IL&FS Transportation Networks (ITNL) was India?s first company in the private sector to enter into a public-private partnership in 1996-97, marking the beginning of private participation in road construction in India. ITNL recently became the first Indian company outside of financial services to raise money through yuan-denominated bonds, when, last week, it raised $100 million to refinance loan taken towards picking up 49% stake in Chongqing Yuhe expressway in China. Mukund Sapre, executive director, ITNL, speaks to Shubhra Tandon on the company?s growth plans and the changes in the PPP scenario in the road sector since the company bagged India?s first toll project ? the ?Noida Toll Bridge?. Excerpts:
How have things changed since 1996-97 when you made your entry?
In the road sector, data availability on traffic and its growth forecast is crucial. It is far more accurate now than it used to be in 1996-97. In those days, even base data lacked authenticity. But now, with 23-24 projects spread in almost every state, we have been able to create our own in-house data bank. We have parameters to convert a three-day or seven-day count into a yearly count, which is called Annual Average Daily Traffic (AADT). So now, before we bid for a project, I know the traffic forecast for that area. Also, so many years of budgetary constraints have taught us to live in lane constraints. Look at China ? they are going from two lanes to eight lanes, while we are going from two to four lanes. Take the example of Golden Quadrilateral. In just 8-10 years, all those stretches are being bid for six lanes and by the time this cycle ends, requirement would be for 10 or 12 lanes.
How is ITNL trying to work around these challenges?
We have always maintained that we have to complement National Highway Authority of India (NHAI) or the authority that is the concession granter. We have created a special unit called the construction compliance unit. It has engineers, surveyors, and even retired revenue officials. So, the moment a bid opens and I am L1 in that, immediately our team will come into play. We will talk to the project director at site, meet head office officials and immediately start providing them with documents, etc.
The sector witnessing aggressive bidding. What?s your experience?
Though there is so much talk of aggressive bidding, there is no instance where a project has not received financial closure. This is because banks have started asking questions on issues related to project financing. However, acquisition chances will come when some of these projects come for commercial operations. In most projects, we believe that the inherent strength (to generate cash flows) is not going to remain because the assumptions on traffic have been very aggressive. Viability issues are going to come up on the green field projects?the expressway network, unless it is structured properly. We feel Mumbai-Pune expressway is a good example, but let?s not have two parallel entities (real estate and road sector) fight among themselves.
Now that you have invested in an asset in China, how are things different there in roads?
China, too, is realising the pressure. What China did was they put large networks through budgetary allocations and now they are divesting it. So, instead of asking the public sector to come and start projects again, China is trying to divest stakes in matured assets. So they are bringing in sustainability for 3-4 years through operations and maintenance and toll collections and, then, divesting it to capture value. But, then, they have their own issues.
What could we expect from ITNL in the next 2-3 years?
We hold around 12,000 km with 23-24 projects that we have. Of this 5,500 km are already commissioned and the rest is under implementation. We are collecting R2 crore per day through toll and annuity. With whatever I have in hand, which finishes somewhere between 2015 and early 2016, this R2 crore per day will translate to R 11 to R12 crore per day.
Do you have any plans for other geographies like Africa, West Asia or European nations?
ITNL will not be just an investor in any project. While we will remain a road-centric and India-centric company, we keep looking outside the borders also. The idea is that our learning curve has to be in place. If I feel that things are slowing in India and there are other economies providing that opportunity, we will look into it. So, we are looking at some small projects here and there; so, that once markets like Africa or Eastern Europe open for road development works, I will be ready with my learning to succeed there. We are looking into Africa and Eastern Europe ? a country like Ukraine. In between, we had tied up with an Italian company to look into Kazakhstan.