A Didar Singh, Member - Finance and Senior IAS officer, National Highways Authority of India (NHAI), said the financial meltdown has impacted road projects. "Only 22 of 50 projects have got positive bids. On a revenue sharing basis, three of 22 projects are seeing positive bids. Projects worth Rs 70,000 crore have been shelved."
He added procedural delay has not impacted award of projects. "Fifteen projects bids are referred to the government, seven of them are single company bids. Four projects are under scrutiny due to annuity projects and four due to viability gap funding of 10 per cent." He said there is no need to limit bidders to top six anymore. All future bids, he added, will be through open system.
He said NHAI has taken measures to ease out land acquisition issues. He sees no issues of land acquisition as 50 per cent of land is available at the start of the project. Singh said he cannot guarantee closure of all 60 projects by the end of 2009.
Here is a verbatim transcript of the exclusive interview with A Didar Singh on CNBC-TV18. Also watch the accompanying video.
Q: Would you concede that NHDP 3 (National Highways Development Project) both in terms of commissioning, off-take and completion has not lived up to expectations and can you tell us why progress has been sluggish for the last two-three years with the NHDP 3?
A: We can talk about NHDP 3 but we should also talk about the original programme of NHDP 1 and NHDP 2 which was the Golden Quadrilateral in the north-south-east-west corridor. As you know the Golden Quadrilateral is virtually completed; 98 per cent of it is done so that can be considered as completed. So far as NHDP 2 is concerned which is north-south-east-west corridor it’s going pretty okay; it’s meant to be completed by December of 2010 so there is still time there. We are somewhere above 45 per cent at the moment in terms of its completion and construction, so it’s going quite okay that is a major programme and is certainly on.
NHDP 3 is the additional about 11,000 km of which the majority has not been bid out in fact its the part which was already bid about 2,000 odd that is certainly on and its doing quite okay. It’s the fresh bidding issue which probably is what you are referring to in terms of the market not having enough projects on line or some amount of delay in it. But basically we had to go through an entire process of – you heard this – before the question of the request for qualification, the request for proposals, the qualitative bidding criteria, the rating of different interested parties on a certain government instructions. So on that whole basis we had last year come up to put on the shelf, 60 projects; these 60 projects mostly of phase 3 and a few of phase 5 were of a value of approximately around Rs 70,000 crore. This is what we were ready to put out from about September-October of last year.
Now you know what happened; you are well aware of the financial meltdown which obviously has impacted India also and specifically the road sector too and in a situation of this meltdown with financial cost have been gone up tremendously quite obviously the bidders had second thoughts about their participation in the programme and somewhere around November-December of last year, we were actually worried will we get any bids at all. What is the situation that has happened as of now? Probably that will clarify the situation in terms of how the market is reacting to the whole process of fresh bidding and the process of how they precede the road sector now and for the future. We will probably get a fair idea of it.
As I mentioned 60 projects were ready to be put on the shelf of this we have called bids of approximately around 50 of those projects. The goods news is that 22 of those projects have received positive bids and that’s a very remarkable amount considering in a situation where as I mentioned in November-December we were thinking - are we going to get any bids at all. These 22 which have received bids the value is around Rs 22,000 crore and just for you information 3 of these 22 bids are on revenue share.
So not only has the market reacted but we have seen concessionaires willing to even offer revenue shares. So they consider it that good; for those 3 projects they consider the traffic volumes to be so good that they have willing to give negative grant or revenue share. Of these 22 bids as I am mentioning to you we have seen this very positive reaction on behalf of the market and we hope that in the balance that we are going to be putting out for the bids off we will continue to get a positive response from the market.
PAGE_BREAK
Q: How many of these 22 have been awarded finally because what we hear from a lot of experts is that its probably not a problem only of financial closure or the ability for the private parties to bid but also of interminable procedural delays which are holding up awarding of projects at your end?
A: Its not procedural delay. There is a process that has to be followed and there are criteria and guidelines which are announced in advance. Now of these 22 bids which I am mentioning to you, seven have already been actually awarded. They are on and that’s worth about Rs 8,000 crore and that’s already been awarded and 15 which are the balance have had to be referred to the government because of the certain guidelines of criteria that they fall under, for example seven of them are single bids.
We have a government stipulation that normally a bid is to be considered complete if it receives more than one bid and a minimum of two bids. Then it goes to the NHAI board for approval, a single bid situation we have obviously had to refer to the government for a decision whether we should go ahead and open these bids and then consider awarding them.
Similarly we have had four of them which are annuity bids, so those again have to go through a certain process. They have to go back to the board for approval and four of these were of phase five where the VGF ( Viability Gap Funding) was higher than 10 per cent which is the government stipulation should be the maximum VGF to be offered for these projects so again the matter has to be referred and the matter is under consideration. So that is the status as of now, seven have been awarded and the other balance is in the process of a decision which is required to carry on with the process.
Q: There is more criticism in meeting out of these orders which says that there are very few players basically who are allowed to get into the bidding process, many of the contractors are banned, the critics go on to say that about 30 per cent of the land which is part of your road projects hasn’t even been acquired and while this is all happening, 20-40 per cent cost increases have happened in some of these road projects?
A: Firstly you said, the number of contractors is limited, first of all, when we went into this whole thing of offering these bids out, we had to follow what is known as this RFQ(Request for Qualification) process which was stipulated by the government which is 3.5.2. I am not going to get into those details but basically what it meant was that you have to choose six of the top bidders from those that have given their expression of interest that they are wanting to participate in the particular project.
So they may have been 15-20 or 30 and there were a large number of very good response that we got. We had to restrict it to six as per the government guidelines and this took a long time and then we had this issue of cartelization and monopolization fears coming up. So we had to say that okay if you already have been qualified for eight, then you have to await the balance if you have been awarded four then you have to await the balance, this was the stipulation which is a second kind of a stipulation which is 2.18.1, we had to do this because of government instruction in the whole bidding process.
However, for NHAI we made a special request to the government that we should be taken out of this process because there are large number of players and large number of projects. So the government has in fact taken a decision and said that after this initial lot of bidding, there will be no further requirement of this 3.5.2 that means we are no more required to limit the number of bidders to the top six, its now going to be just a certain barrier that you cross in terms of your basic financial and experience criteria and then you are offered the bid. So all the future bids that are going to be now given out will be basically on an open system and as you know NHAI is offering and proposing to offer a large number of projects in the next financial year also where this criteria will no more apply so that is my answer to the first part.
The second you talked about land acquisition, yes this has been a problem we are a democratic country, land acquisition has to go through the local process through the state government, through the local land revenue authorities and this does take time, we are aware of it but a large number of steps have been taken by appointing zonal officers, by having a special drive to ensure it gets done and as the project increases, this land acquisition issue is certainly handled.
As you know we are building our projects basically on existing roads, so large amount of land is actually already available, it is only the balance which needs to be added on as the process starts and as per the new MCA(model concession agreement ) we are making available 50 per cent of the land at the time of start and the balance 50 per cent during the construction phase itself. So I really don’t see any major problem arising out of it as this is the commitment and we go through the process and make it available.
The third thing that you mentioned was the whole issue of the kind of responses that we are getting. I have just clarified that a little earlier that I believe the responses are certainly improving as the market itself is improving.
PAGE_BREAK
Q: Would you respond to why there is so much higher demand or appetite for the state highway projects, for every state highway project, it gets 20-30 bids and the companies themselves are saying that maybe its because of greater availability of land or a larger percentage being provided or guaranteed straight up front and perhaps even a better revenue sharing model or a revenue recovery model?
A: I don’t know which particular state project you are referring to; if you are talking about the recent ones which were given out at Gujarat remember they were all given as annuity projects. Annuity project is a guarantee from the government to give upfront annuity payments for the entire concession period which means government is basically back-stopping the entire project, its just deferred financing, so we at NHAI do not follow annuity as the first option, we would prefer to give projects out initially on BOT(build-operate-transfer) toll mode where we would like the concessionaires to come and themselves take the projects and securitize the expected toll and get financing on that basis.
Only if we fail with BOT toll will we go to the next step in the waterfall which is the annuity project and we are doing this in some of the cases also where we are not receiving bids and the issue of traffic maybe a bit of a problem, so we will go to the next stage of annuity projects also, so we do the same thing here but we are not going to announce annuity as of first flush of projects.
Now whether state projects are run better or central projects are run better, I am sorry I don’t wish to get into that argument and there could be so many pluses and minuses and so far as land acquisition is concerned, of course it goes through the state governments. There is a National Highways Act which is specific to the National Highways authority and we follow that act which is rather a quick act and under which land acquisition is done and we will continue to do so.
Q: Since there have been some slippages in the last few months on awarding of the projects for reasons that you have outlined, can you give us some sense of what may happen in 2009? And how many of the 50 projects you have opened up you think will finally be awarded by December 2009? And how many kilometers you think will be constructed this year by the NHAI?
A: So far as the bidding process is concerned, 22 bids have already been received and that is in the process and we hope that this thing will complete. So far as non receipt of bid is concerned which are the balance projects of the initial 60 that we are talking about, what we have decided in NHAI to do is to restructure these projects.
Basically by restructuring what we are attempting to do is that in this financial meltdown, if the market doesn’t perceive a certain project to be viable because it is probably too costly, we can try and reduce some of the costs in the projects by restructuring them without compromising either in terms of basic quality of in terms of safety. This can be done and our engineers are working on this. So by doing this they will be able to reduce the costs on these particular projects and then offer them again under the same BoT (Build, Operate and Transfer) toll model.
Similarly for new projects which are in the pipeline, we have another 20 or so which are already ready in the pipeline in the terms of the fact that their DPRs (Detailed Project Reports) have been completed. We are also restructuring these projects because we know the market appetite today and the cost of finance etc and the meltdown we are all a part of, we are restructuring these and putting them out to bid again.
So roughly we have 60 projects worth about Rs 65,000-75,000 crore which are going to be offered in the next quarter, which is in the next financial year. So those are fair amount of projects in the pipeline and we hope the market response will be good particularly because we have restructured these projects.
PAGE_BREAK
Q: Can you tell us how many will you achieve closure on by the end of 2009?
A: I cannot guarantee closure; I can only tell you what we are going to put out to bid. It depends on the market response and I don’t know if all 60 are going to get picked up by the market. But we can tell two things. One is that we are restructuring them to improve the costing of those projects and to be more realistic and less costly in terms of the returns that the market will expect on them and so they should therefore attract better bids.
The second is the entire market situation is improving. The cost of finance which in November-December, the interest rates were 15-16 per cent and today it’s down to 12-12.5 per cent, so that is a major improvement in cost of finance.
On top of that government through IIFCL (India Infrastructure Finance Company Limited) has now put out a scheme of refinancing. Refinancing will make available a lower credit available through the banking sector, to the same projects; they can get it up to 60 per cent. So this will further reduce the cost of finance. Hopefully the cost of finance should be 12 per cent or lesser than that, I am sure not only do we get a better response obviously the financial close will be easier to obtain.
Q: How many kilometers of roads will be constructed by NHAI in 2009?
A: With regards to those which are ongoing, which are expected to be done in 2009-2010, I can roughly estimate and, since 45 per cent of phase II is already over and about 3,000-4,000 km is what is an advance stage. In the next financial year we should be coming to nearer their completion.
Comments
0 comment