Supreme Court verdict augurs well for road developers

MUMBAI: The recent Supreme Court verdict to delink forest clearance from environment clearance augurs well for road developers in the coming quarters. In the last few years, as appetite of road developers to bid projects has increased, the number of cases of projects being stuck due to environmental and forest issues has also increased. Now with the de-linking of forest clearance from environmental clearance, there would be improved business situation in the industry.

According to a Deutsche Bank report, there are three takeaways from this development. First, this clarification would remove obstacles in clearing certain road projects. It is estimated that there are around 2800 km length of stalled road projects that await combined clearance (environment and forest). Second, the clarification from the Supreme Court would also speed up the process of awarding of road projects over a minimum of 45 days. Lastly, considering the fact that traffic in many projects slowing down, the National Highway Authority of India would award projects on Engineering Procurement and Construction ( EPC) basis.

It is estimated that around 5-10% of road projects need forest clearances and these clearances can be done during the course of construction. The report believes that at present there are around 20 projects, which are awaiting forest clearance. And these projects are expected to start operations. These projects include Kishangarh- Udaipur-Ahmedabad, Gwalior-Shivpuri (awarded to Essel Infra), Ahmedabad-Vadodara (awarded to IRB), Patna Buxar (awarded to Gammon), Jabalpur-Katni (awarded to Soma), Shivpuri-Dewas, Obeidullaganj-Betul, Kota-Jhalawar (awarded to Keti), Aurang- Saraipally (awarded to BSCPL), Etawah-Chakeri (awarded to Oriental Constructions).

As these projects get clearances, there is a challenge for road developers to win the trust of financial institutions. The report says FY13 has emerged as one of the years where road traffic has fallen on a year on year basis. Factors such as low spending by consumers, and cutting down of 50% of iron ore production have affected the road traffic. Hence, a cut in interest rates would be lucrative for road developers. Deutsche Bank believes companies such as L&T and IRB would benefit.