Tight liquidity scenario and toll non-compliance governed the road sector performancey

Sudhir Hoshing, CEO (Roads) Reliance Infrastructure Ltd.

As against the target of 9,000 kms, during the first six months of 2012-13, NHAI managed to award only six projects. These six projects inc­luded two large-scale projects – Mega Maharashtra Highway (484 kms; Amravati-Jalgaon-Gujarat) and Walaj­ahpet Poon­amallee (93 kms). However, these projects were bid out at seemingly aggressive prices.

Obstacles: Over three dozen projects are stuck due to delay in achieving financial closure and securing environmental clearances. Two projects, worth about Rs 2,450 crore, awarded last year were terminated after fail­ure to achieve financial closure.

Several policy initiatives are being explored to revive investor interest:

• New Model EPC agreement; lumpsum contract specifying design and performance standards, freeing contractor to design and construct using best practices and innovation
• Infrastructure Debt Fund (IDF) and take-out fina­ncing through ECB under the approval route; alte­rnative financing for road projects facing funds crunch
• partial COD if 75 per cent construction is complete and balance is stuck due to land acquisition
• linkage of NHAI-estimated Total Project Cost to WPI index
• early exit options for highway builders after com­pletion of construction

Last year: Two factors gov­erned the sector performancein 2012 – tight liquidity scenario and toll non-compliance. The government is trying to address liquidity crunch by proposing alternative financing mechanism such as IDFs. IDFs provide long term financing for projects which have completed construction and demonstrated one year of satisfactory commercial operation.

Toll non-compliance is rampant in certain parts of India. The reason behind this seems to be the perception that toll collection is for the sole purpose of making profit. Also there are several groups of influential people with vested interests, who refuse to pay toll. This causes developersÂ’ revenue forecasts to go awry. Government plans: In the absence of takers for road projects under BOT basis, which requires companies to raise funds from the market, the government is planning to award 4,000 km of projects on EPC basis, where the government spends the entire money required to build roads, and about 3,000 km on OMT basis.