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Tuesday, 27 Jun 2017
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Boost in PPP projects investments in coming years is bright - Mr. Satish Parakh, Managing Director, Ashoka Buildcon Limited.

Satish Parakh
  Satish Parakh
Mr. Satish Parakh

 

1. How is the road sector growth so far?

India has one of the largest road networks in the world with about 47 lakh km of roads. This road length includes National Highways (NHs), Expressways, State Highways (SHs), district roads, PWD roads, project roads, etc. In India, road infrastructure is used to transport over 60% of total goods and 85% of total passenger traffic.

The central government is primarily responsible for the development and maintenance of NHs, and it carries out these functions through the NHAI. The NHs comprise only about 2% of the road network but carry about 40% of the total road traffic. One of the primary projects implemented by the NHAI is the National Highways Development Project (NHDP).

Recently the Finance Ministry, enhanced the outlay for National Highways by 11%, amounting Rs 64,000 crore - for 2017-18 in the Union Budget, the budget allocation for the National Highways was stepped up from Rs 57,676 crore in the FY 2016-17 to Rs 64,000 crore in FY 2017-18.”

The Centre has given in principle, approval to upgrade 57,500 km of State Highways to National Highways so as to augment the existing 1.13 lakh km of NHs across the country. On the other hand, several delay causing factors, continue to plague the industry’s performance. This includes the long time taken for land acquisition environmental, forest and wildlife clearances. Such delays add to the cost of the projects. Although the Government aimed for an all time high target of building 25,000 km of roads in 2016-17 (15,000 km by NHAI +10,000 km by MORTH), about 14,000 km of roads works jointly by NHAI and MORTH could be awarded.

 

2. The road ministry is keen to achieve target of 40 km a day? Comment?

The highway ministry has set a high target of widening and building national highways at 41 km per day. During the last financial year, the ministry could achieve 22 km per day, but the daily award for works touched exactly 41 km. Going by the norms, works awarded now will start showing up results in 2-3 years’ time. The rate of construction of NHs during the last two financial years i.e 2015-16 and 2016-17 was 16 km a day and 22 km per day, respectively. With the aggression being shown in awarding of projects and the implementation, we feel that 40 km a day is achievable.

 

3. Ashoka Buildcon’s current order book position?

The total order book of Ashoka Buildcon as on FY 16-17 is Rs 7,004 crore. The order book for Road sector is Rs 5,114 crore (73% of total order book) out of which 50% contributed by BOT/ Hybrid Annuity projects and balance is for EPC and Maintenance contract. The order book for EPC Power sector is Rs 1,890 crore.

 

4. Recently Ashoka Buildcon bagged a Rs 282.73 crore project from Jharkhand Bijli Vitran Nigam, tell us more about the project.

Recently, Ashoka Buildcon bagged contract for “Urban Electrification works in Ranchi & Medininagar Electric Supply Area of JBVNL” covering Twelve Towns (Ranchi, Bundu, Khunti, Gumla, Simdega & Lohardaga) in Ranchi, Khunti, Gumla, Simdega & Lohardaga Districts & (Daltonganj, Bishrampur, Hussainabad, Garhwa, Mahjhiaon & Latehar) in Palamu, Garhwa & Latehar Districts in Jharkhand under Integrated Power Development Scheme (IPDS) on behalf of JBVNL on Turnkey Contract.

Total Contract Price: Rs 282.73 crore, Contract Period: 24 months

The contract scope includes works for Urban Electrification works i.e. Erection of 33/11 kV new Substations, 33/11 kV overhead and underground Power Distribution Lines, supply, erection, testing and commissioning of various rating distribution transformers and other allied works in state of Jharkhand.

“IPDS is the flagship program of GOI, MOP and funded by Rural Electrification Corporation of India (REC) ”

 

5. Your experience in implementing PPP projects in India across sectors

The prospect of a further boost in PPP investments in coming years is bright for many reasons. Chiefly amongst those are:

i) Governments at the centre, as well as states, will be more keen to facilitate private investments in social and economic infrastructure as they face increasing fiscal constraints due to higher levels of entitlement expenditures such as food security, right to education and right to work; and

ii) There will be a higher level of demand for infrastructural services by the manufacturing sector, which is central to providing employment.

The road sector in India has seen investment from the private sector in the form on public-private partnerships (PPPs). PPP projects in this sector are implemented through various concessionaire models. Key models include:


(i) Build-operate-transfer (BOT) (toll),
(ii) BOT (Annuity),
(iii) OMT and
(iv) Hybrid Annuity. Government has introduced a new model called “hybrid annuity” where the government gives 40% of the construction cost while the developer invests the remaining 60%.
(v) Toll-operate-Transfer (TOT). Government has approximately 100 toll roads for which NHAI is collecting the Toll. Revenue Road Assets can be bundled. The Government is assessing interest of the private sector in the toll road assets with the objective to award these toll roads to Long Terms Investors for operations and maintenance for a fixed period (long term) for an Upfront Value. The bids for this model are likely to be invited in July 2017. New TOT model in roads may fetch Govt up to Rs 40,000 crore.

Despite progress and bright future prospects, concessionaires continue to face many challenges and perceive many hurdles. At the same time, project authorities are finding it difficult to implement initiatives that are afflicted by higher cost inflation and/or unrealistic estimates of streams of expected revenue, and some approved projects get delayed or abandoned because concessionaire cannot secure financial closure due to their unrealistically aggressive bids. Litigation and disputes over land acquisition and other issues.

Perhaps the most important challenge before state governments is to develop well-designed PPP projects in social infrastructure so that private investors, including NGOs, are sufficiently motivated to invest.

This threat mainly affects PPPs in the operational and pipeline phases. Those in the operational phase suffer from the reduced cash flow-especially where the private partner is reliant on direct user charges (as opposed to service payments from the government). For PPPs in the pipeline phase, the downturn could affect the estimates of future profitability and hence the viability of the project.

Global best practices suggest that land acquisition should be complete before a project is tendered. In India, projects are often awarded with only part of the land physically acquired, sometimes as low as 30%. Delays in subsequent land acquisition are possibly the single largest factor causing project Delays. These delays are driven by three factors: 1) under-valuation of land price; 2) dependence on state governments for land acquisition; and 3) the ambiguous definition of the term “unencumbered land”.

The Dispute resolution processes need to be more effective. Arbitration is the method of choice to resolve disputes globally. However, in India, arbitration has been largely ineffective. The Arbitration and Conciliation Act, 1996, is ambiguous about the challenging of awards, and lacks enforceability. During industry interviews, customers and providers agreed that arbitration awards are almost invariably appealed against, resulting in long drawn-out disputes that often last 3 to 10 years.

 

 
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