policy changes allowing stressed developers to fully exit highway projects.

“At this point, developers are looking for a balanced portfolio with a mix of toll-based and annuity-based projects. Toll-based projects have risks involved including traffic projections not matching the actual.

Annuity on the other hand, means assured payments,” said a senior official from an infrastructure major, adding that private players have lost their appetite and would only take up projects after doing a proper assessment on the viability.


Transparent bidding process key to better roads, says committee

October 7, 2013

Prasad Kulkarni, TNN

PUNE: The tendering process for road construction in the city can become fairer and more accurate if the civic body implements the suggestions made in the road policy report prepared by the standing technical advisory committee.

The committee has suggested a slew of measures that would ensure better city roads, mainly a separate tender evaluation committee for major road works.

The Pune Municipal Corporation (PMC) submitted this road policy report to the Bombay high court on Monday, acting on its directive to do so. The report has provided recommendations to improve the road department’s works, road specifications and tender system, among others.

PMC officials said the committee was constituted to give expert opinion for framing the road policy in 2007 and had conducted seven meetings between 2007 and 2008.

The committee was not functional for the next three years, following the resignation of its chairman. It resumed work in 2012 and conducted 11 meetings to draft the road policy.

“The recommendations have been given to see that the tender process becomes more transparent. The administration has already taken steps such as introduction of an online tender system to increase transparency. The civic administration has started work on expert recommendations to improve road quality,” an official of the road department said.

The report states that the scrutiny of tenders must be done in a transparent manner and by an evaluation committee. In this committee, one member must be from the accounts or finance branch of PMC. However, at present there is no tender evaluation committee in the PMC and the tenders are evaluated at the level of the executive engineer.

Irrespective of the fact whether the tender is scrutinized at the local level or at the level of the committee, the scrutiny should be based on a standard format and there should be no room for subjectivity, states the report.

The report stressed that the procurement system should be such that it results in “speedy, good quality work at a reasonable cost through a transparent process” which is fair to all bidders and without disputes as far as possible.

The committee has also suggested changes in getting the security deposits for works, under which it has proposed to try out a “practice of accepting ‘earnest money exemption certificate” in lieu of submitting “earnest money deposit (EMD) for each and every tender”. According to the committee this change will reduce the paperwork significantly.

Important changes proposed in tendering system

*Tender evaluation

Current : Executive Engineer

Suggested : Committee of PMC with one officer from finance department

*Security deposit

Current : : Earnest money deposit

Suggested :: Earnest money exemption certificate

‘Make bidding process more competitive’

The standing technical advisory committee has suggested in the road policy that the civic body reach out to more and more contractors for a more competitive bidding process as it would eventually ensure improved quality of road construction.

The committee has asked PMC’s tender cell to circulate tender notices by email to all its registered contractors and also to those who wish to subscribe to this facility. A nominal fee for this purpose can also be charged if necessary.

“To ensure transparency, the aggrieved party should have the opportunity to seek redressal and the fact that such an opportunity is available should be made part of the tender document,” said the committee’s report.

The committee has stressed that use of modern technology be promoted so that contractors with sophisticated machinery come forward to work for PMC.

“Access to certain key machinery like pneumatic roller, vibratory rollers, computerized hot mix plants, mechanized automatic bitumen sprayers should be made mandatory for major projects. Every attempt should be made to introduce modern and latest machinery,” added the report.

Recommendations for better road contracting and construction system

1. Only good, experienced contractors with good track record and more than sufficient capacity to carry out the work will be able to tender for the work

2. Conditions of contract should be clear, unambiguous and definite

3. Opportunity should be given to seek clarification of any unclear clause or condition of tender papers through pre-bid meeting

4. There should be a fair, impartial and speedy dispute resolution mechanism built into the tender papers

5. Payment terms should be clear and well defined

6. The size of work should be such that it should be possible to have proper quality assurance on the work

7. A structured system of periodical dialogue with contractors to solve issues with each other

8. Extra attention to nurture good DPR consultants

9. For most usual work of roads, post qualification method is suitable as these works have to be done quickly

10. For very large works of new construction, where a long time is spent in planning, pre-qualification of bidders may be considered

11. Detailed drawings should be made part of tender document so that once the work order is issued, the work can proceed unhindered

12. To ensure adequate cash flow, it is necessary to make prompt payment of contractor’s bills

13. Provision for payment of interest in case of delay beyond the prescribed limit