Infrastructure companies going slow on highway projects

September 13, 2012

Faced with a tough business environment, infrastructure and construction companies are treading cautiously on tollways and build, operate and transfer mode (BOT) PPP projects of the National Highway Authority of India (NHAI).

They now prefer the engineering, procurement and construction (EPC) mode projects .

IVRCL on Monday indicated that it has decided to take a holiday from bidding for BOT projects to focus on EPC. This is not an isolated case; most infrastructure companies are in a pause mode re-strategising looking at EPC projects.

Interaction with leading infra sector firms shows that they are all faced with difficulties of high interest costs, challenges of achieving financial closure, as banks and lenders have hit sectoral cap, and have been demanding more equity in a market where equity is hard to come by.

M. Gautham Reddy, Executive Director of Ramky Infra, said the number of projects that have come up for participation are less and companies have become extra cautious, given the market conditions. They are looking at the opportunity to take up EPC mode projects where NHAI will pump in funds.

The Chief Financial Officer of Madhucon Projects, S. Vaikuntanathan, said most companies enjoy being EPC contractors, but NHAI wanted BOT projects, forcing developers to take to them.

“Developers are facing difficulties in meeting the equity requirements for BOT projects as equity markets have dried up and foreign investors are wary to come in. Most developers want to exit, making it a tough situation,” Vaikuntanathan said.

Madhucon has nine road projects with four being operational, three under development, and two close to financial closure.

T. Adi Babu, Chief Operating Officer, Finance, Lanco Infratech, said with lenders demanding higher equity participation up from 25 to even 40 per cent, difficulties in securing right of way and local implementation issues, are all creating problems for developers.

AGGRESSIVE BIDDING

“The aggressive bidding in the past by some companies is also taking a toll. All projects are not like the Gurgaon highway,” he felt.

R. Balarami Reddy, Executive Director Finance, said the traffic projections are often high and this causes unexpected expectation from developers. This is also one of the reason why NHAI needs to look at PPP mode projects closely and restructure contracts.

An independent regulator would help.

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SOURCE: http://www.thehindubusinessline.com

Written by ITW Editor · Filed Under News

4 Comments on “Infrastructure companies going slow on highway projects” Post your comment

urmiladevi on September 26th, 2012 11:39 am

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urmiladevi on September 26th, 2012 11:41 am

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urmiladevi on September 26th, 2012 11:42 am

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Daljit Singh Khokhar on September 28th, 2012 9:27 am

It is true that the bidding should be limited to Engineering, Procurement and Construction and minus Operation. The Operation of the road and recovering the cost of investment in the project should be tendered seperately who are really competent in Managing the Tolls. The Government should take the onerous to provide funds to the Road and Infrastructure builders and keep these funds in the annual budget keeping in mind the conservative road construction based on 10 KM per day completed for operation in the financial year. The carry forward the balance should be strictly avoided to avoid over ambitious planning. The out of the construction of roads vary with the topography of the area in the different parts of India.

The state Government go for awarding construction of Foot Over Bridges,under passes and other projects on Build Operate Transfer Model to avoid financial involvement which allow the builders to delay the projects on the excuse of not getting funds from their banks. BOT model should be discouraged to achieve quality products fast and it avoids the excuse of price escalation .If the Government has exclusive funds for the important public projects then only go for it.

The Government should draw list of the Priority projects which can be executed in the specified time. Take next project according to the funds available with them. Haryana Government even for small project is adopting the BOT model for FOB and underpasses.This is not correct policy.