Fund crunch, law and order, govt clearances drive away bidders
Prasanna Mohanty | July 11, 2012
After a dramatic turnaround, the highway ministry finds itself in a bind. There are simply no takers for the highway projects. All the attempts by the ministry, and the national highway authority of India (NHAI) responsible for building and maintaining highways, have proved futile. At the end of the first quarter of this fiscal, there is little progress in meeting the target – awarding contract for 1,500 km of road (target for the year stands at 9,500 km).
That is because hardly anybody showed up in response to the tenders. In case of some, there was no bidder while in others one or two bidders showed up. A worried minister, CP Joshi, called a meeting of the concessionaires, lending institutions and consultants to take stock of the situation today.
At the end of a three-hour-long meeting, Joshi explained why nobody is interested in building highways – (a) poor traffic growth prospects, (b) law and order issues (some of the projects fall in Maoist-hit areas), (c) need for environment and forest clearances and (d) lending institutions refusing to extend support.
When profitable stretches were tendered last year, the concessionaires had lapped them up. Such was the competition that not only most of them refused to avail viability gap funding (which NHAI was offering to a maximum of 40 percent of the total project cost), they offered premium. By the end of 2011-12, NHAI stitched up contracts that earned it Rs 30,000 crore of premium over the next 20 years.
The ones that were offered this year, Joshi explained, didn’t evoke a similar response because of poor economic prospects and other problems, which were not quite unseen. But what came as a surprise is that the lending institutions refused to lend money because, as they said at today’s meeting, they have already exhausted funds earmarked for roads. With the fund crunch came the revelation that the lending institutions had been giving loans up to 30 percent more than the total project costs (TPC).
Joshi said he assured the concessionaires to take appropriate steps, including taking up the matter with the PMO, to sort out some of the issues like security, environment and forest clearances. He expressed hope that the lending institutions could utilise funds earmarked for other sectors, like power for example, but this would have to be done only at the level of RBI.
He is also working towards resolving certain other issues to expedite highway building. One is to allow transfer of contracts to qualified concessionaires in case of emergencies and the other to get cabinet approval for EPC (engineering, procurement and construction) model of building roads. Based on international best practices, EPC is aimed at preventing cost and time over-run and widening 20,000 km of highways during the 12th plan period.
Quite clearly, there is nothing to indicate that things will improve dramatically but as Joshi explained his job was to “boost the confidence” and do whatever was needed to keep the ball rolling.
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