High bids spell private companies’ renewed interest in roads

NEW DELHI: Two road projects offered in the public-private partnership mode have got a good response, indicating a pickup in private investment in the beleaguered sector.

The government has received eight bids for the two projects offered on a build-operate-transfer (BOT) and toll basis, with Essel Infraprojects emerging as the lowest bidder in both projects. The 71-km Mubarakpur-Panipat stretch with project cost of Rs 2,129 crore received five bids.

The project involving eight-laning of Mubarakpur-Panipat stretch on National Highway 1 from current six lanes is expected to decongest Delhi traffic to a great extent.
The other project, involving four-laning of the 127-km Raipur-Bilaspur stretch at an estimated total project cost of Rs 1,549 crore, has drawn three bids.

The number of bids spells a revival of interest among private players that had stopped participating in PPP projects, forcing the government to resort to the engineering, construction and procurement ( EPC) mode where the entire cost is borne by the government.

Both the projects are yet to be awarded. The Raipur-Bilaspur project has been put up for bidding for the second time after it failed to generate any response in the first round.

“Earlier, banks were reluctant to lend money. But now, with 80% of the land acquired and clearances put in place the comfort level in the market has gone up,” said a senior official, explaining the reason behind renewed private sector interest. However, experts say that the interest shown by the developers has to be matched by the banks for the PPP model to take off.

“Financing has to come from the banks. Traffic projections have been very aggressive in the past, which has made bankers wary of toll road projects,” said Manish Agarwal, partner and leader-capital projects and infrastructure, PwC India.

The appetite for BOT projects has gone down since the developers have not been left with equity to contribute and lenders have been unwilling to provide debt funds. The government has granted rescheduling of premium payments in BOT projects to ensure that the project execution does not suffer.

“There is a need to break down investment opportunities for private sector and we have to see what risks can be transferred between the private and government body,” said Nicole Lockwood, director-public sector and infrastructure, KPMG.

The government plans to build about 20,000 km of roads under the National Highways Development Project till 2020. This will require funds to the tune of Rs 5 lakh crore, road minister Nitin Gadkari has said.

The government is trying to tap into various sources of funding, including pension funds to spur investment. The highways ministry, in order to revive private investments in the road sector, has also come up with a hybrid annuity model where 60% of the project cost has to come from the private investor.