 "Pradeep Puri")
The BSE-listed Noida Toll Bridge Company Ltd (NTBCL), a special purpose vehicle of IL&FS, is under a cloud for being disallowed by the Allahabad High Court to levy toll on its Delhi-Noida facility. The road project was the first one in the entire NCR region to be tolled and among the early ones in the country to be developed on the build, own, operate and transfer model. In an interview with Jyoti Mukul, the man behind the project, PRADEEP PURI, who has recently drafted in the company again as vice-chairman, says the concession agreement may be flawed but it needs to be respected.
The Allahabad High Court order says NTBCL has recovered its investment and, therefore, should not be allowed to levy toll. What is your defence to this?
The court basically says the project cost is Rs 400 crore, you have got Rs 800 crore and, therefore, you have got your return and you no longer have the right to levy toll. It did not set aside the concession or terminate the concession but said you do not have the right to levy toll. The project cost was Rs 431 crore but with total debt service, interest and principal, it was well in excess of Rs 800 crore. The confusion arose because, in 2011, we started paying a dividend which is the only way we can reward the shareholders. These are matters of fact. Besides, against the assured 20 per cent return on investment, what we actually achieved was not more than 6.9 per cent. And the return on equity was not more than 5.9 per cent. We are a listed company and return on investment is a fact. We asked the Supreme Court for verification of claims by the Comptroller and auditor general (CAG). The order says the CAG is requested to verify the claim of the petitioner regarding the total project cost which includes interest and debt repayment. We have explained this position to CAG also that supposing we had no operating expenditure, like no salary and tax, and took O&M out of the picture, the return comes to 11.66 per cent, which is nowhere close to 20 per cent.
Why was it that the agreement promised a 20 per cent rate of return?
At that time, the government was giving 16 per cent guaranteed dollar-denominated return on equity in the power sector to companies like Enron and about six other power projects. This was born in the same environment when nobody was looking to invest in India. Our 20 per cent guaranteed return was against that background.
The main criticism against us, and I think there is a lot of substance to it, is the way the contract was structured. If Rs 400 crore is my project cost, I should get Rs 80 crore as 20 per cent return in the first year. Supposing I get Rs 50 crore, the Rs 30 crore is added back to Rs 400 crore and so for year two, the cost becomes Rs 430 crore. It keeps compounding. The issue here is why was it done? It was so because it was a very high-interest regime then. The compensation is based on this compounding because of which they have not been able to throw us out. The real issue is whether from this compounding any cash flow benefit has come to anybody. No. The actual return is only 6.9 per cent.
Why did the company go to the UP government to terminate the contract?
The company wrote to the government of UP and Noida in 2011 asking for terminating the agreement in 30 years, which means that there is no question of return left. We knew that this would not go on because the atmosphere in the country is against tolling. Whatever comes, will come. Our understanding is that if this goes on for 30 years, we will probably end up with 11 per cent return. The concession agreement is for 30 years till 2031, extendable by two years if the project cost is not covered. We were ready to forego that. There was no response from them. We are mid-way right now.
We have never tried to defend that this a perfect agreement. This compounding is wrong and we have gone out of our way to address that. At that point of time, nobody had the full wisdom to do that kind of project. Nobody had a full template or benchmark. So when you are the first, obviously mistakes are made but it is not mala fide because the given number of people involved there did not involve any one particular principal player who could decide.
The entire project configuration was decided by the Ministry of Urban Development (MoUD). The whole process started in 1992 and the project was built in 1998.
What is your debt position?
We did financial closure in mid-1998 when India experimented with the nuclear bomb. And India was under sanction and was an international pariah. The interest rates offered by Indian banks and institutions were very high. The cost of debt those days was 15-16 per cent. We restructured the debt from about 15 per cent to 8.5 per cent interest rate. The interest sacrifice which the lenders made was Rs 55 crore against which they issued a deep discount bond. With $50 million global depository receipt (GDR), we did the entire debt. It has not been a very happy, or fantastic ride, with a huge profit. It started paying its first dividend in 2011. Almost 73 per cent of the company is owned by the public. There are 81,000 domestic and international public shareholders and the only return they get is the dividend. They have got only 5.9 per cent return so far. The last of debt was paid up by 2012-13 and we have a small Rs 60-70 crore borrowing now.
What is the investor perspective on this?
There is a perception that state authorities in India look at contracts as instruments of convenience. If it convenient to me, I will uphold it. Toll rates were based on an annual formula but for many years, we were not allowed an increase. We lost Rs 45 crore in the process. Why call the contract gold plated when the concession has come after it was looked into and approved by the Asian Development Bank, World Bank, the central and UP governments. The EPC contract was based on the World Bank’s international competitive procedure. It was under approval for three months, then went to the UP government and the Cabinet approved it. The lender consortium had nine banks and each one of them conducted an appraisal. Whoever went through the project document did due diligence before they sanctioned the project. Is it that they did not have an idea what they were approving? The project was virtually a non-performing asset after it opened. From the estimate of 80,000 passenger car units (PCUs) for the first year, it was just 11,000 PCUs. The first four years, almost the entire net worth of Rs 107 crore was wiped out. So we went for corporate debt restructuring (CDR). This is the first and most successful case of going to CDR and then coming out of it. Thanks to the CDR, we did GDR issue in London and the company turned around.
There are allegations that you were involved in conceiving the project and then you yourself joined it later. How do you respond to this?
I belong to the 1979 batch of the Indian Administrative Service (IAS). When I resigned from IAS, I had done 18.5 years of service and my salary was Rs 16,400. When I joined IL&FS in January 1997, my salary was Rs 20,000. There was no pension. It was a loss. I tried to make this project happen and a lot of people helped me. The SPV, which was the child of an MoU, bid out everything transparently. Yes, I wore many hats but that was the situation then. There weren’t many players then but just because the deal was done like that does not mean it was a sweet heart deal.
The project was the precursor to the National Highway Development Project. It opened the eyes of people that something more can happen. I am not saying that there were no defects but it led to something bigger. The then prime minister's office helped us to do financial closure when after sanctions, I put up my hands that I cannot do the project, they told us you can do it. Being first of its kind, many mistakes were made.
There are also allegations that the project was not tendered. It was conceived and handed over to the company. What is your view?
In 1992, when the MoU was signed between Delhi, Noida and IL&FS, this project was led by MoUD. The secretary was chairman of the steering committee. At that point of time, IL&FS was the only company in the country which had done Rs 10-crore toll road in Rao Pithampur in Madhya Pradesh. At that point of time, we were 80 per cent owned by banks and institutions, owned by the government. Today it is 50-55 per cent. It was like a public sector undertaking. When they called us they thought they were calling one of their own and we had actually done a project like that earlier. From 1992-1996, nothing happened on the project. Then they asked me to do something. As a young IAS officer, I was an idealist and I thought I could be involved in creating something world class.
Why is it that despite heavy traffic, returns are still not 20 per cent? Was the traffic calculation wrong?
When the traffic study is done, it takes into account the macro economic scenario. In NCR, all the growth came in the Gurugram region. The moment the Delhi-Gurugram expressway came up, the traffic went away. The Delhi-Noida traffic did not materialise the way it should have. For various reasons, all commercial spaces came up in Gurugram. There is no primary land market in Noida. The state sells land so this has constrained and distorted the market for commercial space. Noida lagged and this reflected on our project.
On the two ends of NCR, there is Gurugram Expressway and your Delhi-Noida Flyway. In both the projects, the toll has been lifted. Does this expose an inadequacy in planning?
The toll plaza is the weakest link in the chain. People raised the issue of traffic congestion at the Gurugram toll plaza. Traffic was in excess of two lakh PCUs a day. In our project, there was never a time that the processing was for more than three to four minutes. This was the first project in the country to have automatic vehicle classification system which classified vehicles. Leakage was 0.2 per cent because of this. Our technology was the most advanced. Last two-three years, many roads have become toll-free. The trend started in Gurugram, then Maharashtra and then Noida. We got caught up in that. The toll in Gurugram has not been removed but at the other toll gate, the rate has been increased. In Gurugram, the traffic projection was understated and in Noida it was overestimated. If the contract is bad, strike it down but an extraneous condition of adequacy of profit was introduced. Maybe that is the way society wants to go but somebody has to consider this since it is a major issue for industry and business going forward. If we agree to a return, we can amend it but suddenly a third party comes and says reduce their return.
Will the maintenance of project suffer because concession has not been annulled but you are restrained from levying a fee?
We own the concession. So long as we are the concessionaire, we will fulfil all the conditions of operation and maintenance. It is our property, we will maintain it. We will carry on.
