Developers weigh exit as toll projections slip

Written by Timsy Jaipuria | New Delhi | Updated: Feb 7 2014, 17:01pm hrs
With toll projections slipping and the relief extended by the Rangarajan panel on premium recast difficult to access and not being attractive enough, many highway developers are seriously contemplating exiting the business.

Several developers FE spoke to confirmed their keenness to move away from the road development business, which they find unremunerative. The possible buyers could be some private equity firms, who have deep pockets and can remain invested till the tide turns.

"The highway business is no longer making any business sense for the company, which is why we are looking at diluting our stakes," said a senior official of a top infrastructure company on the condition of anonymity.

"We are slowly looking at exiting the highway projects; we are in talks with private equity players," added a senior official at another developer.

According to sources, the recent relaxation in the exit policy, aimed at unlocking funds and enabling players to invest in new projects, has failed to enthuse most.

Big players such as GMR and GVK have already walked out of some projects they had won through competitive bidding. Even Reliance Infra is looking at exiting some projects.

Ashoka Buildcon managing director Satish Parakh said: Till the time we do not get clarity on who will compensate us on cost escalation, I do not think this (Rangarajan) package makes any sense for us; so we would let the (Cuttack-Angul project agreement to be terminated."

Developers have often cautioned the highway authority that if correct steps to tweak policy bottlenecks are not taken, the prevailing policy paralysis in the road sector is likely to continue in future and developers would not like to invest further.

National Highway Builders Federation (NHBF) director-general M Murali has written to Prime Minister Manmohan Singh, principal secretary to PM Pulok Chatterjee, minister for road transport & highways Oscar Fernandes and finance minister P Chidambaram for an intervention.

Murali stated: "The revival of projects under the PPP mode is a necessity... the proposed recommendations of the Rangarajan Committee will not serve the purpose of rescheduling of premiums and the majority of the concessionaires will not be interested in opting for it. The first draft proposal prepared by the committee addressed the concerns of the concessionaire partially... these recommendations, if implemented without any modification, will not have any takers and also lead to the same fate of flawed exit policy announced by the government that (has not been) able to attract any investment so far."

The federation is also opposed to a higher discount rate (which is bank rate + 2%) proposed by the panel in comparison to the 9.75% extended to the telecom sector. The proposal to levy a penalty of 0.5% in the case of concessionaire default is also worrying, said NHBF.

"We are yet to check the viability of our project before we approach the government whether we want to go for premium rescheduling or not. There are concerns over the interest charged on the deferred premium and the toll projections. The decision to back-load the excessive amount is good but given that the projects are already facing delays, whether we will take this scheme or not is what we will take time to analyse," said Issac George, director - finance and CEO, transportation of GVK.

As reported by FE earlier, only 8-10 highway projects would qualify as stressed projects as per the criterion proposed and, out of these, the top three are GMR's Kishangarh - Udaipur- Ahmedabad, GVK's Shivpuri-Devas and Ashoka Buildcon's Cuttack-Angul.