20 highway projects may go for re-bid if govt approves report

As many as 20 road projects worth Rs 20,000 crore, awarded between 2011 and 2013, could be scrapped and might be re-bid if the Cabinet approves the recommendations made by a panel led by the Prime Minister's Economic Advisory Council chairman, C Rangarajan, on rescheduling of premiums. The projects haven't taken off because of unfavourable economic conditions and lack of funding. Developers were seeking lenient premium-rescheduling norms.

According to experts, the projects have seen an escalation of 30 per cent on account of costlier land and raw materials. Earlier, National Highways Authority of India (NHAI) Chairman R P Singh had also written to the roads ministry about the rising costs. According to the letter, projects witnessed a 26 per cent rise in costs in the past two years and private developers were seeking the rescheduling to factor in the rising costs of construction, on the back of an economic slowdown. "In all likelihood, the developers would walk out of the projects. If they go for re-bids, that will essentially mean we will not see aggressive bidding or may have to seek the government to fund the projects," said a senior NHAI official.

ROADBLOCK

• Highway projects worth Rs 20,000 crore haven’t taken off because of unfavourable economic conditions and lack of funding
• Projects have seen an escalation of 30 per cent on account of costlier land and raw materials
• Private developers were seeking lenient rescheduling norms to factor in the rising costs of construction on the back of an economic slowdown
• If projects go for re-bids, they would not see aggressive bidding or might  have to seek the government to fund the projects

According to the Rangarajan committee report given to the government last week, projects facing economic stress are allowed to avail relief under a revenue shortfall loan clause given in the model concession agreement. The amount of shortfall between the toll revenue collected by the highway developer and expenses incurred, including operation and maintenance costs and debt servicing and premium payments, will be extended as a loan to companies which have been seeking a rescheduling of premium.

Premium is the amount road developers have to pay the government for build-operate-transfer projects on the assumption that the returns from the project would be quite high. The amount is decided at the time of bidding on the basis of projected future traffic flow.

According to an industry source, NHAI has already worked out deals with 10 road developers and the projects could be re-bid soon. "Some have been terminated and in some cases, the road developers have backed out. There are 10 such projects and we are likely to see another five or 10 being added to that list. This could include the GMR projects worth Rs 5,500 crore."

In an interview to Business Standard last week, Planning Commission member, B K Chaturvedi had said the road projects should be scrapped and re-bid because work had not started on any of the projects. "We need to draw a line somewhere and in some of these projects not a brick has been laid out... My view is we scrap them and go for re-bids. I think the committee has proposed a reasonable package and all they are saying is, build up the roads and service the debt," Chaturvedi had said.

Industry experts believe scrapping some projects would bring some stability in the road sector. "There has been aggressive bidding in the past. Now when the projects go for re-bid, we will see a moderate, cautious bidding. In the long-run, the committee's recommendations will be good for the road developers," said the CEO of a leading infrastructure company.

The roads ministry has been looking at ways to improve investments into the sector. It recently notified a revamped exit policy to allow companies to exit road projects. "The recommendations will help developers who are involved in the two-lane to four-lane construction. There are so many riders in the report and one of them is on the loan. India Infrastructure Finance Company currently lends at 11.35 per cent and the committee recommendations also work out to the same. Then there is the penalty. In that sense, it will become difficult for highway developers," said M Murali, director-general, National Highway Builders Federation.