For someone who is on the road a lot, Virendra Mhaiskar doesn?t come across as travel-weary. That is probably because the soft-spoken entrepreneur from Maharashtra loves the outdoors and can?t stay away even though it means spending most of his time away from home. The
43-year-old chairman and managing director of IRB Ifra, who has been building roads for two decades now, is excited about his airport venture at the picturesque Sindhudurg on the Konkan coast, just a couple of hours from Goa. That, I realise, is what they mean when they talk of mixing business with pleasure.
It has taken many months to get a meeting with Mhaiskar for this column and I was beginning to think it would happen only on one of the many highways that his firm is working on; but here we are finally, at the Taj Mahal Hotel in Delhi, for breakfast. Half-past nine in the morning isn?t really early but I reckon I will be better off with some strong black coffee to help me navigate the discussion on the roads sector, never easy at the best of times. My guest settles for a cup of tea.
With the economy going for a complete toss, so have developers? estimates of toll collections and construction costs. Mhaiskar?s firm IRB Infra, which he set up in 1998, has been among those that have opted for rescheduling premium payments to the National Highway Authority of India (NHAI)?for the Ahmedabad-Baroda and Timkur-Chitradurg stretches. While there has been much debate on PPP (public private partnership), risk-takers like Mhaiskar prefer it to the more traditional EPC?engineering, procurement and construction?route since the upsides can be bigger.
As he says, estimating the traffic is critical and given how the slowing traffic has hurt cash flows, it is important to have deep pockets to be able to hang in there.
To be sure the escalation clause, linked to inflation, has helped ease the strain but for a group like IRB, a PPP model means three revenue streams since apart from the construction, there is also money to be made from the O&M piece and the toll collecting.
The breakfast arrives; a masala omlette for my guest, scrambled eggs and toast for me. Mhaiskar is clearly a disciplined eater and although he claims he does indulge himself every now and then with a spicy Malvani or Goan meal, most of the time it?s simple Maharashtrian fare. And of course, he makes sure the treadmill isn?t left unused for more than two days at a time.
It is better, he tells me, that the government stays with a model where the developer doesn?t bid for fixed concession period but instead is awarded a project based on the least time in which he can complete it. That, he explains, would work well because not only would it take the pressure off the developer to pay a premium?after all, the government?s objective is not to earn a premium but to make sure the roads get built?but also makes the banks more comfortable. In fact, that is how many of the BOT projects started off, including the phase 2 of the Bombay-Pune expressway. While the government may want the premium to be able to give grants for certain projects, Mhaiskar is convinced that is not the way to go.
That apart, the government also needs to quickly clear the confusion on whether a promoter can exit a project altogether and sort out the related tax issues under section 80i; I buy my guest?s reasoning that there is little point in asking a promoter to stay on in a venture after another developer has taken over. In any case, I gather not too many projects are really changing hands primarily because there?s a mismatch in expectations; the sellers want the cash flows should be discounted at 13% to arrive at the net present value whereas the buyers want a much higher 18%. More important, as Mhaiskar points out, the banks, for whatever reason, haven?t really pushed sellers to offload the asset; there hasn?t really been the kind of pressure one would have expected even though cash flows of some developers have been considerably strained.
Which brings me to the question of how the next round of road-building is going to be funded. Going by the NHAI?s commentary, it would appear the share of EPC projects might be larger this year. We do some back of the envelope calculations on how much of BOT is actually doable assuming we are looking to build 3,000 km at a cost of R15 crore per km and assuming the NHAI chips in with a grant of R10,000 crore. That would call for an equity contribution of R12,000 crore or so annually between the eight or ten builders, which could be a stretch since only the larger players such as an L&T, the Tatas or a Reliance Infra have the capacity to come up with an equity contribution of R2,000 crore each. Which means that if the NHAI is looking to build 8,000 km a year the bulk of it would have to be done via the EPC route.
Of course, as Mhaiskar points out, all this can change overnight if the government makes it easier for concessionaires by getting all the necessary clearances and acquiring the land before the project is bid out. Apart from the fact that banks would be more forthcoming with loans, an easier environment would encourage investments from the Chinese, Koreans and Malayasians. To be sure, there are problems that crop up at the local level which foreign players may not want to take on which is why the state governments need to help. How does one cope with the violence at toll booths, I ask? Mhaiskar believes that a fair share of the blame for the violence should go to the media which has tended to portray the users as victims being looted. I agree, as a nation, we are very reluctant to pay for any service, we expect it for free and the media does, at times, tend to be irresponsible.
The stress points can be many given the nature of his job, but Mhaiskar doesn?t carry any of it back home, refusing to let the pressures take away from time with the family. Although a civil engineer, he is fond of reading history and has just finished Alex Rutherford?s Empire of the Moghul. Much like the rest of his tribe, he always finds time for Marathi literature?his favourite authors are Ranjit Desai and NS Inamdar?and the theatre.
Also, the trips to Sindhudurg?with its 120 km of beaches?for the airport venture must be rejuvenating; at a cost of R300 crore, the airport will cater for tourist traffic both to Sindhudurg and Goa which is a two-hour drive. The costs will be recovered both from various airport charges and from commercial use of land that has been allotted. Mhaiskar?s excited about the project and that is not surprising; it is after all a completely new business with a different set of challenges. And there are no speedbreakers.