IRB Infra project cancellation just a one off case: NHAI

December 27, 2011

The National Highways Authority of India cancelled the Goa road project that it had awarded to IRB Infrastructure in January 2010 due to the inability to acquire land for the project.

In an interview to CNBC-TY18, AK Upadhyay, chairman of NHAI says, this is just one off case. “I don’t think this is a serious concern,” he adds.

He expects land acquisition costs to rise going forward.

Upadhyay expects awards of close to 7,000 km by year-end.

Below is the edited transcript of his interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy. Also watch the accompanying videos.

Q: The most disturbing news we heard lately was the cancellation of Goa road project given to IRB Infra because of the inability to acquire land. Can you just confirm this for us? How disturbing it is that you are not able to acquire land?

A: This is just one off case. In some states, we do face problems, but you don’t take it as a repetitive case. The other projects are going on very well. It is just one-two projects, out of 40-50 projects that we are going to bid this year. So, I don’t think this is a serious concern.

Q: What went wrong? Where did the resistance and the inability to acquire land come from?

A: The state government has solutions. Because the alignment was passing through some fishermen’s areas and they wanted to have an elevated highway for a very long stretch, it made it difficult to fund it. We had to restructure the project. So, the project as it was structured that could not go ahead. So, we had to cancel the bid. I would again say this is a one off case.

Q: What kind of interaction have you had with IRB on this and penalty that you may have to pay them?

A: I don’t think so because this is not at the award stage, so no liability has yet occurred. But I don’t think there should be any major penalty.

Q: How much are you expected to raise via the bond issue? hHw much demand do you see for these kind of tax free issuances at this point?

A: Our perception is that the bonds will be highly in demand. We hope to have full subscription. We are going for first tranche of Rs 5,000 crore with option to retain up to Rs 10,000 crore. From whatever feedback we have got, our impression is that this is going to be very successful.

Q: How many projects in 2011 went on a premium?

A: Let me talk of this fiscal starting from April 1, out of 33 projects, we have awarded so far of over 4300 km, 22 have gone on premium.

Q: In that case, would you consider increasing the viability gap funding for those that did not go at a premium?

A: Viability gap funding has 40% cap. If you over 40%, you might as well fund it entirely from public funding. Therefore, it is a rational limit. We don’t think it’s necessary to increase that. But what it means is that the funds we are getting it would help us in case of any increase land acquisitions cost. After the viable projects under BoT toll are exhausted, we will have to go for more and more EPC projects. That would be almost entirely public funded. So, therefore, this premium is good for us, it has cushioned for future years.

Q: From now, up until FY13, what is the order target that you have? How many have been awarded? How many you expect government to approve?

A: To give you a picture of this financial year, the total target we had set was 7,300 km. This was about 40% more than last year’s target. We are on course. We have awarded over 4,300 km.  Another 1,000 km of the bids are in the pipeline either in evaluation or the bids have to come shortly. So that means that very shortly we will be crossing 5,300 km. Another 2,000 km of 14 projects are in various stages of evaluation and approving process.


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