​Stop PPP projects, shift to cash contracts: NHAI to govt

September 25, 2013

Dipak Kumar Dash, TNN |


NEW DELHI: With few takers for road projects, the National Highways Authority of India (NHAI) wants the government to stop bidding out road projects through the public-private-partnership (PPP) route. Instead, the authority in a recent communication to the highways ministry has recommended that projects should be awarded in the form of cash contracts when the government finances the construction and maintenance for two years.

Citing that even the recent move of allowing developers to exit from already operational projects to release their equity has not solved the problem, NHAI chairman R P Singh has said in a letter, “We feel that there is no sense on going on bidding projects under PPP mode until market sentiment improves. Even if we get a bid, the same will be sub-optimal on account of lack of equity with the developers.”NHAI chief has said a large number of PPP projects both under toll and annuity — where government pays back the private players’ investment in installments — have not received any response recently. Singh said once highways are built on EPC (engineering, procurement, construction) mode, NHAI can take over tolling for the next two years since for that brief period the contractor is responsible to fix any defects on the road stretch. Subsequently, these can be bid out on operation and maintenance (OMT) contract where operators are allowed to charge lower toll for road upkeep and to earn marginal profit.

Pushing the EPC mode, Singh has said NHAI has been receiving bids for EPC projects and substantially below the total project cost (TPC). In case of PPP contracts both bidders and bankers have been alleging that TPC fixed by NHAI is underestimated.

To meet the fund requirement for EPC contracts, NHAI chief has said the ministry can allow it to raise higher amount through tax-free bonds and other instruments, besides restoration of the held back cess from fuel sale, which is at least Rs 7,000 crore.

There is, however, no decision on the proposal. On Monday, highways secretary Vijay Chhibber told a conference organized by Ficci that the issue is a matter of discussion between NHAI and the ministry. In his address he said that this year about 6,500 km is targeted for awarding through cash contracts.

The finance ministry said gloom for PPP projects was overdone. Economic affairs secretary Arvind Mayaram said about 50% of such projects are doing well. “Traditionally, we (were) used to paying the private sector to do a job in two-three years after which the relationship ends. Now, the issue is how to manage relationships in post award framework,” he said.

 Source - http://timesofindia.indiatimes.com

Government plans fresh impetus to ‘public-private partnership’ to push growth

August 19, 2013


Yogima Seth Sharma, ET Bureau



(“We are doing some analysis internally as to what are the kinds of problem that PPPs face. To illustrate these problems, which the government is worried about, we are doing a detailed study of four PPP projects and will come out with a paper,” Montek Singh Ahluwalia, deputy chairman of the Planning Commission said.)


The government plans to give a fresh impetus to public-private partnership by overhauling the framework for such projects on the basis of a study being undertaken by the Planning Commission, which is likely to submit its recommendations within a month. The move comes after a few big PPP projects in infrastructure sector fell apart while those in the power sector have been struggling to sail through.

“We are doing some analysis internally as to what are the kinds of problem that PPPs face. To illustrate these problems, which the government is worried about, we are doing a detailed study of four PPP projects and will come out with a paper,” Montek Singh Ahluwalia, deputy chairman of the Planning Commission said. Ahluwalia, however, refused to name the projects identified by the plan panel.

According to a senior government official, who is involved in the exercise, two infrastructure projects and two power sector projects have been identified for the exercise. “We hope to come up in a month’s time with the paper, which will also have recommendations on how to make the entire PPP more attractive,” said the official, who did not wish to be named.

This year, GMR and GVK walked out of mega-highway projects worth 10,700 crore envisaged with the National Highways Authority of India while Reliance Infrastructure recently pulled out of the 5,800 crore Airport Express Line of the Delhi Metro. Problems are also brewing at the Gurgaon Expressway while Tata Power and Reliance Power are struggling to transform their imported coal-based ultra mega power projects into profit-making ventures due to the rise in input costs.

Even as the government sees PPP as a viable concept that has been accepted by central and state governments across sectors such as roads, ports, airports, power plants and solid waste management, the industry has been clamouring for easier exit options and flexibility of re-negotiations in the contracts that range from 15 to 60 years. The plan panel has asked the industry lobby Confederation of Indian Industry to give its inputs on the subject, a CII official said. “We will submit a detailed paper to the Planning Commission shortly on the problems associated with the PPP projects, most prominent being the inability of the parties involved to renegotiate these long-term contracts,” said the official, on the condition of anonymity.

Though the private sector’s participation in infrastructure PPP projects has grown substantially from 10% in the 10th Five-Year Plan to 37% during the 11th plan, the government feels it will be difficult to attract the estimated 50% of the $1 trillion investment in infrastructure in the country during the 12th plan period from private players unless the contractual issues are resolved






Errant road builders may have to pay fine to exit project

August 12, 2013









(“If there is any fault on…)

NEW DELHI: Road developers will not be blamed for delays in regulatory procedure but have to take responsibility for their own faults and may have to pay up to 1 per cent of total project cost as penalty for exiting, Road Minister Oscar Fernandes  said.”If there is any fault on the part of the concessionaire, then there will be a penalty of a maximum of one per cent, of the total project for the developer to exit the project,” he told PTI.

The government is also of the view that the developer will not be held responsible if there is any kind of delay in regulatory procedure.

“If there is delay in land acquisition or environment and forest clearance, the concessionaire will not be held responsible…in that case they will not be penalised,” Fernandes said.

The Ministry of Road Transport and Highways is believed to have firmed up this clause after consultation with the Law Ministry.

Last month, the government approved the proposal to facilitate harmonious exit of the concessionaire in ongoing and completed National Highway Projects, a move aimed at expediting implementation of road infrastructure in the country. This was also done to insulate the National Highway Authority (NHAI) from heavy financial claims and unnecessary disputes.

The existing concessionaires both in case of completed and on-going projects have been permitted to divest their equity in totality.

The decision was triggered by lack of interest among bidders for highway projects under the PPP (public private partnership) mode and difficulties faced in achieving financial closure for such projects.

A large number of highways projects, including 20 major projects involving investment of Rs 27,000 crore, are stalled for various clearances.

Earlier this year, infrastructure players like GMR and GVK had recently walked out of mega road contracts while a large number of projects awarded during 2011-12 are yet to achieve financial closure.

The highway developers were facing acute shortage of equity and were unable to raise the required debt which in turn resulted in poor response to the PPP projects.

Meanwhile, the newly-appointed Road Minister also said that his challenge will be to work towards getting speedy environment clearances for the projects which are at present stuck.





UN warns India against disaster risks in major PPP projects

August 8, 2013

Pradeep Thakur, TNN

NEW DELHI: A United Nations (UN) report has warned India that it is at greater risk by opting for public private partnership (PPP) mode of investment for raising its public infrastructure where the government has less control over its executing private partners and the latter has little interest in long term safety of the projects.

A UN study, the Global Assessment Report (GAR) on disaster risk reduction, released earlier this month for Asia Pacific has warned India of its huge infrastructure assets exposed to disaster risk, something like what we have experienced post release of the report inUttarakhand where flash floods have washed away properties worth thousands of crores while thousands have perished.

The report says: “Increasingly, in India, PPPs are emerging preferred mode of investment for publicly managed construction. These partnerships do not necessarily lead to improved disaster risk assessment and management, and may underplay disaster risks or lead to their transfer as shared costs to the public sector or to city residents.”

The 2013 GAR study on disaster risk reduction is the third biennial report coordinated by the UN’s Office for Disaster Risk Reduction (UNISDR) and has analysed many of the country’s largest infrastructure projects for their risk exposure to natural and man-made calamities.

The findings reveal a sample analysis of 136 port cities with populations of more than 1 million predicting that currently North America has the highest volume of exposed economic assets while it is the population which is at greater risk in Asia.

The GAR warns India — which has projected nearly $1 trillion worth of investments for infrastructure development in the 12th Five Year Plan – of greater economic losses from unsafe public property facing disaster risk. The report puts the estimated exposure of economic assets in Mumbai alone to increase from $46 billion in 2005 to $1,598 billion in 2070. Other Indian cities where large PPP assets are planned face similar risk.

“Owing to economic and urban growth, natural and artificial subsidence, sea level rise and climate change, this exposure is likely to increase dramatically, particularly in low and middle-income countries,” according to GAR findings.

Uttarakhand too is prone to earthquakes. Almost half of the state falls in high earthquake zone. Most disasters that could occur haven’t happened yet, the UN report warns, estimating total expected annual global loss from earthquakes and cyclone wind damage alone to $180 billion a year. “This figure does not include the significant cost of local disasters from floods, landslides, fires and storms or the cost of business interruption,” it added.

Elsewhere in India, the report cautions against haphazard development in urban areas where “the urban population is expected to grow from 379 million in 2010 to 606 million in 2030 and 875 million in 2050.” It seeks the government to ensure adequate regulatory mechanism that guarantees private constructions invested in earthquake resistant housing developments.

The UN calls the government to “integrate disaster risk information into investment decisions; building public-private risk governance and disclosing disaster risks and costs on balancesheets of companies.” It says innovative companies worldwide have already begun to move in this direction, identifying disaster hot spots in their supply chains, reporting on risk reduction measures and forging partnerships with municipal governments.”

The report has another concern area, the export oriented special economic zones (SEZs), many of which are located in hazard-exposed areas. “The number of export oriented SEZs has expanded from 176 zones in 47 countries in 1986 to 3,500 zones in 130 countries in 2006. Many such zones are located in hazard-exposed areas increasing disaster risks,” it added. India has one of the largest expansions of SEZs, with ineffective regulatory control.



Decision allowing substitution of concessionaire in NH projects to help revive road sector

July 31, 2013

Road_National Highway_ProjectsMonitor

In a bid to revive the road sector and also insulate the National Highways Authority of India from heavy financial claims and disputes, the government will now allow harmonious substitution of the concessionaire in ongoing and completed national highway projects awarded under Public Private Partnership on Build-Operate-Transfer mode.

The measure has been initiated taking into account the subdued investment climate in which there is lack of interest on the part of highway developers to bid for projects under Public Private Partnership and also the difficulties being faced by concessionaires in achieving financial closure for many of the projects awarded in the recent past.

The proposal for substitution of the concessionaire in ongoing and completed national highway projects was approved by the Cabinet Committee on Economic Affairs last month.

The decision permitting substitution of the existing concessionaire is applicable to ongoing two-laning and four-laning national highway projects where financial closure has been achieved by the concessionaire but Commercial Operation Date not yet declared by NHAI, Six-laning national highway projects where financial closure has been achieved by the concessionaire but project completion certificate not yet issued by NHAI, completed two-laning/four-laning/six-laning national highway projects awarded under Public Private Partnership on BOT mode and all new national highway projects under Public Private Partnership on BOT mode that are yet to be bid out.

A concessionaire seeking substitution has to make a written representation to the lender’s representative with a copy to NHAI. The lender’s representative, in turn, would ask for approval from NHAI for substitution.

Upon receiving the request from the concessionaire, the lender’s representative would assess as to whether substitution by a nominated company is in the interest of the project. If satisfied, the lender’s representative in consultation with the concessionaire would invite, negotiate and procure offers either by private negotiations or public auctions or tenders for takeover and transfer of the project including the concession to the nominated company.

Selection of the nominated company and valuation of equity is to be done by mutual consent of the lender’s representative and the concessionaire.

The NHAI, upon receiving the proposal of the lender’s representative, would satisfy itself about the credentials of the substituting entity and give its decision regarding the substitution. It may levy a penalty, subject to a maximum of 1 percent of the Total Project Cost, on the concessionaire seeking substitution for any default. No penalty, however, would be levied if the concessionaire had been unable to fulfill his obligations because of delays on NHAI’s part in land acquisition and obtaining statutory and regulatory approvals.

The nominated company would have to form a special purpose vehicle for taking over the project along with the rights and obligations of the concessionaire.

Subsequent to the substitution, in case of completed projects, the leading substituting entity is required to maintain at least 51 percent holding in the project SPV.

Substitution would be permitted only once during the construction period.

Highway developers are opposed to the provision that allows NHAI to levy a penalty on the concessionaire in case of any default.

“It won’t be appropriate to penalize the concessionaire,” said M. Murali, Director General, National Highways Builders Federation.

“In case of completed projects where toll collection has already commenced, it is obvious that the concessionaire fulfilled his obligations. Therefore, there is no cause for levying penalty. Even for projects at the execution stage, a penalty would place additional financial burden on the outgoing concessionaire. It must be kept in mind that many projects under execution have been impacted because of lack of equity. With the penalty clause, it is going to be very difficult to attract investors,” he added.

Source -http://www.projectsmonitor.com


EPC mode unlikely to boost highway sector

July 31, 2013

The decision of the Ministry of Road Transport and Highways to adopt the Engineering Procurement and Construction mode for building 20,000 km. two-lane national highways during the 12th Five Year Plan may fail to yield the desired results in the current state of the economy.

India, at present, faces a grave economic crisis due to low growth, high inflation, high fiscal deficit and highest ever trade and current account deficit. No doubt the slowing down of the global economy has had a significant impact on the country but the present economic adversity is largely attributable to domestic factors such as excessive monetary tightening, delays and uncertainty over key economic legislations, project delays on account of stalled environmental clearances and land acquisition hurdles, pause in reforms and lack of willingness to take decisions in the government.

“The decision of the MoRTH to adopt the EPC mode raises the question as to where the funds are going to come from in the prevailing economic scenario,” a source associated with the road sector told Projectmonitor.

“On one hand, the government is trying to cut costs by imposing various restrictive measures, and on the other, it adopts the EPC mode for construction of national highways. In case of PPP projects, even when viability gap funding is sought, the concessionaire meets minimum 60 percent of the cost. At present, the MoRTH is relying heavily on just EPC mode for meeting its targets but this may not be feasible in the long run because of various constraints. The focus, instead, should be on both modes, PPP as well as EPC, for boosting the highway sector,” he added.

The EPC mode is different from the conventional item rate contract. Unlike in item rate contract, which is prone to excessive time and cost over runs, the EPC mode assigns the responsibility of investigation, design and construction to contractors for a lump sum price awarded through competitive bidding with provision for index-based price variation.

In a bid to ensure smooth implementation of national highway projects under the EPC mode, the MoRTH, of late, has initiated a number of measures. Included among them is the decision to conduct review meetings for national highway works in respective states. Earlier, the review meetings with officials of state Public Works Departments were held in New Delhi. Under the new initiative, a month-wise schedule for holding the review meetings, starting from June 12th, 2013, has been worked out for the current year. The concerned Chief Engineers are required to convene review meetings for national highways and Central Road Fund works in states under their jurisdiction in accordance with the schedule.

Plans have also been drawn to organize training programmes covering the EPC mode of construction for state PWD officials, concerned officials in National Highways Authority of India and the MoRTH, consultants and contractors.




PM sets Rs 1.15 lakh cr investment target for PPP projects

July 30, 2013




In a bid to ramp up investor sentiment, Prime Minister Manmohan Singh today set an investment target of Rs 1.15 lakh crore in PPP (public private partnership) projects across infrastructure sectors in rail, port and power in the next six months.

The proposals include Mumbai elevated rail corridor (Rs 30,000 crore), two international airports in Bhubneshwar and Imphal (Rs 20,000 crore) and power and Transmission projects (Rs 40,000 crore).

The decisions were taken at a meeting Prime Minister held here to finalise infrastructure projects for 2013—14 which was attended by Finance Minister P Chidambaram, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Ministers of Power, Coal, Railways, Roads, Shipping and Civil Aviation.

The meeting decided that the proposal for creating a rail tariff authority will be accelerated and brought before the Cabinet soon.

The Prime Minister highlighted the need for ramping up investment in infrastructure to revive investor sentiment.

“For this purpose, a target of rolling out PPP projects of at least Rs 1 lakh crore in the next six months was set. A steering group is being formed to monitor the award and implementation of projects on priority basis,” said a PMO release.

(This article was published on June 28, 2013)

The new highway

July 30, 2013

The NHAI must revert to the older model of funding projects and leaving construction to private players.

The Government’s move to allow developers of highways under the public-private-partnership (PPP) route the leeway to exit from projects immediately after they are commissioned will help infuse some liquidity into a sector where companies are struggling to raise funds. The majority of highway developers in India are contractors whose core strengths are in engineering, procurement and construction (EPC), and not in assuming the financial risks of operating and collecting toll from completed projects over a 20-30 year concession period. In contrast, are those investors with sufficient resources — from private equity firms to sovereign wealth funds — wanting to acquire road projects, but unwilling to take the risks of construction. By permitting developers to shed their entire equity, even in projects awarded on a build-operate-transfer (BOT) basis right after commissioning, the Government has essentially facilitated the sharing of risks — between those in a position to bear them until construction is complete and others only interested in managing the operational assets. In other words, a perfect fit.


The above ‘exit’ flexibility should, in fact, have been granted much earlier, ever since PPPs were made the preferred mode of executing highway projects. The shift to PPPs led to a situation where erstwhile EPC contractors, who undertook work on projects directly funded and bidded out by the National Highways Authority of India (NHAI), suddenly became full-fledged BOT developers. This was a job they were really not equipped for, made worse by onerous restrictions that forced them to stay invested right through the concession period of projects. In a scenario of high interest rates and tightening of lending norms by banks, the inability to divest stakes even in existing projects only compounded the liquidity problems of developers. The ultimate casualty here was the highway programme. With developers having no money to bid for new projects, the NHAI could award just 1,116 km of roads under PPP in 2012-13 as against 6,491 km the previous year.

Exiting from completed projects may help generate the much-needed liquidity for developers. But it will still not be enough to restore the kind of investor interest in highway development witnessed until a couple of years ago. The fact that a large number of PPP projects bidded out in 2011-12 are yet to achieve financial closure highlights the seriousness of the crisis in the sector. For the time being, the Government has little option but to go back to the older EPC model where the NHAI funded the projects and handed out construction contracts to private players. If nothing else, it will keep the highway building programme going and inject liquidity amongst contractors who may be enthused to bid for PPP/BOT projects as and when the overall economic situation improves. The NHAI must be made to speed up its process of awarding EPC contracts and the Government should untangle the regulatory thicket — particularly, in the environmental sphere — coming in the way of project implementation.

(This article was published on June 24, 2013)
Source -http://www.thehindubusinessline.com

Development body moots infrastructure projects

June 24, 2013


KOZHIKODE: The recently revived Calicut Development Authority (CDA) has unveiled a host of key urban development and infrastructure projects, which will be implemented in the city under its aegis.

Among the key projects that will be undertaken by the agency include a multi- level car parking at Link Road and four- laning of the Kallayi Road from Palayam to Meenchanda.

The CDA has also proposed implementing an ambitious urban re-construction project at Veliyangadi and urban renewal project at SM Street, apart from development of a godown complex at Beypore as part of its action plan.

CDA chairman N C Aboobacker, told the media that the authority will take over the multi-level car parking project at Link Road, which has been initiated by the Kozhikode corporation.

“Lack of parking spaces has become a major problem in the commercial hubs of the city. CDA will set up a multi-level car park with a capacity to accommodate over 100 vehicles along with a commercial complex in the 21 cents it has near the Link Road under a PPP(public-private partnership) model. The corporation has already inked a BOT(build operate transfer) agreement with a company called Yennavees for the project, which will now be implemented by the CDA,” he said.

The project envisaging four-laning of the 4km stretch of Kallayi Road from Palayam to Meenchanda has been taken up as the widening of the road to 24m is vital for the Kozhikode monorail project. CDA said that the existing project to widen the road from Palayam to Francis Road Junction will be extended till Meenchanda considering its criticality for the monorail project.

“The authority will ensure that the shops and business establishments affected by the project will be provided premises near the widened road as part of the rehabilitation package,” CDA secretary AM Jayan said.

CDA authorities said that final decision on the funding of the projects would be made only after the constitution of the executive committee of the CDA, which will be completed soon. “Most of the proposed projects would be either through PPP or BOT model. The authority is also expecting grants from the state government and intends to raise funds from its own assets,” a CDA official said.

Among the other projects in the pipeline include development of busy road junctions in the city. It will also look into the possibility of setting up an international sports complex.

The state government had earlier this year revived the CDA, which was disbanded by the LDF government on March 31, 2007 and ordered the transfer of CDA assets held by the corporation to the revived authority.

The CDA assets include eight shopping complexes in the city, a godown in Beypore and land at key locations.


CCEA approves 4-laning of Dimapur-Kohima highway in Nagaland

June 19, 2013


(The government on Thursday approved the 4-laning of Dimapur-Kohima National Highway in Nagaland at a total cost of Rs 1,089.87 crore.) 

NEW DELHI: The government on Thursday approved the 4-laning of Dimapur-Kohima National Highway in  Nagaland at a total cost of Rs 1,089.87 crore.”The Cabinet Committee on Economic Affairs today approved the implementation of the project of 4-laning of the Dimapur-Kohima section from 124.1 km to 172.9 km of NH-39,” Finance Minister P Chidambaram said at a press briefing.

This project is under the special Accelerated Road Development Programme (SARDP-NE) in North Eastern Region, he said.

The total length of the road will be 42.8 km with total project cost of Rs 1,089.87 crore (excluding land acquisition and pre-construction).

The concessionaire will make all expenditure to complete the project and will charge the annuity from the Government.

“The main object of the project is to expedite the improvement of infrastructure in Nagaland. It will facilitate reducing the time and cost of travel for traffic playing between Dimapur to Kohima. It will also increase the potential of employment to local labourers for project activities,” he said.

This project was delayed due to delay in land acquisition process in the state.

At present, Nagaland has 494 km of National Highways.






« Previous PageNext Page »