National Highways Authority of India (NHAI) continues to award projects on premium despite banks and small players raising doubts on sustainability of the trend.
NHAI, the nodal agency to bid out national highway contracts, has awarded four new projects at a total annual premium of R250 crore. The premium would increase 5% every year over the concession period. Ramky Infrastructure, IVRCL, Ashok Buildcon and Larsen & Toubro have won these projects (see table).
?The trend is going to last for a while as no new project is on offer in other infrastructure sectors,? said an NHAI official.
With the award of these projects, 17 out of 24 projects awarded so far this year have been bid out on premium. The balance have gone on viability gap funding (VGF). In case of premium, the private concessionaire pays a particular amount to NHAI, while VGF denotes the amount paid by NHAI to the concessionaire to bridge the gap between toll earnings and investments in the project.
Among the projects awarded on premium this year, most prominent was the Kishangarh-Udaipur-Ahmedabad project where GMR Infrastructure offered highest ever premium of R636 crore per year over 26 years, raising eyebrows among bankers and industry players.
Analysts feel although firms are taking a calculated risk, the roads sector may face problems like non-completion of projects or escalation in costs if the practice goes on for a while.
?It is better to bid aggressively than sitting idle and spending on the workforce. But yes, the trend is not healthy for the sector in long run. I think banks would be asking these firms to bring in more equity into the projects to minimise risks of bad loans,? Ernst & Young executive editor Abhaya Agarwal said.
