NHAI: Focus on EPC projects, land/clearance in place

30 July 2014

Infrastructure

Expert Speak

BOT developers face financial crunch; 20-22,000kms opportunity exists over

next 3 years though

BOT project award pick-up to take a while… focus on EPC contracts



BOT project awards remained muted last year and YTD FY15 due to poor response

from developers. In the recent past, few projects such as Delhi-Merut had no bidders.

Lack of interest is majorly due to financial crunch being faced by developers, rather

than projects' viability. Currently, only few developers are in the fray, while others

are going though financial restructuring of sorts.

In this environment, BOT project awards look difficult and thus the National Highways

Authority of India (NHAI) has suggested to the Ministry of Road Transport and Highways

(MoRTH) to take up EPC projects on a large scale.

Target for road project awards under EPC route stands at 2,300kms and BOT route at

5,700kms in FY15. Depending on the demand for BOT projects, some part of it can be

considered for taking over on EPC basis, once the existing EPC projects are awarded.

Assuming that investment under PPP route picks up, NHAI can target to award 20,000-

22,000kms over the next three years.

NHAI

was constituted by

an act of Parliament, the

National Highways

Authority of India Act,

1988. It is responsible

for the development,

maintenance and

management of National

Highways entrusted to

it. The Authority was

operationalized in

February 1995.

Enablers for project awards in place

NHAI has created a bouquet of projects, with land and clearances in place for award. NHAI had taken the policy

initiative a year ago to not award any EPC project if 90% land and clearance is not available. Similarly, for BOT

projects, 80% of land in physical possession is a criterion.



To that extent, land acquisition is not an issue and NHAI incurred INR80b for land acquisitions in FY14,

representing 8,900 hectares v/s 6,200 hectares in FY13.



Clearances too were not an issue, post the Supreme Court ruling. However, delays were partially witnessed

for certain projects requiring clearance for a bridge structure over railway lines.



Funding is comfortable for planned EPC road projects currently, given the cash surplus (INR40b), cess (INR80b)

and negative grant/premium income (INR70b).



Restructuring on for several projects, claims camouflaged

A total of 17 projects came up for restructuring over the last year. Post detailed study of the situation, 9

projects have been allowed for premium restructuring and 8 projects are availing the same.



Balance projects could be taken up in the next year. Thus, the board will decide on these projects as the

premium payment liability is effective only in the next year.



Claims filed by developers appear to be exaggerated and need to be backed by documents and rationale. For

example, NHAI settled a claims of INR98b for a mere INR9.3b in FY14.



Project completion target in Union Budget is challenging

For FY15, NHAI's target completion is 2,000-2,200kms v/s 1,800kms in FY14. The road completion target in the

Budget includes both MoRTH and NHAI.



Thus, completion from MoRTH would make up for the balance ~6,000kms, which includes state highways, NER

road projects and village roads, which looks challenging.



Nalin Bhatt

(NalinBhatt@MotilalOswal.com); Tel: +9122 3982 5429

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