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Satish Parakh, Manging Director and CEO, Ashoka Buildcon, is of the opinion that funds like National Investment & Infrastructure Fund (NIIF) will help infrastructure projects. Edited excerpts.
The government has envisaged an outlay of Rs 6,920 billion for its ambitious road building programme and Rs 5,000 billion for Bharatmala Pariyojana. How have you aligned your strategies to leverage such opportunities?
About 24,800 km of road projects are to be developed over the next five years between 2017-18 and 2021-22 under the ambitious Bharatmala Programme.
Bharatmala will improve connectivity, particularly on economic corridors, border areas and other far-flung areas with the aim of enabling quicker movement of cargo and boosting exports. The newer roads are expected to increase the speed of vehicles and decrease supply chain costs from the current average of 18 per cent to 6 per cent.
Bharatmala will provide NH linkage to 550 districts and be a major driver for economic growth in the country. It is a new umbrella programme for the highways sector that focuses on optimising the efficiency of road traffic movement across the country by bridging critical infrastructure gaps. Going ahead, we feel there is a very good opportunity in nation building in the coming five years period and would like to grab the most of it.
Bharatmala has a realistic vision of improving the efficiency of the National Corridor (Golden Quadrilateral and North South-East West Corridor) by decongesting choke points through lane expansion and construction of ring roads, bypasses/elevated corridors and logistics parks.
Apart from those covered under Bharatmala, another 10,000 km of highway works under the NHDP programme would also be up for bidding in the coming five years period. Overall we see a huge opportunity for the business in road and infrastructure sectors. We are presently operating in 20 states and hence the opportunity is tremendous for us.
Which mode of development has had the best success in terms of project execution?
Ashoka Buildcon has an in-house team for design, EPC works, traffic survey, operation and maintenance works. Since in-house expertise is available for solutions from start to end, we are comfortable and have been successful working on any model of development - TOT, BOT (Toll), annuity, hybrid annuity, OMT or EPC.
How do you see the progress made by NIIF? Are they helping in the funding of road infrastructure projects?
The funds strategy of NIIF encompasses aggregating operating assets, developing greenfield projects, and anchoring and investing in private equity funds. Thus they execute the project themselves. But they are not lenders for the project; so it is not their objective to fund road infrastructure projects to other concessionaire. But they can participate by way of private equity investments like alternative investment fund (AIF). These finally help infrastructure projects.
Also, will retirement funds suffice to meet the actual demand for capital?
The government is considering raising money from pension funds by allowing investments by way of capital. Further, these funds require a steady flow of income for distributing the surplus to the end users at frequent intervals. Thus, these funds can be looked up for subscriptions of non-convertible debentures (NCDs) and bonds to be raised by the concessionaire. Also, for bonds to be raised, the rating needs to be in 'AA' family.
In the present budget, the Finance Minister has stated that the same norms will be lowered for the inclusion of 'A' family bonds, instruments too. The bank can dilute its lending to well-established projects, so that it can open the line on the sector to that extent for further funding of new upcoming projects. But to do all this, amendments to the pension funds and retirement funds should be done by the Government as soon as possible. There are a lot of projects which have proper track records and can be shifted to this mode of financing, so that new lines for upcoming projects are freed for the banks.
What are your views on the model of toll-operate-transfer (TOT)?
TOT is a totally different class and segment of investors. It is like an investor who wants a consistent return every year from institutions holding good track records and is happy with the regular returns that are more than the bank deposit, as he has a small appetite for risk. At present, as the project sizes are large, projects are only looking at investors with a big kitty. Financing risk is also there as refinancing by upfront payment may exhaust the line of exposure in one year. This is because the period of repayment will be long and since the tenure is long, it may be up for refinancing again.
- RAHUL KAMAT