Highway contractors line up for government funded projects

October 22, 2012

NEW DELHI: Highway contractors, who have been facing a financial crunch, have lined up for road projects to be built with 100% government funding. In the past two weeks, at least 50-60 companies for each such project on engineering-procurement-construction (EPC) have applied for pre-qualification to bid for these works.

Initially, National Highways Authority of India (NHAI) has identified eight such projects in Rajasthan and the second set of such works in Uttar Pradesh would be out soon. “All types of road construction companies including the big ones like L&T, GMR and Gammon have applied for pre-qualification. We expect good response when financial bidding starts,” a senior NHAI official said.

All the eight projects in Rajasthan are in the range of Rs 200 crore to Rs 500 crore. Officials said the projects have been designed in a manner where contractors won’t get more than 10% profit in executing these works.

Industry insiders said that response for such projects is much more since companies don’t need to raise loans from banks. Moreover, the risk of EPC projects is with the government. “You will get back the entire amount. All responsibilities of clearances are with government. There is no need to invest from your pocket whereas in the build-operate-transfer (BOT) projects, getting loan has become difficult,” a private contractor said.

National Highways Builders Federation ( NHBF) secretary general M Murali said EPC projects will get more takers since financing BOT projects has become difficult. “In the past couple of years, interest rate has increased from 8.5% to 15%. Banks have become stringent. Moreover, how can you get at least Rs 2.1 lakh crore finance that you need to execute 7,500 km highways work for three continuous years,” he added.

NHAI officials feel contractors in the BOT segment will come for good projects. In fact, after almost a six-month lull, NHAI received two bids for a BOT-Toll project last week. The four-laning of 154 km Salasar-Haryana border project costing Rs 601 crore was cleared by the Cabinet last week. NHAI officials said while the government had set 33% viability gap funding (VGF) for this project, one of the bidders quoted 27% VGF. GR Infra and Galfar Infrastructure are the two bidders for this project.

“EPC is certainly less risky for contractors. Medium and small players, who were earlier sub-contractors, would take more projects. But we feel the big players will eye viable BOT projects since greater risk can bring more revenue,” a highway ministry official said.

Source: http://timesofindia.indiatimes.com/