The high interest rates have begun taking a toll on key infrastructure projects. The government has accepted that there will be a massive 50% increase in the financial estimate for modernisation of the New Delhi railway station, and estimates of other projects are being taken to the drawing board again.
Accordingly, the Planning Commission has suggested to the railway ministry that the required investment for the station?s modernisation should be increased to Rs 9,025 crore, from the original Rs 6,000 crore, taking into account the higher interest rate.
The scale of revision is quite drastic. At stake is the financing plan for cities, like in the case of Jawaharlal Nehru Urban Renewal Mission that was estimated to cost Rs 60,000 crore. The overall budget for infrastructure spend by public and private sectors in this fiscal is expected to be about Rs 2,00,000 crore.
For the New Delhi railway station, the Plan panel has pointed out that the financing cost, including price escalation, of the station?s redevelopment was estimated at 25% of the overall capital cost. When the request for qualification (RFQ) was issued, interest rates varied between 8% and 9%. However, with the tightening of the monetary policy in recent months, interest rates are close to 13%, and the financing cost of the project would increase proportionately.
?The railway ministry should revise its estimate of the required investment for the project, and could also look at issuing a modified RFQ. This will give a clearer picture to the bidders about the magnitude of the project,? an official source said. This would also delay the time line for the project.
Experts point out that high interest rates are affecting infrastructure projects in most sectors. Arvind Mahajan, executive director, KPMG, said, ?Financing projects is becoming more difficult as the funds are drying up and interest rates are much higher now.?
Vinayak Chatterjee, chairman, Feedback Ventures, agrees, ?Financial costs of projects have gone up on account of inflation and also because of lesser liquidity in the system.? Infrastructure projects have already been feeling the heat as the cost of construction has increased by as much as 20% due to the spiralling prices of steel and cement. Roads and highway projects have been hugely impacted because of the higher prices of cement.
Incidentally, the public-private partnership approval committee would take up the station project on Monday. Railway ministry officials are, however, tight-lipped on the matter. The railway ministry had invited bids from private players for the ambitious New Delhi station modernisation project and issued the RFQ in December last year. It had selected 13 bidders, of which six have now been shortlisted for financial bidding.
The modernisation programme was earlier mired in controversy. Based on a criterion in the RFQ, 11 of the 13 bidders faced potential disqualification. The norms called for disqualification of bidders, if a common private financial institution is a stakeholder in them beyond the prescribed limit. Late last month, the finance ministry relaxed the norm, paving the way for the selection of more bidders.