IRB urges India to offer up new highways for bidding

December 3, 2013



The helper of a driver rests on top of his parked truck along a busy highway on the outskirts of New Delhi June 15, 2012. REUTERS/Adnan Abidi/Files

(The helper of a driver rests on top of his parked truck along a busy highway on the outskirts of New Delhi June 15, 2012.) 

(Reuters) – The chairman of India’s largest road construction firm IRB Infrastructure Developers Ltd (IRBI.NS) urged the government to invite companies to bid to build and operate dozens of new highways, a step regarded as crucial to economic growth.

India sees ramping up the construction of new roads, power plants and ports as crucial to making its businesses more internationally competitive and lifting economic growth out of its worst slowdown in a decade.

But the private sector’s efforts to build new projects have been derailed by problems ranging from coal and gas supply shortages in the power sector to a throttling bureaucracy and a lack of bank funding in the roads sector.

IRB needs to win new government contracts in order to reverse two consecutive falls in quarterly net profit, Chairman Virendra Mhaiskar told Reuters.

Mhaiskar, who until this year was in the Forbes India list of the country’s 100 richest people, said the state-run National Highways Authority of India (NHAI) should offer up for bidding 20-30 highways previously awarded to companies but which failed to take off.

He said in a phone interview he would like to make bids for new projects worth up to 40 billion rupees in the next 3-6 months to prop up an order book that has shrunk to 70 billion rupees from about 84 billion in May.

“Profit growth will entirely depend on new orders,” Mhaiskar said. “Because if they’re going to exhaust our order book pipeline, then the challenge on the profit remains.”

Bank of America-Merrill Lynch and Angel Broking say IRB is in a strong position to pick up new orders and both have a “buy” rating on IRB’s stock. However, BoA-ML in November cited a slowdown in new project orders as a concern.

IRB, India’s largest road construction firm by market value, posted a 12 per cent drop in net profit to 1.1 billion rupees in the July-Sept quarter, compared with the same period last year. Its net debt to equity ratio is 2.55:1.


India awarded under 2,000 km (1,240 miles) worth of new road construction contracts in the last fiscal year, which ended in March, against a target of 9,500 km (5,900 miles).

“We have seen very little orders getting announced by the NHAI in the last whole of the year. So that remains a prime concern,” Mhaiskar said.

“We understand their views as well, that they feel that there is sluggishness and they may not get a good response. But the point is: one needs to keep the good work going,” he said.

The NHAI chairman did not respond to a request for comment.

The government has pushed a public-private-partnership (PPP) construction model in which developers bid for projects in exchange for sharing some of the revenue with the state – a way of getting investment without emptying the public purse.

Besides delay in awarding government projects, an economic slowdown and various mining bans in India mean there are fewer cars and trucks than there might have been on the roads to pay tolls – eating into companies’ revenues.

Two of India’s best known infrastructure companies, GMR (GMRI.NS) and GVK (GVKP.NS), have moved to exit high-profile road projects. In response, the government is working on a formula to ease the payments that companies have to pay to the state in exchange for operating highways.

Recent projects have been designed mainly on a model known as “build-operate-transfer” (BOT), where companies build and own highways for a fixed period before handing them over to the government.

“These days bankers have become more cautious in lending to road BOT projects. They want 80 percent of the land in possession before the financial closure of the project could be achieved,” said Viral Shah, an analyst at Angel Broking. (Editing by Sumeet Chatterjee and Pravin Char)



Highway developers set to get relief

November 29, 2013

Dipak Kumar Dash,TNN


NEW DELHI: Many highway developers, including GMR and GVK, are set to get major relief in next one week as the PM-appointed C Rangarajan committee is likely to recommend reduction and deferment of premium to be paid to NHAI.

The panel is likely to suggest that for six-laning of highway projects, at least 25% reduction in annual premium payment to NHAI during construction period and about 50% during subsequent years. The panel was constituted to come out with a formula to defer the premium payment towards later part of the concession period to make projects viable for developers.

In case of four-laning of projects, the developers don’t have to pay premium during the construction period. During operation and maintenance period, they have to pay minimum 50% of the committed annual premium.

Premium is the annual upfront revenue that the developers have promised to pay to NHAI, while bagging the projects. The promised premium of around Rs 1 lakh crore will come to NHAI in the next 20-30 years, according to the road ministry. While the developers will pay lower amount in the initial years, they have to pay higher amount in the later part of the period to fulfill the commitment.

For both six-laning and four-laning of highway projects, during operation and maintenance period, annual cash flow surplus subsequent to fulfilling debt servicing and other obligations, will have to be used mostly towards premium payment. The objective is to ensure that NHAI gets the entire premium at least three years before the contract period ends, said a source.

Developers were complaining about difficulties in premium payment due to slowdown in traffic amid a weak economy. Many projects, which were awarded could not take off, while many on-going projects were getting stuck. The committee felt that a reduction and deferment of premium payment in the initial period and increasing the amount in the later, when both traffic growth and collection of toll are expected to go up, will help the developers.


GVK arm bags NHAI road project in Madhya Pradesh

October 10, 2011

GVK Power and Infrastructure Ltd has announced that GVK Transportation Private Ltd, a wholly-owned company subsidiary, has been chosen through an international competitive bidding process to take up the four-laning of Shivpuri-Dewas section of National Highway No 3 in Madhya Pradesh.

The road project is to be executed as BOT (Toll) project on Design, Build, Finance, Operate and Transfer pattern under the National Highways Development Programme (Phase IV) of NHAI. The company has received the Letter of Award from NHAI and expects to ink the Concession Agreement shortly.

The project entails the widening and strengthening of the two-lane highway to a four lane highway over a 332 km stretch. It has a concession period of 30 years including a construction phase of 30 months.


Mr G.V. Krishna Reddy, Chairman, GVK, in a statement said, “the winning of this major road project in Madhya Pradesh marks yet another milestone for GVK. With this new project, we will develop one of India’s busiest highways to meet the growing road transport needs in Central and Northern India.”

The project road on National Highway No 3 is one of India’s major corridors referred to as Mumbai-Agra highway. It is a vital trade link connecting Western and Central India to Northern India and passes entirely through Madhya Pradesh carrying predominantly long distance freight traffic.

The Hyderabad-based infrastructure company has implemented India’s first six-lane toll road project 90 km long between Jaipur-Kishangarh on NH 8, part of NHAI’s Golden Quadrilateral and is developing two toll road projects. The company has a portfolio of four toll road projects of over 600 km.


NHAI awards Rs 2,815 cr project to GVK

August 18, 2011

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.