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Infrastructure sector set to receive

More bank credit will soon flow to build infrastructure in the country with the Reserve Bank of India (RBI) on Tuesday reducing the level of provision against substandard loans to the sector from 20 per cent to 15 per cent.

The central bank’s decision to treat annuities and toll collection rights under build-operate-transfer (BOT) road and highway projects as tangible securities has also come as a major relief to infrastructure companies.

Banks and institutional lenders said the move on provisioning would enable lenders to loosen their purse strings for the infrastructure sector where long gestation projects often end up with issues that are beyond the control of both the lender and the borrower.

“There are many uncertainties in the infrastructure sector. Often there are delays due to reasons such as obtaining environment clearances and delay in equipment supplies that lead to assets becoming substandard. The RBI move will definitely encourage banks to go ahead and provide more advances to the infrastructure sector since it will provide a comfort factor,” SS Kohli, chairman and managing director of India Infrastructure Finance Company (IIFCL), the government’s flagship infrastructure finance company, told Financial Chronicle.

SBI chairman O P Bhatt said the announcement on infrastructure lending would help banks to finance such projects. “The treatment of annuities as tangible securities under BOT scheme will help attract private equity and give a boost to infrastructure sector,” he added.

UCO Bank chairman and managing director SK Goel echoed the view. “RBI move will reduce the burden of banks since loans to infrastructure projects often become substandard due to technical reasons. With only 15 per cent provisioning requirement, banks will be encouraged to lend more,” he said.

CMD of Bank of Maharashtra (BoM), Allen C A Pereira, said banks have been raising concerns over project delays and asset-liability mismatches in their infrastructure portfolio.

“Infrastructure projects are long gestation projects and several times things do not work out the way it was originally planned. Therefore, there was a strong case for easier provisioning norms for substandard assets. The RBI move is to ensure that banks do not suffer,” Tourism Finance Corporation of India CMD Archana Capoor said.

According to the planning commission, projected investment in infrastructure such as ports, airports, railways, power, irrigation, water supply and sanitation during the 11th plan (2007-11) is Rs 20,54,205 crore. The huge demand for funds can be gauged from the fact that the road ministry alone plans to award projects to build around 18,000 km during this financial year worth more than Rs 1,50,000 crore. Of this, 65 per cent of projects would be on BoT toll basis, 20 per cent on annuity and remaining 15 per cent on engineering, procurement and construction (EPC) model.

However, bankers said the RBI move was not to make banks meet their overall credit growth target when of offtake to sectors such as real estate has slumped. “These issues are not linked. The slowdown in overall lending and to the housing sector may be due to other reasons. Housing loan borrowers may be adopting a wait-and-watch approach,” Pereira of BoM said.

UCO Bank’s Goel agreed: “This is purely to encourage flow of funds to infrastructure sector. Overall credit growth and trends for specific sectors cannot be linked.”

Meanwhile, infrastructure companies have welcomed the decision to treat annuities and toll collection rights under BOT projects as tangible securities, saying the decision would give private road developers easier access to funds at lower interest rates.

At present, in BOT road projects, there is nothing that can be considered as tangible asset. This is because the concessionaire has to transfer the land either to the National Highways Authority of India (NHAI) or the state government after about 30 years of the agreement. Toll collection is also uncertain and therefore treated as an intangible asset. This makes it difficult for developers to obtain loans under the secured category.

“Now that the RBI has allowed annuity and toll collection rights as tangible securities, where there are provisions to compensate the project sponsor if a certain level of traffic is not achieved, it will make banks pro-active to lend to the sector,” Issac A George, chief financial officer of GVK Power and Infrastructure, said.

In its credit policy, RBI said annuity and toll collection rights should be treated as tangible securities subject to the condition that banks’ right to receive them is legally enforceable and irrevocable.

“Most banks offer loans to road developers under secured categories. However, there are lots of provisions and agreements that the parties work out among themselves. The developers also pay a higher interest rate of up to one and a half per cent for unsecured loans. The RBI announcement will help developers to save the additional interest cost and avoid legal troubles,” said Vishwas Udgirkar, an executive director at PricewaterhouseCoopers.

The move is also expected to lower the cost of road projects. “The RBI move to treat annuities and toll collection rights as tangible securities will create a healthy market for securitisation of toll portfolio, thereby reducing the cost of road projects after construction,” said Hemant Kanoria, chairman and managing director of Srei Infrastructure Finance.

Source: mydigitalfc.com

TEXT-Fitch affirms SNBTPL ‘s bank loans at BBB-(ind)

April 16 – Fitch Ratings has today affirmed SEW-Navayuga Barwani Tollways Pvt Ltd.’s (SNBTPL) senior long-term project bank loans aggregating INR5,474m at ‘BBB-(ind)’, and subordinated bank loans of INR300m at ‘BB+(ind)’. The Outlook is Stable.

SNBTPL enjoys an 18-year concession from National Highways Authority of India [NHAI.UL] (NHAI, ‘AAA(ind)’/Stable) to design, engineer, build, finance, construct, operate and maintain on a Build, Operate and Transfer (BOT) basis an 82.8km road stretch on the National Highway 3 (NH-3) in the state of Madhya Pradesh. The estimated cost of the project is INR7.9bn, with the scheduled commercial operations date (COD) in May 2011.

The affirmations follow SNBTPL’s reasonable progress over the last year in achieving different project milestones during the critical construction phase. Fitch does note however that the company is slightly behind plans. The entire right of way (ROW) required for the project is reportedly in the company’s possession, with the exception of a three-km stretch of forest land; however, first-stage approvals have been received from the forest department.

As of March 2010, the project has received equity infusions (61.3%), and has been drawing down on term loans – 58% of senior debt and 57% of sub-debt – as per schedule.

The ratings are constrained by the residual completion risk, although a fixed-price construction contract with SEW, whose terms mirror those in the concession, offer protection. Base-case debt service coverage metrics are extremely modest and vulnerable to various deep stress tests Fitch performed. A three-year tail in the concession allows the banks to restructure the loans, if necessary. Some liquidity support is available in the form of a fully-funded debt service reserve account (DSRA), equivalent to three months’ principal and interest payment.

Fitch has factored into its rating the operational track record and financial strengths of the sponsors. This includes the credit enhancement value of their undertaking to finance the cost and time overruns, to replenish the senior and subordinated DSRA and to provide unconditional and irrevocable bank guarantees if event project cash flows are inadequate to create the DSRA. Additionally, SEW has executed a letter of undertaking to the senior to infuse INR100m, after the COD, to augment debt payment capacity and to inject additional funds in case operations and maintenance expenses exceed the base case projections submitted to the banks.

The agency believes that the road has long-term economic potential, and that its locational advantage should have a beneficial impact on tollable traffic. Also, it is situated on the highway that represents the shortest distance between Mumbai and Agra.

SNBTPL is a 74:26 JV between SEW infrastructure Ltd (SEW, ‘AA-(ind)’ / Stable) and Navayuga Engineering Constructions Ltd (NECL). Following inter-se adjustments among the sponsors, SEW has increased its equity stake in the project to 74% from the 51%, resulting in a reduction in NECL’s holding to 26%.

Applicable Criteria available on Fitch’s website at www.fitchratings.com: “Rating Criteria for Infrastructure and Project Finance”, dated September 29, 2009.

Source: in.reuters.com

17 states pledge cooperation for highways projects

New Delhi, April 13 (IANS) Seventeen states and the union territory of Chandigarh Tuesday assured support to the centre for timely execution of highways projects in the build, operate and transfer (BOT) mode.

The governments of Andhra Pradesh, Arunachal Pradesh, Assam, Chhattisgarh, Haryana, Himachal Pradesh, Jharkhand, Maharashtra, Madhya Pradesh, Manipur, Meghalaya, Nagaland, Punjab, Rajasthan, Tripura, Uttarakhand, West Bengal and the union territory of Chandigarh signed the State Support Agreement (SSA) with the ministry of road transport and highways.

The agreement was countersigned by the National Highways Authority of India (NHAI).

For the development of highways, support of the state governments is essential in the matter of land acquisition, removal of encroachments, shifting of utilities, rehabilitation and other local law and order related issues.

“The SSA aims at formalising the cooperation arrangement with the state governments to the implementation of the extensive programme of development of national highways on public-private-partnership (PPP) through the NHAI,” an official statement said.

Five states — Karnataka, Kerala, Goa, Puducherry and Sikkim — will also sign the SSA soon, it said.

However, Uttar Pradesh has indicated its desire to withdraw from the SSA it signed earlier.

“Discussions are going on with the government of Uttar Pradesh to resolve the matter,” the statement added.

Source: sindhtoday.net

Vadodara-Bharuch NH-8 stretch not equipped to handle fire mishaps

VADODARA: The Vadodara-Bharuch stretch of National Highway-8 is not equipped to handle any major fire incident.

An RTI application has revealed that as per an agreement signed between National Highways Authority of India (NHAI) and private operator L&T Vadodara Bharuch Tollway Limited (VBTL),which had bagged the six-laning project of 83.3 km stretch of NH-8 on build, operate, transfer (BOT) basis, L&T VBTL is supposed to provide fire brigade service on the highway. But, the ground reality is that there is no fire brigade service on the stretch, which ironically witnesses highest traffic movement, including vehicles that transport chemicals.

The RTI response that was provided to applicant Yashwant Jangid by NHAI states that as operations part of operation and maintenance (O&M) manual, the operator will have to take care of ambulance, fire brigade and tow away trucks and cranes as rescue and medical aid services. The documents under schedule-L carry stamps of both NHAI and L&T VBTL.

But, an L&T VBTL official looking after accident management of the stretch told TOI that he wasn’t aware about such a clause in the concession agreement. “If there is a fire incident on the stretch, we have handy fire extinguishers. If still the fire does not get extinguished, then we call local police which in turn contacts local fire brigade to do the needful,” the official said.

“L&T VBTL officials interpret that the clause in the agreement is to provide only fire brigade services, which does not mean that the highways should have fire vehicles stationed,” a NHAI official claimed. But, the fact remains that L&T VBTL has never approached Vadodara Fire Brigade and Emergency Services (VFBES), managed by Vadodara Municipal Corporation, to get their service.

“We are supposed to function and provide our services only in municipal jurisdiction of Vadodara. When we cross corporation limits, our services are charged. But, we have series of bills pending which neither the contractor of the highway nor the victims of accidents have paid,” chief fire officer of VFBES H J Taparia told TOI, adding that L&T VBTL has never approached them to sign an agreement for such services.

Incidentally, even on Wednesday morning, VFBES officials had to rush to Dumad Chowkdi from the starting point of Vadodara-Bharuch highway when a truck rammed a tree leaving the driver dead on the spot, while officials extricated a cleaner’s body that was trapped by using hydraulic equipment.

“We handle nearly 35 to 40 calls a year on this part of the highway as nobody is ready to go on that road,” Taparia added.

Source: timesofindia.indiatimes.com

IVRCL Infra bullish on BOT road projects

IVRCL Infrastructure and Projects Ltd said it has received a Rs 1,550 crore BOT (Built Operate Transfer) road project in Madhya Pradesh from the National Highways Authority of India (NHAI). The concession will be for 25 years and the project will be completed in 30 months.

“The 155-km long road project will be executed by a special purpose vehicle owned by IVR Prime. The road construction will be taken up by IVRCL Infra,” said Mr E. Sudhir Reddy, the chairman of IVRCL Group.

“With this, IVR Prime has BOT projects — confirmed and lowest bidder — worth Rs 10,000 crore,” he said adding that the company expects to win six BOT projects by this year end.

The project, which is a part of National Highway 59, involves design, engineering, construction, development, finance, operation and maintenance of the road that runs between Indore and Ahmedabad.

Mr Reddy said that the debt-equity of 5:1 would be used to fund the project. “The equity component will be raised through internal accruals and raising debt will not be difficult for us,” Mr Reddy said.

Following the road transport and highways minister, Mr Kamal Nath’s target to build 20 km road every day by April 2010, the NHAI has put the process of awarding contracts on the fast track. “We are currently doing 9 km a day and would be in a position to scale up to 20 km a day by April-May 2010,” Mr Nath had said recently.

Recently, the government had approved road projects worth Rs 6,152 crore in five states for upgrading nearly 562 km of four-lane highways into six lanes.

Mr Nath had also coined the idea of issuing infrastructure bonds to raise money from non-resident Indians on the lines of the Resurgent India Bonds issued in 1998 and the India Millennium Bonds issued in 2000.

By 2022, govt to lay 18,637km of expressways

NEW DELHI: The government has drawn up an ambitious target to lay 18,637km network of brand new expressways by 2022. These high-speed, access-controlled roads will be of the four-lane and six-lane variety with 3,530 km to come up in the next three years.

The highways ministry is ready with a Master Plan for the National Expressway Network. The new target of expressway length was projected after receiving observations from 11 states including Madhya Pradesh, Bihar, Gujarat, Karnataka and Uttar Pradesh. Earlier, the final draft report prepared by the highways ministry had proposed to develop 17,661 km of expressway network.

The expressways network will not be an upgraded national highway network but will be developed entirely as greenfield projects. These will preferably be built with three-metre high embankments and will have service roads along the stretches where there is a need. Officials said there was an urgent need to develop expressways network as road transport would remain the mainstay for sustaining the economic momentum of the country.

“The existing arterial network cannot meet the latent and the emerging demands for connectivity and accessibility while ensuring the desired level of safety,” said a senior ministry official.

As per estimates, the construction cost per km would be Rs 14 crore in case of 4-lane and Rs 20 crore in case of 6-lane expressways excluding land acquisition and other expenses. A recent presentation made before the top brass of National Highways Authority of India (NHAI) and the ministry also mentioned that while majority of identified stretches would be built on build-operate-transfer (BOT) mode, stretches which were unviable could be developed on annuity basis.

The Master Plan document has also phased the expressway development programme for 2012, 2017 and 2022 and this has been done on the basis of financial viability, relative traffic intensity along various corridor segments, network comprehensiveness, connectivity warrants and relative economic potential of each proposed project.

The ministry is already in the process of preparing a draft for creation of a National Expressways Authority of India (NEAI) on the lines of NHAI and the highway regulator has also got an exclusive wing for the expressway as a stop-gap arrangement.

Source: timesofindia.indiatimes.com

Reliance Infra bags Rs 590crore Jaipur project

New Delhi: Reliance Infrastructure, the Anil Dhirubhai Ambani Group (ADAG) company, has won the Rs 590 crore Jaipur-Reengus highway project in Rajasthan from the National Highways Authority of India (NHAI).

The project is expected to be completed by 2011.

The company is currently implementing road projects worth Rs 4,500 crore and aims to increase its road portfolio more than four-fold to over Rs 20,000 crore by 2012.

Reliance Infra bagged the Rajasthan project on the basis of the lowest quote for grant at Rs 103 crore. The upgrade work of the 53 kilometre stretch will be implemented on a build operate and transfer (BOT) basis for a concession period of 18 years, including the construction period. After completion of the project, the company will earn toll through the remaining period before handing over the project to NHAI.

“Jaipur-Reengus contract is the seventh road project won by Reliance Infrastructure. With this, the company would be committing more than Rs 4,500 crore for the road sector. We are planning to increase the total road project portfolio over Rs 20,000 crore by 2012-13,” Lalit Jalan, CEO, Reliance Infrastructure, said in a statement.

The deal is likely to be signed in a month and the construction will begin soon thereafter. The group has a market capitalisation of around Rs 1,50,000 crore, and net worth of over Rs 64,000 crore. Also, the operating cash with the group is to the tune of Rs 13,000 crore.

The company’s two Tamil Nadu projects became operational last week. The projects, Namakkal-Karur and Dindigul-Samynalore, are worth Rs 763 crore and span 96 kilometres.All the remaining road projects are expected to be operational by March 2011.

Also, Reliance Infra is bullish on the infrastructure growth in the country.”Infrastructure will be a major source of revenue for us and we will bid for most of the projects being planned in the country,” Jalan said.

It is undergoing the tendering process in projects worth around Rs 50,000 crore. The company has achieved financial closure for the Rs 2,356 crore first phase of Mumbai Metro project and has also bagged the Rs 11,000 crore second phase of the project to develop a 32 kilometre stretch for a concession period of 35 years.

Source: dnaindia.com

UPA-2 road plans hit a bump

NEW DELHI: This could be an indicator of how the ambitious highway development programme has been a non-starter in UPA-2. National Highways

Authority of India (NHAI) has awarded only 17 projects for 1,574 km since January against the plan of awarding 135 projects (14,384 km) in the current financial.

A presentation made by the highway regulator at a CII conference on consulting services on Tuesday pointed to the huge gap between the projection and actual pace of award of projects in the past 10 months. As per the presentation, only 17 projects costing Rs 17,757 crore were awarded including one project on BOT (annuity). It further showed that nine more projects on BOT (toll) and two on annuity modes were under the process of award. However, information was not available on how many highway projects were awarded since the change of guard in the ministry.

NHAI officials blamed the slow pace on certain “controversial clauses” and provisions in the request for quotation (RFQ) and request for proposal (RFP) and the model concession agreement. “We had prepared a plan to award 60 projects last year but the economic downturn hit us hard and only 12-13 projects could be awarded. Many projects could not achieve financial closure even after awarding. This time it’s equally worse due to certain contractual provisions and clauses of the bid documents including the conflict of interest clause,” said a senior official.

Road, transport and highways minister Kamal Nath has already identified the interpretation of ‘conflict of interest’ as the biggest roadblock in the fast tracking of highway projects.

Transport secretary Brahm Dutt admitted on Tuesday that the award of projects was taking time while the ministry had set a target of achieving construction of 20 km highway per day.

Source: timesofindia.indiatimes.com

Toll on two-lane roads to drive costs down

More than 10,000 kms of roads may get tolled across the country. In what may be called a first, the ministry of road transport and highways is considering a proposal to toll two-lane roads. This is being done to not only recover the cost of construction but also ensure funds for their maintenance and upkeep. According to a senior government official, the move has come as a part of the government’s attempt to attract more road developers and also reduce the burden on annuity and build operate transfer (BOT) projects.

So far two-lane roads are not tolled across the country. But the idea is being considered especially because the government may award the construction of two-lane national highways on certain lean traffic areas across the country. This is being done to reduce the cost at a time when developers have been shortage of funds, as the official said.

The move will require making changes to the toll policy of the government, which provides for tolling of four and six lane highways currently. The ministry had introduced a new toll policy in December 2008 by the way of which toll rates had been doubled or trebled on certain stretches.

The current toll policy stipulates a fee of Rs 0.65 per kilometre for cars jeeps etc, Rs 1.05 per km for light commercial vehicles, Rs 2.20 for buses and trucks, Rs 3.45 for heavy construction machinery and Rs 4.20 for vehicles with over seven axles. However, these are the recommended rates for four and six lane highways and a similar schema would have to be prepared for two lane highways, if the proposal gets implemented.

The fee for two-lane highways is expected to be much lower but the location will also matter in determining it. For instance, it may be higher for hilly terrain roads.

The government has been working on a plan to re-engineer roads and thereby reduce their cost. The National Highways Authority of India (NHAI) is considering the removal of a number of additional structures on highways that escalate the cost. Taking this further, the minister for roads recently suggested that even in areas where two lane roads are being considered tolling should be implemented.

However, there is a flip side two lanes as well. They are less safe than four or six lane highways as there is no divider to prevent head on collisions. Even though we support the idea, the viability of tolling two lane highways would have to be considered in the light of the administrative cost of collection, a road expert from the National Highways Builders Federation (NHBF) said.

Currently there is a network of over 70,000 kms of national highways in the country, the maintenance of which comes under the central government. Even though national highways are only 2 per cent of the total road network, they carry bulk of the country’s traffic at over 65 per cent.

Source:indianexpress.com

NHAI fails to meet projects, expenditure targets

New Delhi: The NHAI (National Highways Authorities of India) is lagging behind in reaching most of its targets. While, it will not be able to spend a third of its targeted expenditure of Rs 31,000 crore in the current financial year, it is also running behind schedule in awarding new projects.

The authorities had planned to award 61 projects by December 2008 under the

BOT (build-operate-transfer) model with an estimated cost of Rs 67,000 crore to widen 6,343 km highways. Out of those, only three projects have recently been awarded and three are likely to be given soon.

“In this fiscal, NHAI has spent about Rs 16,000 crore and by March 2009, it is likely to spend another Rs 5,000 crore,” said Brahm Dutt, secretary, department of Road Transport and Highways.

These expenses are primarily public spending in the first three phases of the National Highway Development Programme. They exclude the expenditure on highways development by private developers (concessionaires) undertaken in the BOT model.

Citing economic downturn as the main reason for poor response to the 60 projects on offer, Dutt said, “market turmoil changed the scenario overnight resulting in NHAI getting response in only 16 of the 60 projects floated.”

Source: epaper.timesofindia.com

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