15,000 Crore Order by NHAI in 2012

By SiliconIndia   |   Wednesday, 28 December 2011, 12:57 Hrs
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Rs.15,000 Crore Order by NHAI in 2012
Bangalore: The National Highway Authority of India (NHAI) is differing from its policy of awarding projects through the public-private partnership (PPP) route and now it strategizes to award construction orders valued up to 15,000 crore in the coming fiscal year through build-operate-transfer route, reports Rachita Prasad, ET Bureau.

JN Singh, Member (finance), NHAI, said that the authority has planned to award Engineering Procurement and Construction (EPC) orders for 2,000-3,000km of road in 2012-13.

Since 2006 NHAI has been awarding projects mainly through the build-operate-transfer route, so they came up with the shift in strategy. Singh said, "These are low traffic routes and even if we were to provide a viability-gap funding of 40 percent, it may not have been very attractive for the private sector."

Highway projects under PPP has been awarded by NHAI, as private sectors developers made the best bid to win the contract, moreover it will also reduce the government's expenditure. The private sectors are given the responsibility to design and execute the project and raise funds for the project. But the private sector players who won the EPC order is only a contractor and will receive cash for its services rendered.

Singh said, "Private companies may not have found these projects very lucrative and the low traffic in these projects could have made fundraising difficult for them." The road builders who have been facing tough competition in bids for road development projects, the EPC order will boost them up. The concern over the lower-than-expected traffic and rising interest rates is depriving the established companies in bidding for highway projects. Larsen & Toubro and Reliance Infrastructure are the names among such companies who have lost some recent NHAI projects to newer players like Essel Infrastructure, Ramky Infrastructure, and Oriental Construction.

Singh said, "Out of the 33 projects we have awarded this year, over 20 have been on high premium. This will reduce the profit margin of developers and we are not comfortable with that."

The NHAI is likely to earn around 19,000 crore as premium against an annual estimate of 3,380 crore grants on road projects, since developers have been quoting high premiums to grab projects. He said, "This aggression is not sustainable and we will see some moderation ahead. We expect consolidation in the sector."

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