Annuity model for Bihar, Jharkhand BOT projects
March 18, 2008
NHAI has not been able to award any project on build-operate-transfer basis via tolling in the states in last two years
New Delhi: Desperate to get the roads programme off the ground in Bihar and Jharkhand, where the private sector is declining all offers—including on lucrative stretches—in view of the challenge from Leftist extremist groups, the Centre is offering investors guaranteed payments instead of recovering their investment by collecting toll revenues. A senior official of the National Highways Authority of India (NHAI), the regulator for highways, who did not wish to be identified, said, “The reason for this (investor disinterest) is partly law and order situation in these states, and Naxalism.” As a result, NHAI has not been able to award a single build-operate-transfer (BOT) highway project through tolling in these states in the last two years. In such highway projects, the company awarded the contract for constructing a stretch of highway collects toll from those using the highway.
Law and order, and Naxalism scare away bidders, who recover their investment from highway tolls
To woo investors towards these highway stretches, NHAI is now planning to recast these BOT projects on an annuity basis, wherein contractors who are awarded projects would be paid a guaranteed amount in instalments. The authority had carved out around 11 highway sections in Bihar for awarding under the BOT mode in 2006 under phase III of the National Highway Development Programme. NHAI first put up its most lucrative stretch, Patna–Muzaffarpur, for bidding in early 2006, but it received no response. “We then tried putting up another stretch for bidding as well, but even then the companies did not show any interest,” said the NHAI official. The authority has faced a similar problem in Jharkhand, where it did not receive any bids for a couple of tolled road projects. The lack of interest in tolling projects in Bihar and Jharkhand is happening at a time when NHAI has made it a policy to gravitate towards BOT projects in order to reduce the government’s investment in the highway sector. Another official in NHAI, who also did not wish to be identified, confirmed that the highways regulator now planned to redraft the proposal for these projects under annuity terms. Members of Parliament from the two states said concerns over viability of the projects apart, private players were hesitant to take up contracts in these areas because they feared for the security of their staff. Bhubaneswar Prasad Mehta, a Lok Sabha member of the Communist Party of India from Hazaribagh in Jharkhand, said even as some tenders were floated last year, there was little response from the private agencies. “Infrastructure development cannot happen in a vacuum,” he said. “Why should anyone risk his life in an area where there is no rule of law and little security? We are planning to raise this issue yet again in our party’s three-day state conference in Ranchi, which begins on 15 March.” However, Nikhil Kumar, a former special secretary for internal security in the Union ministry of home affairs, and a Lok Sabha member of the Congress party from Aurangabad in Bihar, said the situation was somewhat better in his constituency. “I can say for my constituency that though the quality of work remains a matter of concern, wherever we have managed to provide sufficient security to the contractors, with the help of the state government, there has been some progress,” said Kumar. “If the political representatives from these two states, and other areas affected by Naxalism keep pursuing the matter with the state governments and the private executing agencies, we can get the work done. In my constituency alone, about 25 link roads will be constructed under the Pradhan Mantri Gram Sadak Yojana (Prime Minister’s Village Road Programme) and work is set to begin. Earlier, between 2004 and 2007, seven other roads were completed in my constituency,” he added. Ram Deo Bhandary, a Rajya Sabha member of the Rashtriya Janata Dal from Bihar, said it was quite clear that even a few high-profile incidents of violent crime could deter developmental activities.
Marginal player
November 19, 2007
Kaushalya Infrastructure has plenty to prove since it is yet to gain a critical mass.
Kaushalya Infrastructure Development (Kidco), a construction and engineering company focussed on eastern India plans to raise Rs 42-51 crore from the public by offering 85 million shares, a 43.4 per cent share of its fully-diluted equity capital.
The price band for the issue is fixed between Rs 50-60 a share. The company aims to garner a market capitalisation of about Rs 98-118 crore upon listing.
From the issue proceeds, Kidco will acquire construction and infrastructure equipment and make investments in its build-operate-transfer (BOT) and build-own-operate-transfer (BOOT) projects. It also plans to acquire land for real estate development.
Kidco operates in three verticals, which include construction and engineering, rural electrification and irrigation infrastructure, and residential and commercial real estate.
The company has carried out projects in West Bengal, Jharkhand, Chhattisgarh and Sikkim. Central and state governments, state public works departments and a few private entities have been its main clients.
At present, the company has 16 ongoing projects aggregating to an order book of Rs 144.8 crore, of which work worth Rs 76 crore is yet to be completed. These projects will be executed over a time-frame of 12-18 months.
The top three projects are of the size of Rs 25-30 crore, which appears small. Kidco owns 28.4 acres of land at Zaheerabad, Andhra Pradesh, and 4 acres in Rajarhat, a Kolkata suburb. It is in the process of acquiring another 8 acres in Rajarhat, which will be concluded with a part of the issue proceeds.
The company registered a top line of Rs 54 crore in FY07, with operating margins of about 8 per cent.
Going forward, the poor margins are unlikely to improve significantly, unless the ticket size and the nature of projects changes drastically, along with the company’s clientele. Investors may want to wait for the company to gain some more ground, before betting on it.
Source: business-standard.com