With an aim to make highway projects more feasible and to encourage bidders to take them up, the National Highways Authority of India (NHAI) has upwardly revised the cost of projects.
?The cost of all those projects for which the feasibility report was prepared before 2007 has been increased by 20%. The projects on which the report was prepared in 2007, will see an updation of 10%,? said a top NHAI official.
The step has been taken after a detailed analysis of the increased construction cost, which did not figure in the old feasibility report of the projects, he added.
On the increase in upfront subsidy, which the government provides for highways projects, which is capped at 40% now, the official said with the increase in cost of the project, the quantum of subsidy will also increase. The government grants the viability gap funding in two tranches of 20% each. It provides the first tranche at the time of commencement of the project and the balance 20% is provided during the maintenance phase.
The initiative is likely to benefit 60 projects worth Rs 60,000 crore, which the NHAI put on the block for bidding this September. ?The move will send the right signal to the market and get us more competitive bids,? he said.
However, highways construction firms have questioned the basis on which the project cost has been revised. ?On what basis have the costs been revised at 20% and 10%. It is highly unlikely that the upward cost revision will encourage the bidders to take up the projects,? said a top official of a highways construction company. Calling the interest rates to be the core issue, M Murali, director general, National Highways Builders Federation said, ?These initiative will not make the projects viable with the interest rates for long-term projects hovering around 14%. There has to be a consistent interest rate in the range of 9%-10% to make the projects viable.
?Also, there is a substantial gap between project costing and traffic data, which may not be compensated by 10% and 20% increase in the cost of the projects. The government needs to project realistic traffic data to make the projects viable. Also there should be a provision of cost escalation clause in the agreement for build operate and transfer projects,? Murali added.