ADB grants $300 million for road project in India
August 17, 2013
The Asian Development Bank (ADB) has signed an agreement with the Government of India to provide a financing package of $300 million to fund a road development project in the state of Bihar.
The country intends to use the funds for Bihar State Highways II Project, which will upgrade 254 kilometers of severely deteriorated highway in northern and southern Bihar. The project will widen existing sections of four highways to two lanes, build and maintain bridges, and strengthen pavement. This should optimize access to the state highway network for beneficiaries living in remote villages.
The project will also use a $1 million from the allotted funds to prepare a 20-year road master plan for Bihar state. The project will also focus on improving the road design that will help address future flooding. To offset carbon emissions, the project will plant 10 trees for every individual tree cut for road widening. Solar panels will be used at construction sites to sequester carbon and reduce carbon emissions.
Stated for completion in October 2017, the estimated outlay of the Bihar State Highways II Project is $375 million. The remaining funding for the project will be provided by the government of India.
Errant road builders may have to pay fine to exit project
August 12, 2013
PTI
(“If there is any fault on…)
NEW DELHI: Road developers will not be blamed for delays in regulatory procedure but have to take responsibility for their own faults and may have to pay up to 1 per cent of total project cost as penalty for exiting, Road Minister Oscar Fernandes said.”If there is any fault on the part of the concessionaire, then there will be a penalty of a maximum of one per cent, of the total project for the developer to exit the project,” he told PTI.
The government is also of the view that the developer will not be held responsible if there is any kind of delay in regulatory procedure.
“If there is delay in land acquisition or environment and forest clearance, the concessionaire will not be held responsible…in that case they will not be penalised,” Fernandes said.
The Ministry of Road Transport and Highways is believed to have firmed up this clause after consultation with the Law Ministry.
Last month, the government approved the proposal to facilitate harmonious exit of the concessionaire in ongoing and completed National Highway Projects, a move aimed at expediting implementation of road infrastructure in the country. This was also done to insulate the National Highway Authority (NHAI) from heavy financial claims and unnecessary disputes.
The existing concessionaires both in case of completed and on-going projects have been permitted to divest their equity in totality.
The decision was triggered by lack of interest among bidders for highway projects under the PPP (public private partnership) mode and difficulties faced in achieving financial closure for such projects.
A large number of highways projects, including 20 major projects involving investment of Rs 27,000 crore, are stalled for various clearances.
Earlier this year, infrastructure players like GMR and GVK had recently walked out of mega road contracts while a large number of projects awarded during 2011-12 are yet to achieve financial closure.
The highway developers were facing acute shortage of equity and were unable to raise the required debt which in turn resulted in poor response to the PPP projects.
Meanwhile, the newly-appointed Road Minister also said that his challenge will be to work towards getting speedy environment clearances for the projects which are at present stuck.
http://articles.economictimes.indiatimes.com
UN warns India against disaster risks in major PPP projects
August 8, 2013
Pradeep Thakur, TNN
NEW DELHI: A United Nations (UN) report has warned India that it is at greater risk by opting for public private partnership (PPP) mode of investment for raising its public infrastructure where the government has less control over its executing private partners and the latter has little interest in long term safety of the projects.
A UN study, the Global Assessment Report (GAR) on disaster risk reduction, released earlier this month for Asia Pacific has warned India of its huge infrastructure assets exposed to disaster risk, something like what we have experienced post release of the report inUttarakhand where flash floods have washed away properties worth thousands of crores while thousands have perished.
The report says: “Increasingly, in India, PPPs are emerging preferred mode of investment for publicly managed construction. These partnerships do not necessarily lead to improved disaster risk assessment and management, and may underplay disaster risks or lead to their transfer as shared costs to the public sector or to city residents.”
The 2013 GAR study on disaster risk reduction is the third biennial report coordinated by the UN’s Office for Disaster Risk Reduction (UNISDR) and has analysed many of the country’s largest infrastructure projects for their risk exposure to natural and man-made calamities.
The findings reveal a sample analysis of 136 port cities with populations of more than 1 million predicting that currently North America has the highest volume of exposed economic assets while it is the population which is at greater risk in Asia.
The GAR warns India — which has projected nearly $1 trillion worth of investments for infrastructure development in the 12th Five Year Plan – of greater economic losses from unsafe public property facing disaster risk. The report puts the estimated exposure of economic assets in Mumbai alone to increase from $46 billion in 2005 to $1,598 billion in 2070. Other Indian cities where large PPP assets are planned face similar risk.
“Owing to economic and urban growth, natural and artificial subsidence, sea level rise and climate change, this exposure is likely to increase dramatically, particularly in low and middle-income countries,” according to GAR findings.
Uttarakhand too is prone to earthquakes. Almost half of the state falls in high earthquake zone. Most disasters that could occur haven’t happened yet, the UN report warns, estimating total expected annual global loss from earthquakes and cyclone wind damage alone to $180 billion a year. “This figure does not include the significant cost of local disasters from floods, landslides, fires and storms or the cost of business interruption,” it added.
Elsewhere in India, the report cautions against haphazard development in urban areas where “the urban population is expected to grow from 379 million in 2010 to 606 million in 2030 and 875 million in 2050.” It seeks the government to ensure adequate regulatory mechanism that guarantees private constructions invested in earthquake resistant housing developments.
The UN calls the government to “integrate disaster risk information into investment decisions; building public-private risk governance and disclosing disaster risks and costs on balancesheets of companies.” It says innovative companies worldwide have already begun to move in this direction, identifying disaster hot spots in their supply chains, reporting on risk reduction measures and forging partnerships with municipal governments.”
The report has another concern area, the export oriented special economic zones (SEZs), many of which are located in hazard-exposed areas. “The number of export oriented SEZs has expanded from 176 zones in 47 countries in 1986 to 3,500 zones in 130 countries in 2006. Many such zones are located in hazard-exposed areas increasing disaster risks,” it added. India has one of the largest expansions of SEZs, with ineffective regulatory control.
13 road projects to be awarded under OMT basis
August 7, 2013
The government has identified 13 road projects of over 1,800 km length that would be build on the operate-maintain-transfer basis during the 12th Plan period (2012-17).
Under OMT (operate-maintain-transfer) concept, six projects or packages measuring 963 km have been awarded and four measuring 720 km are in the bidding stage, an official in the Road Ministry said.
“We have identified 13 more such packages about 1,839 km to be developed under the same (OMT) model,” he said.
The government has identified 60 new locations for development as wayside amenities on highways.
These amenities include parking lots, restaurants, toilets, first-aid centres, telephone booths, petrol pumps, kiosks for sale of miscellaneous items and landscaping.
At present amenities at six locations have functional and work is on at other locations, he said.
Approximately, 3800 km of completed 4-laned highways constructed under various NHDP (National Highway Development Programme) are under maintenance.
Ministry of Road Transport and Highways has set a target of covering a length of 8800 km under NHDP next year (2012-13).
The allocation of the Ministry has been enhanced by 14% to Rs 25,360 crore in 2012-13.
Government’s recent efforts for revival of highways sector end up non-starters to policy gaps
August 5, 2013
By YASHODHARA DASGUPTA, ET Bureau
NEW DELHI: The government’s recent efforts to revive the highways sector will turn out to be a non-starter because the new rules have inherent gaps, road developers have told Prime Minister Manmohan Singh and Finance Minister P Chidambaram.A long-awaited policy notified last fortnight to unlock equity funding for new projects by letting concessionaires exit ongoing and completed highway projects will not help bring any new investments or FDI into the sector since it’s mired in legal, taxation and commercial mess, developers have said.
 |
In June, the government had approved a policy that would allow substitution of concessionaires in highway projects at any stage as long as financial closure had been achieved. This was done to revive the sector – marked by dramatic fall in investments — by freeing up equity and using it in new projects that are not taking off for want of buyers.
“The current circular has failed to address the issue of unlocking of equity in healthy, operational projects that will release about Rs 6,000 crore of equity in older concessions. This would have also brought serious, long-term FDI to road sector,” National Highway Builders’ Federation (NHBF) has said in a missive to the prime minister and finance minister.
“The policy has a large number of legal, commercial and taxation challenges that investors and sellers would not be willing or prepared to deal with,” they added.
Industry members have pointed out that the policy does not include projects where financial closure is not achieved despite the fact that there are several such projects because the authority has not fulfilled its obligation.
However, road ministry officials said allowing substitution where financial closure has not been achieved would mean giving complete leeway to developers which would be detrimental to the PPP framework and that an NHAI default is already covered in the existing model concession agreement (MCA).
The letter also points out that it is not clear whether completed projects include partially completed ones and projects that have received provisional COD. It is also unclear whether the incoming entity can get the tax benefits available for infra projects.
According to M Murali, director general at NHBF, the government’s intention will not succeed with this route since the substitution mode will not be acceptable. “The process is also long, confusing and would involve more expenditure. Also, what’s the point of imposing a penalty on exiting developers when they are already stressed in the first place,” he said. The penalty clause however, said government officials, was opposed by the road ministry but it was included at the insistence of the finance ministry.
Meanwhile, NHAI officials said that international players, including sovereign funds, have expressed interest in taking over existing projects where developers are interested in selling their stake.
Source-http://economictimes.indiatimes.com
World Bank debars Indian firm for corruption in road project
August 5, 2013
The decision follows a World Bank investigation and review of poorly performing road construction contractsunder the bank-financed project, for which CES was the supervision consultant, the bank said in a statement on Friday.
Consulting Engineering Services (CES) will not qualify for any contract financed by the World Bank Group during the five-year debarment, which came into effect on Friday.
“The debarment is part of a Negotiated Resolution Agreement between the World Bank and CES that addresses misconduct that occurred under CES’s former ownership and former management. The settlement resolves an investigation into allegations that CES defrauded the Highway Project and received bribes from construction contractors on the Project,” the statement said.
CES has agreed not to contest that its engineers approved forged and falsified invoices to support advance claims for payment under the contracts, in part in exchange for receiving improper cash payments and other things of value for their personal benefit.
The company also agreed not to contest the fact that the bid submitted by its former management and former owners for the supervision contract contained falsified credentials of its proposed staff.
In addition to conducting its own internal investigation, CES has fully cooperated with the World Bank Integrity team and has begun reforming its corporate compliance program.
“This case demonstrates the World Bank’s strong commitment to manage corruption risks and the progressive shift we are making in promoting corporate compliance,” said Leonard McCarthy, World Bank Integrity Vice President. “Companies, like CES, who, when notified of misconduct, self-investigate and take actions against wrongdoers offer a good example.”
The debarment may be converted to conditional non-debarment at the end of the first 24 months if CES fulfils its obligations under the agreement, the World Bank said.
Road Ministry sets target to complete Rs 34K Cr projects in NE by 2016
August 5, 2013
By PTI |
NEW DELHI: Government has set a target to complete Rs 33,688 crore projects under Special Accelerated Road Development Programme by June 2016 to improve infrastructure in the country’s North Eastern region.
“The phase A of SARDP-NE including Arunachal Package covers 6,418 km at an estimated cost of Rs 33,688 crore… The project is targeted for completion by June, 2016,” according to the Road Transport and Highways (RTH) Ministry.
The projects are being executed by the States Public Work Departments, Border Roads Organisation (BRO), National Highways Authority of India (NHAI) and the Ministry of Road Transport and Highways.
SARDP is Special Accelerated Road Development Programme. So far, about 1,180 km have been completed, as per the Ministry, which said it targets to award projects in a total length of about 2,000 km and achieve completion in 550 km length during 2013-14.
The Phase B of the SARDP is at a conceptual stage, as per the Ministry.
The programme envisages providing road connectivity to all the district headquarters in the north eastern region by minimum 2-lane highway standards apart from providing road connectivity to backward and remote areas, areas of strategic importance and neighbouring countries.
RTH Minister Oscar Fernandes and Secretary Vijay Chhiber last week reviewed the progress of projects in presence of Chief Ministers of the states. They asked officials to expedite progress and find ways to speed up implementation of the projects.
The Minister said the government was serious about developing infrastructure and would carry out feasibility study for the newly declared NH-127 B. This will connect Srirampur to Phulbari via Dhubri including construction of a bridge over river Brahmaputra.
It will also invite Request for Qualification (RFQ) for widening NH-37 between Numaligarh – Jorhat – Demow – Dibrugarh to 4-lane standards on BOT ( Annuity) basis besides work on other projects. Chhibber emphasised that government is committed to accelerated development of infrastructure in the country in general and in the North East Region in particular. The developments come in the wake of Prime Minister Manmohan Singh reviewing infrastructure projects in the North East Region in a meeting held on July 18. An Empowered Group of Ministers and a committee under the chairmanship of Cabinet Secretary have also been constituted to quickly find solutions for outstanding issues impeding the progress of projects.
Source-http://economictimes.indiatimes.com
Exit norms relaxed for road developers
July 30, 2013
MAMUNI DAS
A long-pending proposal from highway developers seeking a relaxation of the exit clause — which allows an investor with deeper pockets to replace a promoter facing financial stress — has now been approved.
The move is likely to increase the M&A activity in the road sector.
The Cabinet Committee on Economic Affairs (CCEA) has approved this proposal. The substitution of developers can be done with the approval of NHAI, lender and private developer. At present, there are limits on the extent to which a developer can exit.
“We hope, with this, a number of stalled (road) projects, can now move forward,” Union Finance Minister P. Chidambaram said.
Earlier, the National Highways Authority of India (NHAI) Chairman R.P. Singh had said that banks should be allowed to replace a cash-strapped developer with a financially healthier substitute rather than declare the project a non-performing asset on its balance sheet.
This proposal had been supported by the Highways Ministry as well, which had felt that any developer unable to work on a highway development project should be allowed to exit as long as another firm is willing to take its place. The only condition for this change will be that the replacement must meet the same technical qualifications.
Also, in case the original project developer had defaulted in earlier obligations, then the NHAI can put a penalty on the original developer.
Slowdown takes toll on India’s highway projects
July 30, 2013
TIMSY JAIPURIA : NEW DELHI, JUL 30, 2013,
The number of new highway projects awarded, which peaked in 2011-12 at 6,491 km, has come down to 1,116 km in 2012-13. Indications are that the figure could fall to an even more abysmal level this fiscal. The reason: Economic slowdown that has constrained the finances of players in the sector and made toll revenue targets unattainable. A tight monetary policy, which made loans costlier, has also hit potential developers hard.
What needs to be seen is whether the scenario would now improve after the government’s recent measures such as catalysing compatible financing and easier exit for developers.
The prominent view is that given that the economy is unlikely to look up over the next couple of quarters, at least short-term prospects for the sector are not very good .
Sector watchers point that private players’ interest in public-private partnership (PPP) projects in the highways sector has waned. This, they said, is evident from the weak response to the projects being bid out, stated intent of some prominent developers to reduce their exposure to the build-operate-transfer (BOT) projects and lower number of pre-qualified bidders for CY13.
There is also an intent among large players to exit or renegotiate some projects awarded earlier. While the decline in investor interest may be attributed partly to the subdued environment, the weakening of the financial profile of many developers has also led to a lukewarm response to the bidding processes.
Given the sentiment towards the BOT projects in the sector is expected to continue to remain weak in the short to medium term, the NHAI’s new initiative to award more projects on the engineering, procurement and construction (EPC) and operate, maintain and transfer (OMT) modes could bring some respite to the sector.
Experts said the decision to resume awarding projects again on the EPC mode — virtually stopped in 2008-09 — is a welcome step as this would unbundle the execution, funding and traffic risks and could stimulate participation from the private sector.
“Everybody in the infrastructure space is stressed. Road projects were taken up under BOT model, expecting a 8-10% growth in traffic every year based on the automotive sales numbers. But the reality turned out to be different,” said DV Raju, vice-president, National Highway Builders Federation.
Industry chambers like Confederation of Indian Industry have consistently argued for the need to derisk the sector through well-directed policy measures.
“Given the need for capital, these measures (taken by the government) might indeed help. These would allow early-stage investors to plough back the released equity into the sector and facilitate entry of long-term investors. However, investors would wait to see the detailed guidelines before committing themselves to projects. A liberal regime that permits transfer of equity through bilateral negotiations with the consent of NHAI and lenders will help boost private investments,” said Athar Shahab, chairman, CII core group on roads & highways and CEO, Uniquest Infra Ventures.
A major problem with which the sector is going through right now is the dearth of equity financing. Even though the Cabinet approved allowing 100% exit by developers, till the time such exits start happening, it could be tough to see a revival of investor interest, analysts said.
“Lack of equity has severely affected many projects under execution. Bringing in substitutes will help in timely completion of such projects and also revive market position of the developers,” said Vinayak Chatterjee, chairman, Feedback Infrastructure Services.
“Till the time some unlocking of funds, which are currently tied in the project SPVs happen, it is difficult to enable long-term strategic investors to bid for newer projects and reinvigorate the growth momentum in the sector,” said a senior road ministry official. Lower-than-committed tolling revenue has in many cases led to financial calculations of construction firms going awry, putting several road developers in trouble. In a chain reaction, this impacted institutions that funded these projects as road developers failed to service debt .
The road ministry admits the government erred in projecting a high growth rate in the sector. One of the key considerations for NHAI was the falling traffic growth and its impact on the lenders’ confidence in several projects . BOT projects bid out during 2011-12 received aggressive bids. As many as 25 projects received premium bids, including Kishangarh-Udaipur-Ahmedabad awarded to GMR.
From these projects the NHAI was to get premium amounting to Rs 98,115 crore over the concession period. Since, these projects are unable to start execution due to financing constraints, the entire future financing model of NHAI is now being questioned.ICRA in a report said that after awarding 6,491 km of roads in FY12, the sector witnessed a slump in awarding of projects with only 1,156 km of projects being bid out in FY13, which is about 17% of the target of 7,000 km set for the financial year.
The decline in awarding activity has been on account of weak interest from private sector participants due to difficulty in raising funds, stressed financial position of many developers, delays in getting right of way and clearances, the report added.However, according to ICRA, despite the sharp decline in project awards, the performance on the execution front improved in FY13.
“Backed by strong pipeline of projects under execution, the completion rate for NHAI projects increased to 7.9 km/day in FY13 from average of 6.2 km/day in FY12. However, progress on the projects awarded in FY12 remained muted mostly in the absence of requisite right of way, clearances and inability to achieve financial closure,” the report said.
Sources in the know said the NHAI has now stepped-up its efforts on land acquisition. However, the acquisition process is often elongated due to capacity constraints faced by NHAI and opposition from land owners over compensation.
A banker who did not wish to be quoted told FE that “Many lenders have introduced stringent conditions like 100% right of way, clearance, and significant upfront contribution from promoters before the sanction/disbursement of the loan. Bank lending to the sector has also constrained due to large requirement of the sector which could hit the internal sectoral exposure limit of some banks, and the unsecured tag, which was associated with the road projects until few months back, is also responsible for the poor and overcautious lending to the sector to some extent”.Analysts, however, said while the interest for new BOT projects is weak, completed projects with established traffic are witnessing demand from private equity and other global as well as domestic funds. Some contractors and developers are also exploring the options of divesting their stakes in the completed projects to release their blocked capital and redeploy them for new projects.
Land acquisition is a major problem. According to Rohit Inamdar, senior vice-president, ICRA, “Around 18 projects that were awarded in FY12 could not achieve financial closure till March 2013 due to uncertainty on land acquisition.”
Source-http://www.financialexpress.com
US breaks ground on final part of Ohio River Bridges project
June 20, 2013
{ “The new bridge and its counterpart in Louisville’s East End will be the
region’s first new bridges in more than 50 years.”}
The US Federal Highway Administration (FHWA) has broken ground on the $1.3bn Downtown Crossing – the second half of the Ohio River Bridges project.
Scheduled to be completed in late 2016, the project involves the construction of a new bridge that widens I-65 from seven to 12 lanes over the Ohio River in downtown Louisville and the reconstruction of Kennedy Interchange where I-64, I-65, and I-71 converge.
The new bridge and its counterpart in Louisville’s East End will be the region’s first new bridges in more than 50 years.
US Transportation Secretary Ray LaHood said: “This new bridge, and its East End counterpart, will create jobs and provide more transportation options for one of America’s most important trade corridors.”
Federal Highway Administrator Victor Mendez said: “By reducing congestion, these bridge projects not only create jobs but will allow local residents to spend more time with friends and family.”
Planning for the project started in 1969, and works on the East End Crossing began in autumn last year.
The programme was approved by the federal authorities in June 2012, and was originally estimated to cost $4.1bn but later revised to $2.6bn.
The new bridge will almost double the traffic capacity of the river crossing and considerably lower the time and cost required to ship US products through the Louisville metropolitan area.
Image: The new bridge and its counterpart in Louisville’s East End will be the region’s first new bridges in nearly 50 years.
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