Road developers see polls to slow NHAI targets

August 3, 2013


Coming elections in the country are going to cause delay in road works. Road developers are set to see challenging business environment as the National Highways Authority of India (NHAI), which missed project award targets in the last year by a huge margin, may not meet them.

A senior Hindustan Construction Company official said that on one side the government may try to implement things quickly, but by the time it happens the model code of conduct will come into play. There are just six months left as post December this year the entire government machinery will come to standstill, he said.

Analysts too said while the build operate and transfer (BOT) projects will be constrained due to economic slowdown and fund crunch, the engineering procurement and construction (EPC) projects would slow due to elections. Edelweiss Capital, said that a tough economic environment will constrain BOT awards.

Achieving the fiscal 2014 target hinges largely on award of 3,500-4,000 km EPC projects. The timing of central and state elections will also cast its shadow on the project award, Edelweiss said in a recent report.

The Ministry of Road Transport and Highways had set an ambitious target of awarding 8,800 km of road length in fiscal 2013, which was raised by the Prime Minister Office to 9,500 km. NHAI, however, was able to award only 1,112 km projects. For this fiscal, the road ministry has again set an ambitious target of awarding 9,000 km projects, about 50% through the EPC route.


No funds to award projects, NHAI says

June 5, 2013

Dipak Kumar Dash, TNN |


NEW DELHI: The National Highways Authority of India (NHAI) has told the highway ministry that it won’t be able to award any project on toll mode during 2013-14 if the prevailing conditions don’t improve. In addition, it wants government to start awarding projects only when all conditions are fulfilled, and work can begin without delay.

Currently, private investment in highway sector comes for two types of projects – BOT (toll) and BOT (annuity). In the first instance, a private player recovers its investment from collecting toll, while for the latter government pays back the entire investment with interest in installments.

NHAI has informed the ministry that 33 projects — covering around 3,500km — awarded during the past two fiscals are yet to take off due to several reasons, including dearth of finance, equity, clearances and land availability. Moreover, 17 BOT (toll) and 3 BOT (annuity) projects did not get any response last year.

The Authority has submitted two targets. In the first case, unless things improve and government takes necessary steps, NHAI would end up awarding only 2,000 km of NH on engineering, procurement and construction (EPC) mode, where government pays the entire amount to private contractors.

In the second scenario, if the situation improves and finance is available for private players to take up work, NHAI can award around 4,000km – half of it on EPC, and the rest (50%) on BOT mode.

Planning Commission had asked NHAI and the ministry to submit two targets for the current fiscal after the Authority had pointed out how high target does not serve any purpose when government fails to resolve issues that impact execution of projects.



Centre will soon allow 100% stake in BOT projects

May 20, 2013

Written by  Parvati Sharma

 Infrastructure developer IVRCL Limited is going slow on its proposal to monetise three more build, operate and transfer projects in the light of expectations that the Union government will soon take a decision to allow 100 per cent stake sale in BOT projects. “It is just a matter of procedure. The decision will come soon as everybody, including the NHAI (National Highways Authority of India), is in favour of it,” IVRCL chairman and managing director, E Sudhir Reddy, told Business Standard. At present, the Centre allows only 74 per cent stake sale in BOT projects.

Reddy said IVRCL would expedite the process of selling more projects after Centre’s decision in this regard. The Hyderabad-based company recently sold three BOT projects – Salem Tollway, Kumarapalayam Tollway and IVRCL Chengapally Tollway – to the Tata group firm TRIL Roads Private Limited. The stake sale is yet to be approved by the NHAI and institutional lenders. The projects have been reportedly executed at a cost of Rs 2,200 crore and nearly two-thirds of this money had been lent by banks.

Reddy, however, said banks approving the stake sale should not be a problem as the projects were sold to a Tata group company, which has a good standing among the financial institutions. Last month, industry sources said, some of the operators of BOT projects hailing from Andhra Pradesh met the Prime Minister and apprised him of their problems.

More than the high interest rates, they were said to have told the Prime Minister that the rising cost of construction material due to sudden policy changes by state government was making development of BOT projects unviable.For instance, Reddy said, IVRCL was now securing sand from Jharkhand to execute a BOT project in Bihar as the Bihar government had banned sand mining in the state. There was also cost escalation on account of state governments delaying in execution of state-support agreement. These along with other factors were resulting in project costs spiralling by almost 15-20 per cent over the original estimates.

Besides, the developers had tendered for BOT projects assuming the GDP growth rate would be in double digits. With no such thing happening, only 5 per cent of the BOT projects in the country was now stated to be profitable.

NHAI yet to set target for BOT projects

April 29, 2013

By YASHODHARA DASGUPTA, ET Bureau | 29 Apr, 2013, 05.00AM IST

NHAI is yet to set a target for BOT projects in 2013-14, as it is awaiting clarity on proposals to ease funding constraints for highway developers.
(NHAI is yet to set a target for BOT projects in 2013-14, as it is awaiting clarity on proposals to ease funding constraints for highway developers.)
 NEW DELHI: National Highways Authority of India is yet to set a formal target for Build Operate Transfer projects in 2013-14, as it is awaiting clarity on proposals to ease funding constraints for highway developers. In the last 13 months, as many as 17 projects found no takers because of the severe equity crunch plaguing infra firms, while the clampdown on mining has made projects near such belts unviable, say highways authority officials.

By the end of 2012-13, thirteen projects at a total project cost of Rs16,000 crore received no financial bids, though some of them were put on the block more than once. This financial year, infrastructure companies gave three annuity-based projects worth Rs1,900 crore a miss despite the government assuring payment in such a model. In all, National Highways Authority of India was able to award projects covering 1,116 km in 2012-13, while 1822 km got no bids. “It is very clear especially if you see that even annuity projects did not get a response, that there is a total lack of equity in the market,” said RP Singh, chairman of National Highways Authority of India.

“Unless our two proposals on easier exit options for concessionaires and back-loading of premium are agreed to, it will be very hard to go ahead with BOT projects in the sector,” he cautioned. The beginning of the year saw infrastructure majors GMRBSE -0.47 % and GVK walk out of mega-projects worth over Rs10,000 crore. National Highways Authority of India officials said Ashoka Buildcon has also sent a notice seeking termination of its Rs1,100 crore project in Odisha. While the companies have cited regulatory and clearance issues, the highways authority says companies are backing out as they are facing severe financial stress. “The industry has seen the effects of aggressive bidding in 2010-11 and 2011-12 that lead to problems with financial closure.

NHAI has also not been able to provide the clearances required and there is a policy lacunae going on that has made investors cautious,” said an official of a prominent infrastructure firm that was selected in the pre-qualification rounds in many of the 17 projects. “The clampdown on mining in states like Karnataka and Orissa has also affected viability of projects in those areas because of the sharp decline in mining traffic,” he added. Two projects in Karnataka worth close to Rs2000 crore and three projects in Odisha including the Chandikhole to Paradeep and Chandikole to Talcher stretches saw no interest despite the fact they were offered a few times.

“Regulations on exit options have been difficult, capital for many companies is blocked in existing projects and policy issues like land availability are the reasons why interest has waned in highway projects off-late. Earlier people used to take a risk even with land availability issues, but that confidence has gone away because of which companies have also stopped implementing projects,” said Sunil Kanoria, vice-chairman, Srei InfrastructureBSE 1.73 %. The highways ministry is currently drafting a revised note for the Cabinet on allowing companies to divest 100% of their equity in existing projects as well as easier norms of substitution of concessionaires.

If approved, this could free up equity from existing projects, which could be invested in new projects. The ministry is also working on the deferral of premium payment by companies like GMR. About 25 companies with premium of Rs97,000 crore are facing financial stress and could be interested in this option, according to National Highways Authority of India


India Inc shuns govt road projects

December 24, 2012

MUMBAI: The infra growth story at least in the road sector appears to be over as the private sector is now shunning government’s road projects. The government which announced an ambitious target of $1 trillion of infrastructure spending is finding no takers for the 8,000 km of road projects to be awarded under the built, operate & transfer (BOT) mechanism this fiscal.

Interestingly, the National Highways Authority of India (NHAI), the nodal agency for awarding these road projects, witnessed phenomenal success in awarding over 8,000 km of road projects last year as 31 of the 51 road project were bagged at premium. Based on last year’s success, the government increased the target to award 8,800 kms of road projects this year; however, NHAI so far was able to award only 700 kms with less than four months remaining in the current fiscal.

Two projects, worth about Rs 2,450 crore, awarded last year to DSC Ltd and Gannon-Dunkerley Co Ltd were terminated after failure to achieve financial closure. This was the first time that such termination had to be done due to failure of companies to achieve financial closure (tie up debt).

At current pace of less than 5 km of road construction per day, the government is way behind its ambitious target of achieving 20 km of road construction per day for which it needs to award over 7,000 km of road projects each year. The reason: Availability of 50 road projects worth Rs 50,000 crore totaling 5,000 km are on the block in the secondary market as the debt-laden infrastructure firms wants to get rid of these road projects that they bagged by aggressive bidding and are now finding it difficult to execute due to the depressed returns. Prime Minister Manmohan Singh reviewed the performance of the transport sector in a series of meetings recently and a recent PMO statement on targets for awarding road transport and highways project last week said, “The ministry will try its best to award road projects as per the original targets for FY 12-13 and will certainly cross 8,000 kms of awards this year by March, 2013. Road projects of at least 3,000 kms length will be awarded under OMT by March, 2013.”

This means that in the absence of takers for road projects under BOT basis, which requires companies to raise funds from the market, the government is planning to award 3,000 km of road projects on engineering procurement contract (EPC) basis, where government spends the entire money required to build roads. However a government statement on Wednesday said, “As against the target for awarding works for a total length of 8,800 km during 2012-13, it has been possible to award projects for a length of 705 km upto October, 2012. Some projects have not received good response from bidders. Apart from general slowdown of economy, viability of some of the projects, sectoral lending caps of the banks, limitations of the concessionaires like availability of equity and other resources to execute the projects appear to be the main factors for poor response.”

“I have my doubts on the PMO statement. If they awarded just 700 kms in the first nine months, then how can they award 9000 km in the next three months. The constraints like land acquisition, funding from banks and remain the same. The government first needs to address these issues before awarding further road projects,” Bajrang Choudhary, CEO, Infrastructure Project Development at SREI Infra told ToI. Leading infrastructure firms like L&T, GVK, GMR, IVRCL, Gammon Infrastructure, SREI Infrastructure, Gayatri Projects, Madhucon Projects, Ashoka Buildcon amongst others have meanwhile reportedly put their road assets on the block.

Infra firms meanwhile are being chased by their lenders to sell assets any which way they can as the banks have stopped lending to the road sector with stringent lending norms scaring away private developers from investing in the highway projects. Over three dozen highway projects are awaiting financial closure.


The road ahead for Virendra Mhaiskar and IRB India

December 10, 2012

Virendra Mhaiskar has made IRB India’s largest and most profitable toll-road operator. In a sector that has most companies reeling under debt, he seems to be the rare animal with enough cash on hand

Name:  Virendra Mhaiskar
Profile:  Chairman and managing director, IRB Infrastructure
Rank in Rich List 2012: 96
Net Worth:  USD560 mln
The Big Hairy Challenge faced in the last one year:  Slowdown in the infrastructure business, public protests against toll payments, and allegations of political links
The Way Forward:  Focusing on project execution, particularly on the Ahmedabad-Vadodara BOT project

Virendra Mhaiskar must be incredibly crazy. There is nothing else that explains the kind of risks the 41-year-old chairman and managing director of IRB Infrastructure takes, and his rise as India’s largest and most profitable toll-road operator. He deals with problems of the kind that could drive most people around the bend.

Consider, for instance, the episode this July when the Maharashtra Navnirman Sena (MNS), one of Maharashtra’s most raucous political parties, thought up an idea: Galvanise supporters to go past toll booths across the state without paying to use the roads. Egged on by exhortations made by their leader Raj Thackeray, they complied, and men tolling the booths could do nothing. Thackeray claimed it was to protest against the obscene profits the “toll mafia” was raking in from the dense traffic that used these roads.

Toll booth staff manning the Mumbai-Pune Expressway, the crown jewel in IRB Infrastructure’s portfolio, came in for special treatment. (The company is responsible for its upkeep until 2019.) Ironically, Mhaiskar says, “Raj is a friend at a personal level.” But that said, he argues, “To those who say traffic has grown more than projected, I ask, what if it had been otherwise? Would we get our money back?”

I ask if he has tried explaining this to Mr Thackeray and how they continue to be friends. “Enforcing agreements signed with developers, and explaining the rationale to stakeholders is the government’s job,’’ he says, as a matter of fact. I can’t help but think it ironical. But I guess there is a method to the irony.

How else could he have grown the company into India’s largest in the sector, and manage 12 roads across west and south India? So, I probe him a bit deeper. “The government’s policy on road construction and toll through the build-operate-transfer (BOT) model has been the most successful and transparent of all public-private partnerships in the country. But it is also the most poorly understood,” he says.

The problem, Mhaiskar says, is no politician or bureaucrat has bothered to explain to the public how it works. By way of explanation, he offers an analogy. “If you borrow Rs 70 lakh to buy a home, and agree to repay it over 15 years, you return several times the amount to the bank by the end of the tenure, and nobody complains. Going by that same logic, how can you argue if a road developer has invested Rs 1,500 crore [over 20 years], returns ought to be limited to the original investment? What about our borrowing cost, maintenance costs and our returns?”

That is why, he says, public anger manufactured against toll-road operators by politicians have badly impacted investors in the business. Caught between policy changes and the unwillingness (or inability) of users to pay, they are stuck with millions of dollars in debt.

For instance, he’s still trying to extricate himself from a situation in Kolhapur, where IRB won a 30-year contract in 2008 to maintain all of the city’s inner roads. Back then, it was hailed as a pilot project that would lead the way for municipalities across the country to liberate themselves from the responsibility of maintaining roads.

People in the city, though, simply refused to pay, and earlier, in January, they organised rallies to protest against the tolls. Collections had to be stopped after the state government thought the protests impossible to ignore. All attempts to find a solution continue to hang in abeyance.

Problems like these find participants in the Indian infrastructure business under huge amounts of debt, and are compelling many to get out of the projects they had bid for. Mhaiskar, though, seems the rare animal with enough cash on  hand. His revenues almost doubled from Rs 1,753 crore in 2009-10 to Rs 3,255 crore in 2011-12. His profit margins are a little over 15 percent. And, early in October, he signed on to buy out MVR Infra’s road project in Andhra Pradesh for an undisclosed amount. “A lot of such projects are now on sale, mostly by promoters under stress. We are looking at those that can give us an internal rate of return [IRR] of at least 20 percent,” Mhaiskar says.

You must be wondering if Mhaiskar is counting his chickens before they hatch, but Parikshit Kandpal, a senior analyst at Karvy Insitutional Equities, shares his optimism and is putting a ‘buy’ rating on the stock.

Most of the projects IRB is involved with are either in the west or south of India, he says. These are parts of the country that have demonstrated most growth. Of these, projects in Maharashtra and Gujarat account for 74 percent of IRB’s portfolio. “Understanding risks in traffic growth is a big part of our project evaluation,” says Mhaiskar.

When the government opened up projects for private participation in the late 1990s, many businessmen bid aggressively. They followed up later by raising equity from the public at super-normal valuations. Mhaiskar, too, capitalised on the market’s appetite for infrastructure companies. He raised Rs 944 crore through an initial public offering (IPO) in 2008.

For many, fat order books were a measure of success, irrespective of the cost at which they were acquired.  But soon the regulatory environment changed, and returns from ventures dropped below expectations. As banks cut down on lending, larger companies like GMR declared they were taking ‘investment holidays’.



State Bank of India to jointly invest $150 mn in Ashoka Buildcon arm

August 21, 2012

State Bank of India’s (SBI) private equity funds with Australia’s Macquarie Group will jointly invest $150 million in Ashoka Buildcon’s subsidiary – Ashoka Concessions Ltd.

Shares of Ashoka Buildcon surged as much as 9.56 per cent in morning trade on the Bombay Stock Exchange and touched an early high of Rs 279.40. It was later trading at Rs 272, higher by 6.67 per cent at 11.53 am on BSE.

“Macquarie SBI Infrastructure Fund and SBI Macquarie Infrastructure Trust – which are PE funds managed by SBI and Macquarie – will together invest $150 million in Ashoka Concessions,” a statement said.

Commenting on the development SBI Macquarie Infrastructure Management CEO Suresh Goyal said: “We remain optimistic on the India infrastructure story of which roads sector is a critical component. This is a long term partnership and together we will look forward to talking this business to greater heights.”

Infrastructure firm Ashoka Buildcon has an unexecuted orderbook of around $1 billion and currently has a portfolio of 25 BOT road projects.

It had witnessed the first private equity placement from IDFC Private Equity in 2006.

“We are pleased to have the SBI Macquarie joint venture as an investor in our road BOT business. We are confident that this will help us strengthen our position as a leading highway developer in India,” Ashoka Managing Director Satish Parakh said.

Ernst & Young acted as the exclusive financial advisor to Ashoka for this fund raising exercise.


Road construction to move in tow with security forces

August 21, 2012

The most challenging of terrains for road construction might now turn somewhat friendlier. The government is timing implementation of road projects in the Northeast and areas hit by Left-wing extremism with the movement of security forces and on-sight monitoring in those areas. The move is aimed at building 9,000 km of roads across these areas, and the estimated funding for this is Rs 16,200 crore.

The Ministry of Road Transport and Highways is mapping the security situation in areas hit by Left-wing extremism, which account for the majority of India’s mineral wealth. “Based on the presence of security forces, we are phasing out projects, so that the machinery is kept in a place with security cover. The workers, too, return to this place in the evening,” Road Transport and Highways Secretary A K Upadhyay told Business Standard. After a particular stretch being constructed, the next 10-km stretch, for instance, would be cleared from a security point of view, and the project would move in line with the movement of security forces.

The plan would also help involve contractors unwilling to work in these areas. “As things are very unpredictable in these areas, the industry has to doubly secure its workers by raising insurance premia,” said M Murli, director general of the National Highway Builders Federation.


In Left-wing extremism-hit areas, construction of 1,200 km of highways is expected to be completed this year. Of this, 476 km have already been completed. The project is part of a development plan in 34 districts across eight states. Here, 5,477 km of highways would be built at a cost of Rs 7,300 crore.

Coordination between local security officials and the ministry has been formalised. Earlier, this level of engagement between the entities was absent, said Upadhyay. Also, projects are being awarded in smaller packets to ensure the involvement of small and local contractors.

The funds allocated for the construction of 1,500 km of roads in the Northeast and areas hit by Left-wing extremism for this financial year stand at about Rs 3,500 crore, according to data provided by the ministry.

Though the construction target for the Northeast this financial year is just 300 km, implementing projects in that region is a challenge. Last year, 150 km of roads was constructed in the region. Of the total 3,723 km of sanctioned highway construction in the region, so far, only 904 km has been completed.

That the task is difficult is evident from the fact that just four projects are being carried out by private investment through a build-operate-transfer (BOT) annuity model, and two on the BOT toll model. Eighty eight districts in the Northeast are being covered under these projects, which are mostly funded by the government. “Since the problem in the Northeast is more serious than in areas affected by Left-wing extremism, an additional director general and three chief engineers would be stationed there to monitor the developments,” Upadhyay said.

In the Left-wing extremism-hit Bastar area in Chhattisgarh, contractors are hard to find, while in the Northeast region, there are problems in land acquisition and environmental clearances, and this has led to projects being stuck.

The industry feels the challenges go beyond providing security and land acquisition. Problems like protection money and ‘development funds’ remain a reality. “There are some unwritten rules, like reservation for locals in the workforce at the site. At times, people suddenly turn up at the time of wage distribution, despite not coming for work,” said an industry player, requesting anonymity. Murli said while mobilisation of locals in Left-wing extremism-hit areas was a challenge, the weather played a crucial role in the Northeast, where construction work could only be carried out during five to six months a year.


Supreme Infrastructure to go slow on bidding, focus on acquisitions

August 21, 2012

3i India Infrastructure Fund-backed Supreme Infrastructure is planning to go slow on bidding for new road projects and is scouting for acquisition of ongoing road projects, Vikram Sharma, managing director, Supreme Infra, told ET.

Supreme Infrastructure, a Mumbai-headquartered infrastructure developer and construction company, has a portfolio of nine road projects that the company is executing on build-operate-transfer (BOT) basis.

“We will go slow on BOT projects for the next 2-3 quarters. There are road assets available for sale and we are aggressively looking at acquisition opportunities,” Sharma said.

The company is looking for roads with projects cost ranging between Rs 300 to Rs 600 crore, he said.

On Tuesday, Supreme Infrastructure reported net profit of Rs 25.8 crore in the first quarter of 2012-13, almost flat from Rs 25.6 crore a year ago. Company’s total income rose 32% year-on-year to Rs 436 crore in the June quarter.

“Our profits have been hurt due to higher interest cost and rising prices,” Sharma said.

The company has an order book worth Rs 4,376 crore, which includes orders worth Rs 999 crore where the company has emerged lowest bidder.


Four-laning of Numaligarh-D’garh NH gets Centre’s nod

August 13, 2012

Guwahati: The Centre has approved a Rs 2,096 crore project for four-laning of the National Highway 37 from Numaligarh to Dibrugarh in upper Assam and work is expected to start by this year end .

“The approval for four-laning of the stretch has come. The Rs 2,096 crore project would be developed under the Build Operate and Transfer (BOT) Annuity method,” Assam PWD and Urban Development minister Ajanta Neog said here.

She said the National Highway Authority of India (NHAI) would undertake the 179 km project in three phases.

“The High Powered committee on Special Accelerated Road Development Programme for the North Eastern Region (SARDP-NE) had in 2011 recommended for making the project a two-lane one. However, we appealed to the Centre, including the Prime Minister, for a four-lane project,” Neog said.

Asked by when the project is likely to be completed, she said, “While details would be handed to us once NHAI finalises the tender, NHAI generally is expected to complete any projects taken by it within 30 months from the date of start of work.”

She said the four-laning of the stretch would act as a major economic boost for the upper Assam region.

Neog also said the Centre has given in-principle approval for 1,000 km of new roads under the Bharat Nirman programme of the Pradhan Mantri Gram Sadak Yojana in Assam.

“For the first phase, Rs 310 crore has been sancntioned for 426 km in various parts of the state. This will also include 90 bridges in these stretches. The rest 574 km will be taken up in the second phase,” she said.

Regarding the East West Corridor, Neog said of the 670 km taken up so far under the project, work on 400 km has been completed and the rest is expected to be ready by March 2014.

“There was some security related problem in the Dima Hasao district due to which the earlier tended had to be foreclosed. However, a new tender was later taken up and work on the 70 stretch in the district has started,” she said.

The minister said the state suffered losses to the tune of Rs 600 crore due to damaged roads, culverts and bridges during the recent floods.

“We have made a preliminary assessment of the losses suffered and sent it to the Centre,” she said.


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