Last year was not very good for the highway sector with the total projects awarded declining sharply to 1,116 km from 7,400 km the year before (of course, 2,840 km of highways were constructed in FY13 compared to 2,242 km in the previous year). The general perception is that the awarding target for this year is a difficult one to meet.
There will be a remarkable (increase) in the (quantum) of awards this year. Difficulties are indeed there the economic scenario is not very good, the investment climate has deteriorated and not many people are now willing to take up projects on premium.
Why we are still confident is because some of the hurdles have been removed. The Supreme Court ruling earlier this year, which de-linked the forest and environmental clearances, would help. The environment ministry, I must say, is doing their best to fast-track approvals.
Premium rescheduling would stand some 23 developers, who are now unable to start their projects, in good stead. Tying up bank funds is not the real issue in the highway sector; in most cases, the developers are not able to get their act together and bring the necessary equity money. Around 8,000 km of highways are being planned to be awarded this year and we will stick to the target.
NHAI hasnt been meeting its obligation to provide land (right of way) to concessionaires.
Land is an issue where states are involved and they have to get the required stretches acquired and hand them over to the NHAI. Many states are performing this role satisfactorily for various reasons. To be pragmatic, NHAI has decided not to offer a project unless 90% of land is already in its hand. Even the developers don't start a project until and unless 80% of the requisite land is with them. Not starting the project means investments get blocked and costs soar.
Thankfully, things are becoming smoother. You no longer have to go for environmental clearances to get materials like mud, pebbles etc. Hopefully, once the economy looks up, things will improve further.
The finance ministry has said the proposal for premium rescheduling involves a moral hazard and wants a penalty on the beneficiary developers to deter them from wasting the project to force re-negotiation. Do you agree
There is no moral hazard involved in this. The economic situation is such that the concessionaires are unable to start work and they need a succour.
The question is that we have to make and provide roads to the people. It is not that someone is making money of (the rescheduling). We (the NHAI) cannot construct the roads on our own with the limited financial strength, and so, we have to enable the industry to build confidence to complete their tasks. The Cabinet has not taken up the proposal so far and when it does, we will present our case cogently.
Developers have to be helped and supported in the tough economic scenario. NHAI is finding ways to help them. Ultimately, it is the banks' money which is also stuck and we have to keep their concerns also in mind.
Having said that, I cannot prejudge what the outcome of the Cabinet deliberations would be. The finance ministry's concerns will indeed be heard.
You go to the extent of the renegotiation of contracts to help the developers but the NHAI's recent moves adding to the cost of projects and restricting tolling seem at odds with this. Are the ministry and authority working at cross purposes
I don't think NHAI is going after any developer (with an intention) to trouble him. The NHAI may persuade a developer to speed up the work and it is indeed their remit. In a few cases, termination notices have also been issued as developers could not meet the conditions. For example, in the case of the Delhi-Jaipur stretch, there has been a lot of public outcry over the widening.
There were a lot of disruptions (to the traffic) and in such cases, it is incumbent on (NHAI) to redress the public grievances also. Under our programme, wherever widening or expansion is going on, we allow the developer to collect toll to mobilise the funds for such an expansion. But if people pay the toll, they would also expect good facilities and a smooth ride.
There has lately been an obvious shift to the EPC contracts. Has the public-private partnership (PPP) model failed in the sector
The PPP model hasn't failed. The question is that the promoter has to bring in his capital. He doesn't get finance unless the entire land is acquired and handed over to him. They also have to get environmental clearances, which sometimes get delayed.
Some hurdles, as I said earlier, have been removed and we are working on resolving the other issues faced by the concessionaires. As far as we are concerned, every model remains. If people feel there is a higher rate of growth and attractive toll revenue, they will naturally bid for such projects, even on a premium. There can be no predetermined norm as to what fraction/quantum of projects would be awarded in the PPP category and what under the conventional EPC model.
The NHAI will float a tender and if people don't bid then it will have to look for options (other than PPP) and methods to build the road. Forget if the government gets premium, its primary function is to build the roads. For us, it doesn't make any difference if a project is built under an EPC contract or a PPP concession.
The basic thing is unless the concessionaire brings in his capital the project cannot take off. If the developer depends on borrowed money for the whole of the project's requirement, then why do we need him If that is the case, then we (NHAI) can fund the project and recover the money on our own.
We seek partnership with private firms in the belief that they will bring equity, that is, the initial capital. What happens in some cases is that the developers borrow on the basis of toll collections which means they take no risk. Which concessionaire would give his personal property and guarantee to the bank before borrowing
There is a growing body of litigation involving the NHAI and developers.
There aren't too many (court) cases. In one of the cases (that of Soma Constructions), I am told that the developer wanted to shift the location of toll collection as they felt they could not collect toll optimally at the current location.
In the case of DS Constructions, the matter is, of course, in the Delhi high court. Let the court decide the matter. It is not that we haven't tried for an out-of-court settlement on this issue. I had a meeting with the chief minister of Haryana and the concessionaire, but the stakeholders (NHAI, DSC and Haryana government) could not reach a consensus.
The NHAI says that DSC contracted loans from SBI and later got it refinanced by the IDFC consortium without informing it. Should it be NHAI's case to ascertain whom the developer borrows from and how much
Of course, it should be. As per the concession agreement, if the NHAI terminates the contract, it is liable to pay all dues related to the project. A higher loan element would indeed influence the quantum of this liability.
The 20-km a day target for highway construction has later been reduced to 17 km. Does this reduced target seem achievable now
2012-13 was not good for us, but we are hopeful of achieving the 17-km target this year. Bankers have been told by the RBI to fund the projects if the conditions are met. The sector will see a pick-up this year. Projects will be executed on whichever mode is viable our first option is the PPP and we would look for the EPC or other options only after the PPP option is tried.