Big road projects boost for Narendra Modi government, 42 of 48 HAM projects worth Rs 43,500 cr achieve financial closure

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Mumbai | Published: November 16, 2017 6:02:46 AM

Of the 48 road projects awarded under the hybrid annuity model (HAM) by the National Highways Authority of India (NHAI) and the road transport ministry till March this year, 42 projects with an aggregate bid project cost (BPC) of Rs 43,500 crore have achieved financial closure.

Road developers told FE that more number of financial closures is a positive sign as it would improve the confidence among companies to bid for more projects.(Reuters)

Of the 48 road projects awarded under the hybrid annuity model (HAM) by the National Highways Authority of India (NHAI) and the road transport ministry till March this year, 42 projects with an aggregate bid project cost (BPC) of Rs 43,500 crore have achieved financial closure. Projects seeing a delay in financial closure mainly belong to weak sponsors such as MBL Infrastructures and Overseas Infrastructure Alliance, who either returned their projects or saw their projects cancelled earlier this year. Road developers told FE that more number of financial closures is a positive sign as it would improve the confidence among companies to bid for more projects.

Rohan Suryavanshi, director, strategy and planning, Dilip Buildcon, told FE, “In the current quarter, we are seeing more number of projects being tendered on an engineering, procurement and construction (EPC) basis. Perhaps, the increasing number of financial closure for HAM projects will inspire confidence among the government also to bid out more projects under this model.” Dilip Buildcon had built up the largest portfolio of HAM projects worth about Rs 7,000 crore until it divested this entire portfolio along with other road assets in August this month for Rs 1,600 crore. Suryavanshi said the company plans to continue to bid for more HAM projects at a similar pace.

Maulesh Desai, associate director, CARE Ratings, is of the view that the timely release of funds towards the construction cost has increased confidence among lenders for the new model. “The release of 50% of mobilisation advances immediately upon the receipt of the appointed date, coupled with the early release of the first three installments of construction grant is expected to improve the cash flow of the project during the initial construction period as well as reduce the upfront funding requirements of the developer,” he said.

Recently, NHAI had modified the model concession agreement (CA) of HAM projects to address the developers’ challenges during the construction phase as well as aid the liquidity situation during the initial period of implementation. Desai added that he expects issues related to right of way (RoW) to be resolved by NHAI in the near to medium term, resulting in increased traction in the execution of projects awarded till FY17.
“The timely release of inflation indexed-construction grant is also expected to boost confidence of both developers and lenders,” he said. However, projects with an aggregate BPC of Rs 5,500 crore are yet to achieve financial closure, out of which projects with an aggregate BPC of Rs 4,500 crore belong to weak sponsors.

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