The National Highway Authority of India (NHAI) has cancelled the R319-crore order for two-laning of the Karaikudi-Ramanathapuram section of NH-210, in Tamil Nadu, for which Ahmedabad-based Sadbhav Engineering had been declared the successful bidder.

While Sadbhav said it wasn’t aware of the reasons for cancellation of the project, industry sources told FE that the NHAI felt that the annuity amount realisation would exceed the traffic on the section. Sources say the project could come up for re-bidding by NHAI.

The project was to be executed as DBFOT (annuity) basis under NHDP Phase-III. The annuity amount was Rs 39 crore. Sadbhav is yet to decide on its future course of action. ?We will still need to find out the reasons for the cancellation as we got this information only on Saturday,? said a company official.

The company informed the BSE on Monday: ?NHAI, vise its letter dated March, has cancelled/annulled the bid process of the project, ‘two-laning with paved shoulder of Karaikudi-Ramanathapuram section from 94 km to 174 km, in Tamil Nadu?. Sadbhav Engineering’s share price closed 2.07% down at Rs 113.40 on the BSE on Monday.

Over the last two years, traffic growth in India has taken a huge hit as weak demand scenario continued. The GDP growth, which has a direct effect on traffic, has slowed down. In FY11, India’s GDP grew at 9.3%, which fell to 6.22% in 2011-2012 and, according to government estimates, it is expected to hover around a weak 5% for FY13.

In 2002-2003, India’s GDP had grown at 4%. Issues related to mining and lack of speedy project clearances continued to hurt manufacturing and investment activity, which, in turn, affected traffic growth.

The February 2013 industrial output grew a meagre 0.6% compared to February last year, though a second consecutive monthly increase is not being seen as a very strong or sustainable recovery.

Aggressive bidding not withstanding, the traffic projections on projects also led to a number of projects becoming unviable in the country. Some projects also suffered on account of delays in land acquisition and environment and forest clearances.

The two biggest examples have been GMR and GVK walking out of two road projects earlier this year, citing clearance hurdles for the projects. GMR exited nearly the Rs 7,200-crore, 555-km Kishangarh-Udaipur-Ahmedabad highway in western India at Rs 636 crore of annual premium for 26 years. GVK pulled out of the Rs 3,000-crore Shivpuri-Dewas project in Madhya Pradesh.

According to a December 2012 report of Ambit Capital, road projects awarded in FY12 may face cancellation as nearly 70% of the BoT road projects awarded in FY12 have not achieved financial closure, as banks have become more stringent in lending. ?Lenders are demanding 100% equity requirements of the project to be invested in the first 12-18 months of the construction period, which are typically invested over the entire construction period of 30-36 months,? says the report. However, as most concessionaires are highly leveraged and lack capital to invest 100% of the equity in the first 12-18 months, financial closures are getting delayed.