Expressway project costs shoot up to Rs 45-50 cr a km

The Union road transport ministry is finding it difficult to adopt a viable economic model for access-controlled expressways. The current cost estimates have shot up to Rs 45-50 crore per km against Rs 10 crore a km needed for six lane highways.

With such a huge investment requirement, the ministry is unsure if the build operate transfer (BOT) model for public private partnership projects (PPP) is viable. If the BOT model is adopted, the toll fees will have to be kept very high to recover the cost over a 30 year period. “State and national highways with lower toll would entice more people to use them,” a senior government official said.

The ministry has drafted a plan to construct 15,600 km of expressways by 2022 and has identified over 40 stretches for the same. The idea is to create an Indian National Expressway Network by the 13th Five Year Plan. The plan is to cover special economic zones (SEZs), industrial corridors, industrial towns and densely populated cities to raise the average distance travelled by a vehicle from 300 km per day to almost 600-800 km a day.

The BOT annuity model, where the government pays annually or bi-annually to compensate the private developers, also appears to be unviable, say officials. The reason is that such high cost of construction will entail huge public expenditure while there are other competing sectors in the economy which are vying for same allocations.

“The third model before us is the engineering procurement construction (EPC). Which is not an option here as that would again imply a huge burden on the government’s exchequer,” the official pointed out.

In developed countries, the first 50-100 km of expressways are built by the government to attract private developer. Once traffic picks up on the route, the developers build the remaining length of the expressway and is allowed to charge toll on the entire length (including the stretch constructed by the government).

The government allows this as an added incentive towards recovering the cost of construction and reaching the targeted internal rate of return.

Source: indianexpress.com

Supreme Infra Q1 Net up 64 pc to Rs 25.57 crore

MUMBAI: Supreme Infrastructure today posted a 64 per cent increase in its net profit for the quarter ended June 30 to Rs 25.57 crore as against Rs 15.59 crore in the year-ago period.

The total sales of the company jumped 78.82 per cent to Rs 330.02 crore during the quarter as against Rs 184.53 crore in the corresponding period last year.

“We have started the year with good execution levels across projects. We have added projects in our BOT portfolio and are confident of ramping up operations to achieve greater results for our stake holders,” the company’s director Vikas Sharma said in a statement issued here

Source: articles.economictimes.indiatimes.com

NHAI awards Rs 2,815 cr project to GVK

With private companies growing interest in the road sector, the National Highways Authority of India (NHAI) today awarded a Rs 2,815 crore contract in Madhya Pradesh to infrastructure player GVK that will fetch it an annual premium of about Rs 190 crore for 30 years, more than the total project cost.

With this award, the income to NHAI would be over Rs 870 crore per annum from four projects which it bid out within last few days.

“We have successfully awarded Rs 2,815 crore project in Madhya Pradesh for four-laning of Shivpur-Dewas section to GVK Transportation. NHAI will get a premium of Rs 189.9 crore per annum on this for 30 years, with a provision of an increase of five per cent every year,” a senior Road Ministry official told PTI.

The 330 km-project will be built under phase IV of the National Highways Development Project (NHDP) on BOT (build, operate and transfer) basis on DBFOT (design, build, finance, operate and transfer) pattern.

GVK was selected out of 14 major bidders that included players like GMR, Gammon, Essar and Punj Lloyd, the official said, adding that the “contract was proposed to be bid out on 15 per cent viability gap funding (VGF).”

The development comes close on the heels of NHAI bidding out its first mega project — Kishangarh-Udaipur-Ahmedabad at Rs 636 crore annual premium for 26 years to Bangalore-based GMR Infrastructure on July 29.

Further, the highway authority, which awarded projects worth over Rs 12,000 crore in the last four days, got about Rs 50 crore premium on Hospet-Bellary stretch in Karnataka and Orissa border-Aurang section.

Highways developers bid premium if they find the project lucrative; the private companies are confident that the toll revenue accruing to them would be more than their total cost.

Earlier, NHAI virtually used to provide grants on schemes to road developers to make the projects viable.

NHAI has announced to award 59 projects– involving 7,994 km, with a total cost of about Rs 60,000 crore– this fiscal.

India has a network of 3.3 million km roads out of which national highways constitute only 70,548 km. To augment it, the government plans to build 35,000 km of roads by 2014.

Source: business-standard.com

Indian government has finally realized the importance of road sector

Huge opportunities are unfolding in the Indian road sector. This means most Indian infrastructure and construction companies will benefit from the announcement of new orders or projects in the long run.

Also, a large number of these projects are on Build Operate and Transfer (BOT) and annuity basis, which means the companies will have a steady flow of cash through annuity or toll. This development spells good news for investors who can make full use of this golden chance and earn high returns in the long run.

WHY NOW?

The question that may cross your mind is why now? Ever since Kamal Nath took over as the Union minister for roads and transport, the Indian road segment has taken a new turn. He created various milestones since he was given this portfolio.

The most important announcement he made was the construction of the national highway at the rate of 20 km per day to expedite the achievement of National Highway Development Programme (NHDP) targets. This is significantly higher than the current execution rate of about 6 km per day. The ministry has also been working towards faster clearances related to procedures, land acquisitions and other formalities.

CREATION OF FUNDING

Kamal Nath is aware of the fact that improved road network in the country would not just lead to better connectivity but would also lead to increased energy efficiency in transport operations. He also travelled across different countries on road shows to international investors to highlight opportunities and potential in the Indian road sector.

Through these measures, the government has and will be able to rope in huge investments needed for the sector from international and national long-term investors.

Earlier it was difficult to raise money for more than five years or so as money was available only for a short period. However, now that the corporate debt market is developing, long-term investors like pension funds, mutual fund houses, insurance companies and even banks are coming forward to provide long-term capital. Most road projects, particularly the BOT ones need huge long-term investments in the form of debt and equity to fund them.

INCREASING VIABILITY

In terms of the less viable projects, the government increased the viability gap funding (VGF) or grant to 40% from 25%. Formerly, the grant used to be given after the completion of the project. But now it is handed over at the beginning of the project. In this manner the construction of the project does not get delayed for want of funds.

The government is also working on creating innovative ways of structuring non-viable projects like allotment of land, which can be monetized by developers so that the returns on investments are reasonable.

Other aspects like increasing the role of private players through public private partnership (PPP) and awarding of projects on BOT basis would mean that private players now have a bigger role to play in the construction of viable road projects.

A LONG WAY TO GO

India currently has about 33 lakh km of road network spread across the country. This is the third largest network in the world. But, in terms of density and quality of roads, India still lags behind many developed and developing countries of the world.

In relation to our population, the country’s roads are about 3 km per 1,000 persons, which is significantly lower than the world average of about 7 km per person. In terms of quality, about 80% of our roads are in a poor condition and require huge investments for repair, renovation and increase in the number of lines.

Majority of India’s roads are single line in spite of increasing traffic and congestion. Even the conditions of our existing roads are so bad that India’s logistical cost as a percentage of total production cost is considered to be about twice the world average of 7%.

No wonder due to the poor road infrastructure, India is ranked 87th in the world on the basis of quality of roads, which is very low and considered to be the biggest hindrance for economic growth as envisaged by the government for the coming years.

Surprisingly, within this vast network of roads, only about 2% is accounted for by national highways and a very minuscule part is accounted for by express highways, which is very critical considering that about 40% of the total road traffic is handled by national highways.

The slow transportation of goods has also affected the movement of goods among states, delaying exports and imports of the country. Especially, in the case of transportation of perishable goods like milk, vegetables and flowers among other things, which are procured from the hinterland takes so much time that they become stale or get destroyed before they can actually reach the end consumer and the export market.

This leads to wastage of goods due to the delay in reaching the markets. Express road connectivity to the main ports of the country and to major cities is very important to improve trade volumes and discover better prices for farm goods.

WHAT IS CHANGING?

The government has realized the importance of better roads in the country so that it can support the growth of the economy in the coming years. Roads are critical for any economy, especially a growing economy like India with a large population and different topographies.

The role of roads is of paramount importance for commercial and economic activities in the country. In India, passenger traffic is growing at about 12% per annum, while cargo traffic is growing over 15%, which will continue to rise as economic activities improve along with the increase in foreign trade.

India’s foreign trade is growing at 10-12 % and there is an immediate need to connect all the major ports of the country. The government has taken the first step in this direction. Under the NHDP (phase II), the government will connect major ports and build freight corridors, which will connect many states from the eastern part of India to western India.

In phase III of the NHDP, all major capitals will be connected with highways. Also major cities and points that could not be connected in phase II will be connected with better road infrastructure. Besides, plans are afoot to improve and connect rural India to major cities of the country soon.

EASING HURDLES

Most of these plans are not just on paper. In fact the government has already awarded projects to achieve this goal. The government formed the BK Chaturvedi Committee, which presented its findings and suggestions to make progress in the sector.

Based on the findings of the committee report, several changes have been incorporated and more importantly, the government is seriously working on the recommendations, which are quite innovative and provide solutions to various problems that the companies have been facing.

Changes have been incorporated with regard to land acquisition, which is the biggest problem for construction of roads in the country.

Now, NHAI will work along with the state governments for facilitating land acquisition and all state governments have been directed to coordinate for the same. NHAI now awards road projects only after 80% of the land has been acquired.

FEW SPEED BREAKERS

Tackling delays in approvals, decision-making, faster resolution of disputes and coordination among different departments are few other highlights of the recommendations of the committee report.

Essentially, most of the changes are already in effect and new orders are awarded to interested parties. The flow of new road orders in the last few months was the highest in the last several years. This itself speaks volumes about the commitment of the government and its intention to put things on ground.

Also, the projects which were not viable and did not attract private participation were given extra focus and restructured within time frame along with consultations of private players while changing the terms and conditions of the project. There are other measures also which have attracted private participation in road projects.

Large projects will be built on a BOT basis, which are expected to have a higher return of about 18% to 20% on investments as compared to 14% to 16% earlier. Additionally, the new guidelines that have been framed are such that once a project is awarded for a particular road, the private player is given an assurance that there will not be any competition or construction of road, which will make sure that the cash flow in terms of the collection of the toll is protected.

What is more remarkable is that the government now has experts as representatives from development agencies like the World Bank, the Asian Development Bank, who make sure that the projects are not delayed and hurdles are resolved.

These representatives keep track of projects and act as a liaison between government agencies and private parties. They also bring their experience to structure the project in such a manner that it gets executed.

QUANTUM OF OPPORTUNITY

There are different estimates about the size of the opportunity. But there is little or no doubt that the opportunity is far bigger than what it used to be a few years ago.

When we talk about 20 km per day of the construction of roads, this in itself is self-explanatory. This means that the country will have to build about 7,300 km of roads every year. This is significant as the current run rate is just about 2,500-3,000 km of roads built every year.

One could also imagine the kind of work that will now flow. For the eleventh five year plan which will end in 2012-13, about Rs 3.14 trillion will be invested as compared to Rs 1.45 trillion invested in the tenth five year plan. This is still the tip of the iceberg. India’s investment in the roads segment is expected to be in the range of Rs 10.5-11 trillion over the next decade.

In the near term, about 5,000 km of new expressways will be built and the projects will be awarded for the same. Also, NHAI has plans to award work for about 37,000 km of roads over the next three years.

Besides, under the NHDP’s different phases, the government will award work relating to the upgradation of about 55,000 km of roads over the next 8-10 years.

WHO WILL BENEFIT?

Most construction and infrastructure companies are focusing on this particular segment and their exposure has gone up in the recent past. IRB Infrastructure and IL&FS Transport Network (ITNL) are popular in the roads segment having the highest exposure to the road segment. In the case of IL&FS, the company has recently come out with an IPO and was listed recently.

ITNL is amongst the largest private sector BOT road operators in the country having integrated business model providing service for projects, from conceptualization, construction to operating and maintenance of the road projects. The company has already bagged about 19 road projects.

Apart from roads, the company is also looking for opportunities in airport segments and plans to bid for more projects in this segment. The company’s advantage is its large portfolio of BOT assets and a long experience in the sector. The company has presence across different parts of the country and has about 9,397 lane km of road projects under its belt.

IRB Infra too is a leading player in the roads segment generating almost 100% of its revenue from this segment. The well-known Mumbai-Pune highway, one of its kind in India, is operated by IRB Infra.

The company has an integrated business model having large experience in toll roads and highways sector. The company has about 1,100 km of road projects in its kitty, which is the second largest among private players in the whole of India.

As opportunities are growing, the company should be able to procure more projects and increase its current portfolio. The company will not only benefit on account of the construction of these projects but also due to the collection of toll and annuity from these projects, providing stable future cash flow.

Also most of its projects are strategically located in major traffic areas like Mumbai-Pune, Mumbai-Surat, etc. The company also won projects in other states like Rajasthan and Punjab and is gradually focusing on becoming a pan-India player in the road segment.

Source: stockmarketsreview.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

NATIONAL HIGHWAY PROJECTS IN THE NORTH EASTERN REGION

Execution of National Highway works in North Eastern Region (NER) is carried out by Border Roads Organisation, National Highways Authority of India and State Public Works Departments (PWDs). Border Roads Organisation is executing NH works in Sikkim and Tripura fully and in other States partly against lump sum amount allocated by the Ministry each year. National Highways Authority of India is executing the special programmes for which Annual Plan is not drawn. PWDs of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram and Nagaland are also engaged to execute NH works in these States on the basis of sanctions accorded by the Ministry in successive annual plans. Eleventh Plan for development of national highways is yet to be finalised by the Government. The amount of works for development of National Highways approved by the Ministry during 2007-08 (1st year of eleventh plan) and the amount of works included in the list of works prepared by Ministry for sanctions during 2008-09 in respect of the above-mentioned 6 States to be executed by 6 PWDs is given below:-

(Rs in crore)

State	Amount of sanctions accorded during 2007-08	Amount of works listed for sanctions during 2008-09
Assam	112.12	292.00
Manipur	37.97	99.00
Meghalaya	43.87	264.00
Mizoram	21.95	119.50
Nagaland	47.08	50.50

The expenditure incurred on development of National Highways in NER during 10th Plan is Rs 2383.93 crore. In addition expenditure on development of National Highways have also been incurred on Special Accelerated Road Development Programme in North East (SARDP-NE). The expenditure under SARDP-NE during 2006-07 is Rs 91.65 crore. The budget of 2008-09 is yet to be passed by the Parliament.

Four lane Guwahati bypass was completed during 10th Plan. Karimganj,  Nagaon, Daboka, Lanka, Lumding, Maibang, Udharband, Mahour, Baihata and Agartala  bypasses are under construction and bypasses of Dibrugarh, Tinsukhiya, Makum, Dum Duma, Rupai, Digboi, Margreita, Ledo and North-Lakhimpur in Assam and Shillong, Jowai and Tura bypasses in Meghalaya and Dimapur and Kohima bypasses in Nagaland and Gangtok bypass in Sikkim are in Planning and Survey & Investigation stage.

Timeframe for works of double laning, 4-laning and construction of bypasses approved during 2007-08 is given below:

List of  works for  double laning, four laning and bypasses approved under Annual Plan during 2007-08

 This information was given  by the Minister of  State for  Shipping, Road Transport and Highways, Shri K.H. Muniyappa in a written reply in the Lok  Sabha today.

Source: pib.nic.in

Hit the road: Infrastructure growth is revving up

The indian infrastructure story is just waiting to unfold. It is a foregone conclusion that the need for infrastructure to facilitate economic growth in India, both immediate and long-term , is ever more pressing. The growth rates witnessed in the Indian economy today are indicative of the change to follow —infrastructure has been expanding at an accelerated pace to support the economic growth rate of 9%. India’s infrastructure development has so far been predominantly financed publicly. The urgent need of the hour is an enhanced approach that would create a balance between public and private sector roles, complemented by transparent public policies. The Government has already taken many proactive measures such as opening up a number of infrastructure sectors to private players , permitting foreign direct investment (FDI) into various sectors, introducing model concession agreements and taking up projects such as the National Maritime Development Programme and National Highway Development Project, among others. The next four to five years will witness implementation of some key infrastructure projects such as additional power generation capacity of 70,000 MW; development of 16 million hectares through irrigation works; modernisation and redevelopment of four metro and 35 non-metro airports; six-laning 6,500 km of Golden Quadrilateral and selected National Highways. Focus will be on key infrastructure sectors of highways, ports, airports, railways and power. Having been part of the Indian infrastructure history, we at GVK have always believed that the key to developing a sustainable infrastructure in India is to build for the future. India will see an investment to the tune of $500 billion in infrastructure in the next five years. Coupled with government support, this investment will fructify in the form of key infrastructure projects to strengthen India’s cities. The next four years will bring a sea change in infrastructure and as a result, in another ten years, we will see the emergence of a new India. Source: http://economictimes.indiatimes.com

KAMAL NATH STRESSES ON IMPROVING ROAD CONNECTIVITY IN DMIC PROJECT

Shri Kamal Nath, Union Minister of Commerce and Industry, has called for improving the road connectivity of the four hubs / regions proposed to be developed in the Delhi-Mumbai Industrial Corridor (DMIC) Project. In his communication to the Chief Minister of Madhya Pradesh on 10th December 2007, Shri Kamal Nath has requested for initiating / undertaking the following action for improving the road connectivity of the four industrial regions (Pithampur-Dhar-Mhow; Neemuch-Nayagaon; Shajapur-Dewas and Ratlan-Nagda) under the DMIC Project:

i) The State Highway (SH-31) between Nagda (on National Highway-79) and Gujri (on National Highway-3) be four laned for providing the Pithampur-Dhar-Mhow Mega Industrial Region better connectivity with NH-79 and NH-59.

ii) Widening and strengthening of the Dewas-Ujjain-Badnawar stretch of State Highway (SH-18) to improve the connectivity of the Shajapur-Dewas Industrial Region to ensure improved linkage between National Highway-3 and National Highway-79, passing through Ratlam.

iii) Strengthening of State Highway-41 between Sarangapur-Akodia-Shujalpur-Ashta-Kannod for improving the road connectivity between National Highway-86 and National Highway-59A for serving both the Shajapur-Dewas Industrial Region as well as the Indore-Pithampur-Mhow belt.

iv) For converting the Jhabua-Thandla Road-Ratlam Road into a four laned State Highway to help the growth of the Ratlam-Nagda Mega Industrial Region.

v) To facilitate the growth of the Ratlam-Nagda region, Ratlam-Sailana road link for improvement/augmentation; and

vi) Jaora-Sailana-Banswara (Rajasthan) road be converted into a two / four lane State Highway.

Besides the above six road links, Shri Kamal Nath has suggested for improving the connectivity of Indore with Mumbai, the financial capital of the country. “I suggest that between Indore and Nashik, the road link be similarly converted into an expressway with the Government of Madhya Pradesh taking the responsibility of developing it between Indore and Shirpur on the Maharashtra-Madhya Pradesh border and for the remaining portion upto Nashik being so developed”, the letter says.

As regards National Highways, Shri Kamal Nath has written to the Minister for Shipping, Transport and Highways, Shri T.R. Baalu, explaining that the government has already accorded its in-principle approval to the development of the DMIC project, which passes through six states including Madhya Pradesh. Shri Kamal Nath has urged Shri Baalu to improve the transport connectivity in the above four industrial regions of Madhya Pradesh by four laning the Dewas-Sehore-Bhopal stretch of NH 86 extension and the road connecting Jaora on NH 79 with Maksi and passing through Mehidpur on SH 27 and Tararia being converted into an extension of the NH network.

Navayuga Engg bags Rs 710cr NHAI project

Hyderabad-based multi-disciplinary engineering and construction player, Navayuga Engineering Company, has bagged a Rs 710 crore project from the National Highway Authority of India (NHAI).

The contract envisages designing, construction, financing and maintenance of an access-controlled highway project between the Bangalore and Nelamangala section on NH-4 on a build-operate-transfer (BOT) basis in Karnataka.

Debt syndication of Rs 540 crore has been done by
Bhubaneswar-based SRB Consultancy Private Limited from a consortium of banks.

The six-lane highway project, total length of which is 19.5 kilometres with elevated highway for 4.5 kilometres, terminates at Nelamangala. The scope of the work also includes underpasses and service roads for the entire length on both sides of the highway.

According to a company press release, revenues generated from the proposed tolling will accrue to an SPV (special purpose vehicle) formed for implementing the project.

The concession period of the project is 20 years, including the construction period of two years. The project is expected to be completed by the end of 2009, it added.

Source: business-standard.com

Gayatri Projects achieves financial closure for 2 SPVs

Hyderabad-based leading infrastructure company, Gayatri Projects ltd, has achieved financial closure of Rs 932.71 crore ahead of the stipulated time for its two road projects, to be developed through special purpose vehicle (SPVs), at an interest rate of 11 %.

IL&FS has syndicated the entire debt and United Bank of India is the leader of the consortium of lenders for both the SPVs.

The projects undertaken by Gayatri Projects Ltd-led consortium are Hyderabad expressways pvt ltd (HEPL) and Cyberabad expressways pvt ltd (CEPL) with a project costs of Rs 430.96 crore and Rs 501.75 crore respectively.

While the total syndicated debt in case of HEPL is Rs 290.90 crore, it is Rs 376.31 crore for CEPL.

The infrastructure major-led consortium had won the bid for the HEPL and CEPL—the eight lane outer ring road projects— floated by Hyderabad Urban Development Authority (HUDA).

The construction period for both the HEPL & CEPL is 2 years and six months. HUDA will pay a semi-annual annuity of Rs 30.49 crore to HEPL during the annuity period of 12 years six months while the semi-annuity amount is pegged at Rs 39.50 crore in case of CEPL for the similar period.

Source:  moneycontrol.com

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