Road developers look to next govt

Find their winning bids now unaffordable but NHAI is not raising project cost approvals

Road developers are in a fix as the National Highways Authority of India (NHAI) is not willing to accommodate an escalation in project costs over recent years.

Developers want the government to approve a revision in cost estimates since a number of projects have seen a 30 per cent rise in costs — with a rise in bitumen, diesel and labour expenses, besides interest rates. These projects might be re-bid if the developers walk away.

Last month, the government had announced a relief package for road developers by allowing a rescheduling of premium for highway projects. The developers wanted government intervention to revise the approved cost estimates, to help them begin work. But NHAI has said it will not approve such proposals.

“Why should we? There is no clause as such in the concession agreement. These are projects where not much has been done at all and the developers kept sitting. We can’t deliver everything on a platter to developers and now the government has allowed rescheduling, too,” said a senior official at NHAI.

Road projects bid in recent years have seen up to a 26 per cent rise in costs due to various factors. The National Highways Builders Federation had written to the prime minister for intervention.

“There are some projects where major delays have occurred in declaring the appointed dates due to reasons not attributable to the concessionaires. The cost of bitumen, diesel and manpower has gone up significantly. Interest rates, too, have seen a sharp rise and impacted project cost even in the base case, impacting the returns,” read the letter.

“These are measures the government can take to improve cash flows for the distressed sectors,” said M Murli, director-general of the federation. “The same was extended to other sectors in the past and our sense is, if the government decides to cancel the contracts and go for rebidding, it will have to make revised cost estimates, since the projects were awarded three years ago. A lot has changed since then and we hope a new government can take a decision.”

Developers had bid aggressively to win contracts in the past, promising the government higher and higher premium. Lured by the promise of easy money, the government handed out as many as 147 projects. The developers, while bidding aggressively, assumed India’s high economic growth would continue unabated. However, contrary to their expectations, growth slowed considerably in recent years. As a result, companies have so far managed to complete only three such projects. Developers owe NHAI a combined premium worth Rs 1.51 lakh crore, spread over 20-25 years.