Land delays slowing down highway projects: FM

Written by Timsy Jaipuria | New Delhi | Updated: Jan 8 2013, 07:04am hrs
Delays in land acquisition and not reduced lenders interest are holding up highway projects in the country, finance minister P Chidambaram said in a recent letter to the minister for roads, CP Joshi.

In his letter, Chidambaram said the National Highways Authority of India (NHAI) should ensure that 80% of the land required for a project is physically handed over to the developer before he is appointed by the authority and should work towards a system where 100% of the land is with it before inviting bids for projects.

The finance minister made these comments in response to a letter from Joshi who blamed delays in financial closure for the logjam in road projects worth over R23,000. Joshi had proposed a slew of measures to revive investor interest in the road sector.

These included giving developers the option to exit from a project immediately after the commercial operations date (COD) to unlock the equity stuck in projects and providing lenders explicit freedom to step in and take over the project or propose a new buyer to recover loans in case of any failure in project execution/revenue mobilisation.

Separately, the NHAI is putting pressure on the ministry of environment by threatening to move the Supreme Court against the latter's apparent refusal to de-link environmental approvals and forest clearances. The NHAI pointed out that in many big highway projects, forest clearances are relevant for only small stretches but the whole project gets stuck as forest clearances precede final environmental approvals.

According to sources, the finance minister has noted that about two dozen projects are awaiting financial closure because of non-availability of the required land and not because banks have liquidity issues or are reluctant to lend to road developers. Recently, banks had put the condition of 100% availability of land with NHAI as a prerequisite for funding any highway project.

With road developers putting in aggressive bids to bag projects last year promising premium to the government rather than taking financial support in the form of viability gap funding (VGF), certain banks have reportedly questioned the ability of developers to service long-term loans. Questions have also been raised about the ability of project developers to take additional debt at a time when repayment for previous projects have started.

The NHAI is required to hand over 80% of land to the developer before a project starts but has often failed in doing so. Chidambaram's letter to Joshi also mentions the projects where financial closures (bank funding) were yet to happen. Chidambaram reportedly cited that non-availability of 80% of land was one of the main reasons behind projects not getting requisite loans from banks and financial institutions. The issue was also discussed at a review meeting held by Joshi with the senior ministry and NHAI officials last Thursday.

There may be quite a few projects where environment clearance could also be an issue. We will submit a status report, including where financial closures have not happened due to some deficiencies on the part of successful bidders, said an NHAI official who was part of the meeting. The official said that earlier the authority had drawn banks' attention to practical constraints of acquiring 100% land for any project before it is bid out.

So far this fiscal, the NHAI has awarded only projects for 705 km and another 2,700 km is almost ready for awarding but successful bidders have been few.

To revive investor interest, the ministry of roads has also put special focus on expediting award of projects that would enjoy 100% government funding. Moreover, stress is being laid on improving the speed of construction.

NHAI cancels GMR Infra contract, may take legal action

New Delhi : The National Highways Authority of India has terminated its contract with GMR Infrastructure for building the Kishangarh-Udaipur-Ahmedabad highway. GMR Kishangarh Udaipur Ahmedabad Expressways has terminated the concession agreement with NHAI for the six-laning of the 555-km highway," the company informed the BSE on Monday. FE had first reported how the GMR Group walked out of the highway project, 16 months after it won the bid in which it promised to pay the NHAI over R9,000 crore on a net present value basis. The company had won the project in September, 2011, through an international competitive bidding route. The NHAI may now take legal action against GMR Group. The project is estimated to have required an investment of R5,387 crore. We are examining the case and based on the experts advise may resort to legal recourse," a senior NHAI official said. fe Bureau