Even as the government is taking measures to stimulate demand across sectors and buffer the economy against the slowdown fears, the higher interest rate regime seems to have claimed its first victim in the highways sector, where invitation of bids for 18 projects has been deferred to February next year.
Currently, 60 projects worth around Rs 65,000 crore are undergoing the tendering process. With the lending rate for long-term infrastructure projects still hovering around 13-14%, the highway developers do not find the projects put on the block by the National Highways Authority of India (NHAI) lucrative enough, as the detailed project report for these projects have been done at an interest rate of 9-10%.
As a result, NHAI, which could not meet the target of awarding 44 projects by December this year under National Highways Development Programme (NHDP) phase-III, has now rescheduled them and decided to invite bids for the projects in two tranches by February next year.
?The technical evaluation of all the projects has been completed. We will invite bids for 26 projects worth around Rs 30,000 crore by December this year. For the remaining projects, we will invite bids by February next year,? said Ashok Wasson, member (technical), NHAI. The bids for all the 44 projects were to be invited by December this year.
However, this is not a guarantee that the projects will actually be awarded to the private players. ?We have rescheduled the projects. But the actual awarding of the projects will happen only if the bidders come forward to take up the projects,? he added.
But highway builders feel that merely rescheduling the dates is not enough. ?The rescheduling may not make any difference as the core issue is interest rate on long-term lending by banks. What is actually required is a uniform interest rate regime, as these are long-term projects, said M Murali, director-general, National Highways Builders Federation.
Also, expressing concern over the rise in project cost, he said, ?Even though the government has approved an increase in the cost of the projects by 10 and 20%, this is far below the current prices and may not encourage bidders to come forward to take up the project.?
NHAI has recently approved cost escalation at 20% for projects for which detailed project reports were prepared before 2007. For projects based on 2007 prices, the cost updation will be at 10%.
As per NHAI, the cost revision will help all the 60 projects worth Rs 65,000 crore currently undergoing the tendering process.
?Deferring the projects will not help as the core issue is cost of finance for the projects. While on the one hand, the project cost is low and the concessionaire has to arrange the finance, raw material, interest rate. So who will take the risk in the current scenario,? said Murali.