Few takers for highway projects

The government’s ambitious highway projects under the public-private partnership mode are in serious trouble. Construction companies have either not put in bids or have withdrawn from 20 such projects, which fall under the build, operate and transfer (BOT) scheme.

Large construction companies like Larsen &Toubro, Hindustan Construction Corporation, Nagarjuna Construction Company, Maytas Infra (promoted by Satyam Computer boss Ramalinga Raju), DLF Infrastructure, Gammon India and GVK Industries have withdrawn from over 15 highway projects planned in various parts of the country.

In the last two months, nearly five highway projects worth nearly Rs 3,000 crore could not find a single bidder.

These companies said that they find BOT projects unviable due to the high interest costs which have squeezed profit margins, faulty traffic projections and stiff penalty clauses if the project is delayed for reasons not under their control.

All told, the government had plans to hand out 50 such projects, which would have involved an investment of Rs 60,000 crore and thereby, given a boost to the slowing Indian economy. But things are not moving according to plan.

In most of these projects, the companies that have withdrawn from the bids were already amongst the top six players selected during the technical qualification stage. This, experts said, will leave only smaller construction companies with not too much experience in the fray.

"We have withdrawn from at least five highway packages after being qualified in the technical qualification stage in the last few months. Most of the highway projects on a BOT basis are not viable because of faulty traffic projections and high cost of construction," said Nagarjuna Constructions Company Director AN Raju.

When bidding for a highway project, infrastructure companies normally take into account a profit margin of 10-15 per cent on project construction and an internal rate of return in the range of 15-20 per cent throughout the concession period. But, these companies have now argued that the actual project cost could go 25-80 per cent higher than estimated in the detailed project report, which can throw their profit calculations out of gear.

Also, with interest rates at which banks are ready to give loans to these companies going up to 14-16 per cent, compared to 10-12 per cent earlier, these projects now look unviable. A senior Punj Lloyd executive said: “We have consciously avoided BOT projects because with such high interest rates, these are not viable".