India’s ambition of ramping up infrastructure through public-private partnership may take a hit if the trend of road builders walking out of projects (such as GMR), citing delays in government clearances and land acquisitions, is allowed to continue.
The recent row between companies and the National Highways Authority of India assumes importance as the 400-odd road contracts awarded so far account for 53.4% of the total 758 PPP contracts inked by government departments. These road projects involve a total investment of R1.76 lakh crore of the total R3.83 lakh crore for all PPPs, finance ministry data shows.
Sources in the government say there are many more such road projects that have been halted due to disputes.
Apart from roads, finance ministry list shows 61 PPPs in ports worth R81,038 crore while energy sector has 56 such contracts (R67,245 crore), 152 in urban development (R29,475 crore), five in airports (R19,111 crore) and four in railways (R1,570 crore).
While the PPP wave have swept the infrastructure space in the past 5-6 years, making India one of the role models globally for such a mode of development, GMR’s termination of a 16-month concession agreement with NHAI for the 555-km long Kishangarh-Udaipur-Ahmedabad highway project, and GVK’s threat to pull out of the 330-km Shivpuri-Dewas project have led to doubts over the viability of such contracts.
Although the road transport ministry and NHAI are weighing various options, including barring GMR group from bidding in upcoming projects for a few years, it does not resolve companies’ problems, which range from getting environmental and forest clearances, land acquisition and arranging long-term funds.
“The main problem with road projects is land acquisition. Environmental and forest clearances are also delaying the projects. The delay in these projects is a major risk for lenders,” said SK Goel, chairman of India Infrastructure Finance Company, which funds long-term projects.
From the builders’ perspective, he said “The main reason for pulling out of a stalled project is selling the existing venture and invest the money in new projects. Companies are not exiting projects where they are making money.”
With the conflict between NHAI and builders coming out in the open, Fitch on Friday pared its outlook on Indian construction companies to “negative” for 2013 from “stable” in FY12.
“This is due to continuing challenges in order execution, which have resulted in stretched working capital. Liquidity as well as leverage has been adversely affected in many construction companies that have ventured