High premium in highways a worry: Private highway developers and bankers
Private highway developers & bankers are sceptical about aggressive bidding in highway projects, where players are quoting unexpected premium.
By Dipak Kumar Dash, TNN | Updated:
NEW DELHI: Private highway developers and bankers are sceptical about the aggressive bidding in highway projects, where players are quoting unexpected premium. Even as the National Highways Authority of India (NHAI) sees this trend as a complete revival of the sector, developers said the "crazy bidding" was because of sheer desperation to grab major projects when no other sector in the infrastructure industry is doing well.
Two bankers on Monday said considering the high premium that the developer has to pay to the NHAI as soon as it starts work, the authority should have a re-look into this aspect. "High premium and higher cost could make the project unsustainable. The NHAI can introduce a provision of taking the premium five years after completion of work," said Pratip Chaudhuri, chairman, SBI. "NHAI could also collect the premium in a staggered manner," said Chanda Kochhar, CEO and MD, ICICI Bank.
In case of projects going for premium, the private developer raises the entire fund without any government assistance and on top of that it gives a fixed annual amount to the NHAI. This amount annually increases by 5%. The aggressive bidding happened in the recent months and was led by GMR, which offered Rs 636 crore annual premium for the country's largest highway project -- Kishangarh-Udaipur-Ahmedabad.
Earlier, several domestic as well as international players expressed their concern over the high premium quoted by developers. "It's a peculiar situation, though those who are giving premium are financially strong companies. Only a few years after the construction gets over, one would know how these projects are performing in terms of financial viability. It's for the NHAI to ensure that the stretches are properly maintained by the developer during the concession period," said Philippe Jullien, area director of Vinci, an Italian infrastructure major.
Christian Biegert, director (investment and acquisitions) of Hochtief Concessions, also said the project viability can't be assessed now. "Yes, people are taking calculated risks. We would see whether the big players who have already bagged projects with high premium would bid for other projects."
Admitting that developers are desperate to get projects, highways secretary A K Upadhyay said one of the successful bidders had told him that he had not got a single project in months. However, he maintained that the developers were offering premium after a proper study of the projects.
Kiran Kumar Grandhi, business chairman of GMR group, said his company had conducted a thorough study before quoting the highest ever premium of Rs 636 crore. "We are content with this big project," he said, indicating the infrastructure major is unlikely to participate in any other NHAI project for the time being.
Two bankers on Monday said considering the high premium that the developer has to pay to the NHAI as soon as it starts work, the authority should have a re-look into this aspect. "High premium and higher cost could make the project unsustainable. The NHAI can introduce a provision of taking the premium five years after completion of work," said Pratip Chaudhuri, chairman, SBI. "NHAI could also collect the premium in a staggered manner," said Chanda Kochhar, CEO and MD, ICICI Bank.
In case of projects going for premium, the private developer raises the entire fund without any government assistance and on top of that it gives a fixed annual amount to the NHAI. This amount annually increases by 5%. The aggressive bidding happened in the recent months and was led by GMR, which offered Rs 636 crore annual premium for the country's largest highway project -- Kishangarh-Udaipur-Ahmedabad.
Earlier, several domestic as well as international players expressed their concern over the high premium quoted by developers. "It's a peculiar situation, though those who are giving premium are financially strong companies. Only a few years after the construction gets over, one would know how these projects are performing in terms of financial viability. It's for the NHAI to ensure that the stretches are properly maintained by the developer during the concession period," said Philippe Jullien, area director of Vinci, an Italian infrastructure major.
Christian Biegert, director (investment and acquisitions) of Hochtief Concessions, also said the project viability can't be assessed now. "Yes, people are taking calculated risks. We would see whether the big players who have already bagged projects with high premium would bid for other projects."
Admitting that developers are desperate to get projects, highways secretary A K Upadhyay said one of the successful bidders had told him that he had not got a single project in months. However, he maintained that the developers were offering premium after a proper study of the projects.
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Kiran Kumar Grandhi, business chairman of GMR group, said his company had conducted a thorough study before quoting the highest ever premium of Rs 636 crore. "We are content with this big project," he said, indicating the infrastructure major is unlikely to participate in any other NHAI project for the time being.
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