Column: Making highway projects run

Nov 01 2013, 21:06 IST
Comments 0
SummaryGuidelines for rescheduling premiums required to address industry concerns

Infrastructure bottleneck has been a serious concern in India, and has been coming in the way of robust pace of economic progression of the country. While many advanced economies and even fiscally-constrained developing countries have developed their physical infrastructure successfully either through private participation or through the public-private partnership (PPP) model, in India private participation in the process of road development has received lacklustre response in recent times.

A number of domestic factors are equally responsible for this slowdown in growth. Issues relating to land acquisition and environment have been critical factors in the decision to invest. High inflation levels and the consequent increase in policy rates of interest have impacted investment.

International participation in the development and funding of infrastructure in India is essential if the forecast growth spend is to be achieved, and so the timing is right for the authorities to stimulate the market and remove the restrictive barriers of entry and regulatory controls.

One of the key areas that will be critical for the future is the availability of funds—an important distinction to draw when considering the financial elements of an infrastructure project is that between funding and financing. The funding for a project could be defined as its long-term source of support. In the case of public infrastructure, this may be revenues generated by the project, dedicated tax revenues or general resources of the sponsoring public sector entity. The financing of a project is the means by which the funding is leveraged to provide enough up-front cash to purchase construct or adapt the project. While there may be many creative financing vehicles available, once the funding structure is established, all of these financing vehicles will be “securitising” the same project economics.

The absence of a well-developed financial system facilitating long-term financing has put additional burden on the banks to fill the void. It is risky and limits the lending ability of the banks when they engage short-term funds for long investment in infrastructure projects that have a long gestation period (above five years). To offset this, bank lends on floating rates derived on the base rate. Eventually, the project cost may escalate as it becomes susceptible to interest rate fluctuations.

Most of the build-operate-transfer (BOT) projects awarded last year have not yet achieved financial closure and ongoing projects are languishing as there is no hope they will be completed within a reasonable time period.

The main reasons for the lack of

Single Page Format
Ads by Google
Reader´s Comments
| Post a Comment
Please Wait while comments are loading...