Road development, a major achievement in Rajasthan
June 28, 2012
Roads make a vital contribution to India’s economy and to infrastrutural development overall, and, the state of Rajasthan has not lagged behind in this endeavor, implementing various development projects worth Rs.4549 crore to improve over 30,000-kilometers of roads.
The Rajasthan Government’s commitment towards infrastructure development took shape with the setting up of the Road Infrastructure Development Company of Rajasthan (RIDCOR).
This project involves improvement and maintenance of 1053 kilometers of road across 13 districts of the state, at an investment of Rs.12 billon.
Under the Ashok Gehlot regime, road connectivity in Rajasthan has improved considerably.
In the last 36 months, the state government has activated projects of road repair, renewal and re-carpeting. It has upgraded and strengthened highways and other main district roads at a cost of Rs.750 crores.
The state government has also sanctioned the construction of 2420 km of roads at a cost of Rs.517 crores.
Under the Mahanarega Scheme, more than 2900 villages with population of 250 to 500 will be developed and get their roads connected to the nearest roadways bus service.
In first phase (2012-13), 3302 kilometers of road will be developed. A sum of Rs.832 crores has been given to NABARD for the completion of this work.
Roads of the remaining 1400 villages will also be developed with the help of the World Bank.
At least 16 mega highway projects are under construction, the objective being to connect important roads in the state.
Under this scheme, 2631 kilometers of roads will be developed and re carpeting at a cost of Rs.3590 crore. About 28 main roads are to be developed under PPP/BOT/BGF scheme.
Plans include developing roads between Jaipur and Falodi via the Jobner-Kuchaman-Nagore stretch (a distance of 360 kilometers).
Work on the Kotputli-Neem ka Thana-Sikar-Kuchman road corridor of 193 km is also expected to be developed soon at a cost of Rs.285 crores.
The Bharatpur-Alwar-Bahrod-Narnoul road corridor of 167 km will be developed at a cost of 249 crore rupees.
The state government also plans to connect 610 important religious places with the main roads (1156 km).
Development of these identified corridors will also include development and support environmental, community, social, educational and tourism initiatives along the road projects. Improvement works of these corridors have been divided into many packages for implementation.
Having good road infrastructure can make the roadways better and transport system would become faster, because roads and transport are interrelated for the development.
A massive development plan has been undertaken by the department of the transport to strengthen its infrastructure in the state.
The government has also been trying to raise public awareness about safe road travel.
Road development in the state is expected to highlight the Gehlot regime’s move to the high growth path. (ANI)
SOURCE:http://www.newstrackindia.com
Govt targets transport and power to revive economy
June 7, 2012
The government on Wednesday vowed to push ahead with major transport and power projects in the current financial year, buoying stocks in infrastructure companies with an attempt to inject some life into the flagging economy.
Prime Minister Manmohan Singh said India aims to award 9,500 kms of road projects in the fiscal year to end-March 2013. His government also plans to commission three new airports, he said.
However, experts remained unconvinced the government’s latest move would revive economic growth as little was done to change conditions on the ground that have slowed development, such as land acquisition and environmental clearances.
Wednesday’s meeting, chaired by Singh, came after the country’s economic growth slumped to its lowest level in nine years in the first three months of 2012, leading to sharp criticism of his economic management.
Slow decision making in the government in the wake of a slew of corruption scandals is often held responsible for choking growth and drive to become an industrial nation.
“We as a government are committed to taking the necessary measures to reverse the present situation and revive and revitalize India’s growth story,” Singh told his ministers.
“We are aware that we have to act on multiple fronts to achieve this and we will indeed do all that is required of us.”
India faces the challenge of building infrastructure almost from scratch and to grow at a faster clip without stoking inflation. The government has penciled in an investment of about USD 1 trillion in the sector over next five years.
“In the short term, development of infrastructure will boost investment rates across the economy. In the long run, it will remove the supply constraints that affect economic activity in agriculture, industry and trade,” he said.
Infrastructure stocks such as GMR Infrastructure surged on Wednesday ahead of the meeting on hopes the government would help kickstart projects.
” It is good that the prime minister has started looking at the infrastructure sector,” said Sanjay Reddy, vice chairman of GVK Power and Infrastructure, a conglomerate with interests in energy, airports, hotels and transportation.
“But the devil is in the details and we will need to wait and see what happens over the coming weeks,” he added.
Singh has had such meetings in the past, but they did little to remove investment bottlenecks. Doubts remain whether the latest exercise will have any material impact.
SOURCE:http://www.moneycontrol.com
NHAI to award nearly 55 projects on BOT basis in FY13
June 7, 2012
The National Highways Authority of India (NHAI) cancelled two projects awarded last year because they couldn’t achieve financial closure. In an interview to CNBC-TV18 AK Upadhyay, chairman, NHAI said these projects would be now put up for fresh bidding.
“In the history of last three years starting from 2009 out of 147 projects awarded these are only 2 which have failed to achieve financial closure. So, I would say that the market is mixed,” he added. He don’t see further cancellation of projects due to funding issues.
Meanwhile, NHAI has set a target of awarding 9,500 kilometers of road projects in FY13. Out of which about 3,000 kilometers would be awarded on engineering procurement and construction (EPC) basis. Around 5,000-6,000 kilometers (50-55 projects) of the total will be awarded on build -operate-transfer (BOT) toll or BOT annuity basis.
Below is the edited transcript of Upadhyay’s interview with CNBC-TV18. Also watch the accompanying videos.(http://www.moneycontrol.com/video/business/nhai-to-award-nearly-55-projectsbot-basisfy13_714645.html?utm_source=Article_Vid)
Q: The market is quite concerned about the fact that two projects you awarded last year have been cancelled because they couldn’t achieve financial closure. What exactly happened and is this now up for a fresh bid or have they been passed onto the L2 bidders?
A: They have to be put up for fresh bids. But to look at it in the perspective, in the history of last three years starting from 2009 out of 147 projects awarded these are only 2 which have failed to achieve financial closure. Now let us look at another picture. Three projects were seen to be very aggressive last year, one was Ahmadabad-Udaipur-Kishangarh, it had a premium of Rs 636 crore and it was for GMR. That project has achieved financial closure in time.
The Ahmadabad Vadodara which had Rs 309 crore premium also achieved financial closure. The Pali-Beawar-Pindwara which had Rs 251 crore premium also achieved financial closure for L&T. So, all these three mega projects which were seen as very aggressive last year and all the big companies have achieved financial closure.
Two projects which we awarded first in this current fiscal have also gone on a very high premium. So, I would say that the market is mixed. For the two projects which failed to achieve financial closure, I would say that for one case it was their internal problem. I would say one case has failed and that’s not such a bad situation, because at the same time we are also getting big projects getting financial closure.
Q: Who were the two companies that were involved with these two projects that have now faced cancellation and what kind of premiums and size of projects were we talking about?
A: I won’t like to take names. You already mentioned they are two projects. Let’s leave at that. We hope that there should be no problem because we are also having a dialogue with the bankers and concessioners in general, we are brainstorming and looking at what are the generic problems across the sector. As of now we don’t see a matter of concern.
Q: You had set out a target of 8,800 kilometers for FY13 in terms of road projects and the Prime Minister revised this target upwards. In your sense how doable do you think this target is of 9,500 kilometers for FY13 and the bigger problem has been follow through or implementation of these. On that account how easy do you think it will be for both financial closure and for implementation of these projects?
A: Let me mention two or three points. One is that out of these 9,500 kilometers, a fairly good number would be also EPC (Engineering Procurement and Construction) now. Last year all the 62 projects taken together of ministry of about 8,000 kilometers were PPP projects, but necessarily as we award the better projects we would have some stretches which may not be viable on BOT toll. So, we are expecting that about 3,000 kilometers out of this target would be EPC, cash funded projects.
That doesn’t depend on the financial closure or the lenders or the investment. So that is government funded and we are well funded for that. So take out 3,000 kilometers. We are talking about essentially 6,000 on BOT toll. When the PM revised the targets upwards we also got an assurance and confer that as we go along in case we face any difficulties and there will be intervention from the highest level to resolve those difficulties. We saw that last year and we are all aware that last year our very impressive achievement was also in account for the support from the topmost level including PMO.
SOURCE: http://www.moneycontrol.com
Road runners are back in business
June 4, 2012
As highways worth Rs 60,000 cr flounder, L&T, Reliance Infra look at parallel opportunities
K Venkatesh, senior vice-president of L&T BOT projects said, lots of projects have come to L&T for sale, but the company looks at only those assets that can increase their current overall internal rate of return of high double digits. “We have bid for most of these projects and lost, so we know all the technicalities. Hence, it is not difficult to find the right valuation or the rate of return. We take the projects which interests us,” said Venkatesh.
Abhinav Bhandari, infrastructure analyst with Elara Capital said, “Around 80-100 projects would be up for sale or part stake sale in the current financial year. The value of these projects, at an average project cost of Rs 700-800 crore, would be around Rs 60,000 crore. This is almost same as what NHAI allocates in a year. It’s like a parallel system that has come up in the road sector.”
Hyderabad-based infrastructure company GMR that won a mega highway project from NHAI, said they might also look at selective secondary projects. But the rate of return on operational projects is not very high. “People are playing a waiting game as to how long they can sustain the won project.
The developers who have bid aggressively don’t really lose much. At most they will lose the retention money, which is around one per cent of the project cost, and one year of black listing,” the GMR official said.
Investment bankers that Financial Chronicle spoke to cited various reasons forcing developers to exit these projects. Many bids were driven by the desire to build their order books and puff up top lines rather than with an eye on profit margins.
“In many cases the margins built in were hardly 5-10 per cent. Any sensible bidder would look at a margin of 15-20 per cent,” said an investment banker with SBI Caps.
Unfortunately for several of the winners, banks have also become very rigorous in stress testing projects and critically analysing estimates given by companies on toll collection as well as the capital expenditure. “The banks are appointing their own consultants and evaluating on their own, before sanctioning loans for BOT projects,” said an SBI Caps official. In BOT projects, as opposed to straight RPC contracts, the project risk too is borne by the developer.
Some of the companies that won road projects in the past three to four years were IVRCL, Madhucon, Gayatri Projects, Nagarjuna Constructions, Soma Developers, Patel Engineering, Navayuga, Lanco and Essel Infra.
While IVRCL faced a potential takeover bid from the Essel group, several others are facing varying degrees of financial stress and need to improve cash flows to service outstanding debt. Sale of projects may be a step in this direction, said industry experts.
SOURCE:http://www.mydigitalfc.com
New road projects less profitable: CRISIL
June 4, 2012
The average return on equity on road projects awarded in 2010-11 is likely to be 6%-8% lower than those contracted before 2009, according to a study by ratings and research agency CRISIL.
The study estimates that toll road projects awarded on build-operate-transfer basis before 2009 could earn developers an average equity return of 22%. In comparison, projects awarded in 2010-11 may see a drop in returns to about 14% due to high premiums offered by developers to the government. Generally, road developers target a return of 16%-18%.
SOURCE: http://articles.economictimes.indiatimes.com
Ramky to raise Rs700 cr for BOT projects
June 4, 2012
Ramky Infrastructure is evaluating options for raising funds for its key build-operate-transfer (BOT) road projects. Though the quantum is yet to be determined, the company would require about Rs700 crore in the form of equity to complete these projects.
According to company officials, Ramky has about Rs5,000 crore worth of road projects and the equity infusion required for them is estimated at about Rs1,100 crore. While about Rs300 crore has already gone into these projects either through equity or working capital requirements, the balance would be required in the next 30-36 months.
“We have the strength to fund the projects internally. But, we are evaluating the option of raising funds at the holding company or special purpose vehicle level. We may require about Rs520 crore in the next two years,” Gautham Reddy, Ramky Group’s executive director, told analysts on an earnings call on Wednesday.
Ramky bagged two significant road projects by the National Highways Authority of India (NHAI) in the last fiscal. One of the projects is in Uttar Pradesh is for six-laning of Agra – Etawah bypass section on the NH-2 under the NHDP Phase V to be executed on BOT (toll) basis. The project is estimated to cost about Rs1,207 crore and would be completed in about 30 months.
The other BOT project is in Karnataka for four-laning of Hospet-Chitradurga section of NH-13 with an estimated cost of about Rs1,033.65 crore. Both the projects have been taken up with equity and debt component in a ratio of 25:75.
“We are hopeful of signing a concession agreement for these projects on July 17. The financial closure for the projects would be achieved by June-end. We are already in discussion with the bankers for raising the required debt,” Reddy said.
SOURCE: http://www.dnaindia.com
More bidders, high cost to trim returns on BOT projects: Crisil
June 4, 2012
Aggressive bidding and higher premium quoted by developers for new toll road projects on BOT (Build-Operate-Transfer) basis are expected to bring down the average return to 14 per cent, according to a survey by ratings agency Crisil.
Projects awarded before 2009, however, earned an average equity return of 22 percent for developers, the survey found.
“Aggressive bidding and sharp increase in developers’ costs, due to the high premium amounts, is likely to take a toll on future BOT road projects. It is expected to bring down the average equity return of the newer BOT projects to about 14 percent,” the agency said in a report.
With aggressive bidding driving up project costs, the newer projects will earn lower returns. In most bids for newer projects, developers have been offering higher premium (a committed annual payment to the government over the term of the project), the report noted.
According to the study, in case of 23 BOT toll road projects which were awarded before 2009, fewer bids had kept bid amounts modest while higher than expected growth in traffic boosted toll revenues.
Noting that in FY12, almost 65 per cent of the road projects were awarded on premium basis, compared to 25 per cent in fiscal 2009, the survey says, “The premium amounts even exceeded the project costs in some of the projects for which bidding was particularly aggressive. We expect the higher premium to bring down the average equity returns to about 14 percent,” Crisil Research’s senior director Prasad Koparkar said.
The survey also noted that the degree of competition was modest for projects awarded before 2009 with an average of five developers bidding for each project, given the uncertainties in the policies that governed these projects.
Uncertainty about transfer of land to developers by the government as well as absence of an exit option meant that developers could not sell their equity stake in these projects, kept bid amounts modest and project costs moderate, Crisil said.
However, with government speeding up land acquisition process, providing an exit option in the licensing agreement, and awarding lucrative highway stretches under the National Highway Development Programme, the bidding has become aggressive for new projects and the average number of bidders per project increased almost sixfold to 25-30 from that in 2009, the report found.
SOURCE: http://profit.ndtv.com
Road-building companies, hit by crushing competition at home, should explore greener pastures abroad
June 2, 2012
Ask a foreigner about his perception of Indian roads, and chances are he will tell you they are bumpy, littered with potholes and don’t allow for a smooth ride. Same is likely to be the plight of companies that make them: they are in for a bumpy ride, and perhaps driving towards a dead end.
At the turn of this century, roads was one of the most attractive sectors: National Highways Authority of India (NHAI) was building the golden quadrilateral and the national corridors spanning more than 14,000 km, competition was modest and returns were attractive. Alas, the sector has lost its sheen: intense competition, abysmally-low return expectations, over-reliance on NHAI as the primary client are some of the challenges plaguing the players.
Intense competition is perhaps the sector’s biggest bane. From 2007 to 2011, the average number of players shortlisted per bid have increased from six to 30, bids are being won at abysmally-low return expectations – often below cost of capital – and numerous frustrated players haven’t won a single bid from the dozen-odd they have participated in the last 1-2 years. Sector veterans are bidding ‘irrationally’ to defend their turf, new entrants are bidding low to build their order books and credentials and smaller companies flush with private equity funds are bidding aggressively to deploy their funds – and in this game, NHAI seems to have benefited the most.
On a present-value basis, while NHAI had estimated an expenditure of Rs 661 crore towards grants for projects awarded since April 2011, actual bids should provide it with receipt of Rs 15,371 crore from successful bidders. If you ask winners, they will all give you good reasons for their bids; but they do need to ask if they are in for a winner’s curse. And their private equity investors should ask if they will recover their investments if their investee companies continue to win bids at these rates.
Another bane plaguing the sector continues to be excess dependence on NHAI as the primary client. Poor NHAI target achievement remains a key issue with only 40% of project award target being realised in the last two years. Economic slowdown, land acquisition issues and senior management vacancies have led to significant delays in NHAI awards. A reduction in new NHAI project awards will further increase competitive pressure to win projects.
Other construction sectors are facing similar issues with increasing competition for a shrinking pie. Environmental issues, lack of next-generation reforms and more restrictive regulations like land acquisition and mining Bill will further reduce the opportunity in other construction sectors.
In this situation, what should Mr Roads Magnate, who has built a Rs 2,000-crore empire, do? If he wants to grow his revenues by 30% per annum, he needs to build an order book of ~ Rs 30,000 crore in the next five years – a tall task given the above challenges. He has three options: (a) stay put and wait for sanity to return to the sector, (b) enter other infrastructure sectors in India, or (c) build roads in more attractive global markets. Option 1 suffers from uncertainty around the length of the winter that has set upon roads and the construction sector in general. While consolidation opportunities may arise, ‘wait-and-watch’ may not be the most prudent strategy to meet the organisation’s growth objectives. While option 2 is interesting, does there exist a ‘virgin’ infrastructure sector that offers attractive returns, low competition and a relatively certain policy environment? It is unlikely that Mr Roads Magnate will be able to find one; perhaps he could take a cue from Warren Buffett, “Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” The next vessel could be Africa.
SOURCE : http://economictimes.indiatimes.com
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