Financial meltdown impacted road projects

A Didar Singh, Member-Finance & Senior IAS Officer at NHAI said that the financial meltdown has impacted the road projects. NHAI has called the bids for 50 projects out of total 60 projects and 22 projects have recieved positive bids, which are worth Rs 22000 crore and 3 of these bids are on revenue share.

He further said that the procedural delay have not impacted the award of projects. Out of the 22 bids, 7 bids have already been awarded and 15 have been referred to the government, seven of them were single company bids. And now, the government will decide on these seven bids.He said that four projects are under scrutiny due to annuity projects and four projects are under scrutiny due to viability gap funding of just 10%. It is no more required to limit bidders to top 6. All future bids will be on open system.

Government has taken measures to ease out land acquisition issues. Land aquisitions has been a problem, but there are many projects on existing roads. About 50% of the land is available at the start of project. Gujarat state projects saw interest due to annuity method.

NHAI prefers BOT/Toll method and if there is lack of interest, then it will look at annuity method. NHAI has decided to resturcture bids w/o compromising on quality and safety. 60 projects are worth Rs 65,000 crore, which will be offered next financial year. However, NHAI can’t gaurantee closure of all 60 projects by 2009 end and it will be decided by the market dynamics.

Restructuring projects will make them less costly and more investor attractive. Refinancing will help reduce cost of finance, and this will help financial closure. Cost of finance is at 12.50%. Closure estimate worth 3000-4000 Km will come near completion in next financial year, he added.

Pre-Elections model code of conduct stops NHAI from conducting/awarding road projects. There are 3 projects, which are worth Rs 1,900 crore, which have not been awarded even though final winners are chosen. About 60 projects worth Rs 70,000 crore will be awarded in FY09. These projects were called for in October, 2008, of which 7 have been awarded, 4 have been cancelled and the rest are pending. NHAI has written to EC if they can go ahead with awarding projects during the elections.

Road Projects are on slow lane. 50 projectss will be awarded in FY10 Vs 60 projects in FY09. Projects will be stuck if funding issues are not sorted. Government is considering a proposal to allow NHAI to extend working capital loan to developers. Proposal can be implemented only after new government comes in. NHAI will provide credit at a rate equivalent to the PLR of SBI plus 1%. NHAI loans will bear an interest between 13.25-15.25% going by current rates. NHAI gives a discretionary advance to developers at 2% above SBI PLR for EPC & annuity projects.

As on January 2009, only 5.44% of total road length of 12,109 Km under NHDP Phase III had been constructed and 1.2% of the planned 6,500 Km under NHDP Phase V had been built. No projects were awarded in any NHDP phase in January 2009.

There was slow offtake for NHDP III despite increase in grant amount. Constructed length is of 659 km, under implementation length is of 1,416 km as on January 31, 2009 and the length which is yet to be tendered is 10,034 km, which was to be bid out by the end of January this year. Grant has been increased to 40% from 20% in the past.

NHDP V has been hit by low grants. The grant was cut to 10% from 20%. Its constructed length is of 77 km on December 31, 2008, under implementation length is of 953 km and length yet to be tendered is 5,470 km

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