Page 39 - Forbes - India (January 2020)

BharatmaLa

While earlier development financial
institutions funded infrastructure The Gap Between Awards & Execution of NHAI Projects
projects, they have now turned
into commercial banks and are 8000 Execution Awards 7397
suffering from the stresses that 7000 6491
the banking ecosystem is facing. 6000
There are other challenges too. It 5058
is mandatory to acquire 80 percent 5000 4344 2562 4337
of land before a project starts; the Length in km 4000 3360
mandated amount of land is 90 2693 2706 3067 2562 3071 3320
percent in engineering, procurement 3000 2248 2017 2222
and construction projects (EPC) 2000 1784 1779 1436 1500
projects. Environment clearances 1000 1116
also pose a hurdle, like with the
`1,850 crore Char Dhaam project. 0 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
To fund its projects, the NHAI Source NHAI, IcrA research
also needs to complete and operate
projects so that they are monetised.
Says Burla, “The progress on instead of the EPC or HAM models. they were unable to handle risks as
monetisation has not been as it TOT projects have seen the interest they had aggressively bid for these
was envisaged. In this context, of a lot of Indian developers tying projects based on optimistic traffic
the recent decision by the Cabinet up with foreign funds. In the three projections, leading to overleveraging
Committee on Economic Affairs Bharatmala projects auctioned under of their balance sheets.”
that authorised NHAI to set up an the TOT model, where the first and For any infrastructure funding,
Infrastructure Investment Trust the third have been successful, the the new key source is InvITs, where
(InvIT), a first from a central public trend is to tap the financial muscle investors can purchase units of a 39
sector enterprise, is a positive.” of foreign funds and the operational portfolio of completed infrastructure
The difficulty in raising funds capabilities of local developers. assets. While today we see more
from completed projects is increasing The government could also try and private InvITs than public ones,
NHAI's reliance on borrowings; these bundle under the BOT programme NHAI has the government’s nod to
have risen by more than 2.4 times projects where land acquisition and set up its own. Importantly, NHAI
in the past two years, from `75,385 environmental clearances are not a big will have to be conscious of the
crore as on March 31, 2017 to `1.79 challenge. The trend for BOT projects asset selection as the InvIT portfolio
lakh crore as on March 31, 2019. It have changed, explains Mukherjee. will drive investor interest.
is expected to double by FY22. “When the road development NHAI will release partial
Mukherjee says, “Earlier, NHAI programmes started in the late 1990s payments to highway builders for
funded most of its projects through and early 2000s, many developers their work, even if they don’t achieve
the BOT model under public-private- queued up to bid under BOT. But a milestone. This will ease the path
partnerships. Apart from land, it many of them suffered badly as for developers as working capital
didn’t have any other significant advance is aimed at completing
costs. Of late there has a been steep Contract Sheet projects and providing liquidity.
rise in land costs, leading to higher The government’s fight with debt
debt.” Officials from the NHAI or the  Engineering, Procurement and will increase their expectations from
Construction (EPC): Government bears the
Ministry of Road and Transport did cost, private contractors do the work the upcoming Budget, but given the
not respond to Forbes India queries. economic conditions, allocations
Adds Burla, “Since October 2017, 90  Build-Operate-Transfer (BOT): Developer might not meet expectations. Thus,
builds and operates for a while before
to 92 percent of projects have been transferring ownership to the government as long as funding is concerned, the
awarded via either EPC or HAM government will have to look for other
route (see box). Less than 10 percent  BOT-Toll/Toll-Operate-Transfer: sources. Mukherjee says, “Project
Construction, maintenance and toll collection
were awarded through BOT-Toll done by developer selection and structuring are key
route. As a result, the financial to success. Projects in high-traffic
burden on the government is high.”  Hybrid-Annuity (hybrid of EPC and corridors that are awarded with
BOT): Government pays 40% upfront;
The government needs to award developer initially pays the rest; later the better preparedness will have higher
more projects via the TOT model government pays semi-annually over 15 years probability of getting funded.”

january 31, 2020 • forbes india