Infra firms exit projects due to unviability of equity: NHAI

Last Updated: Thu, Jan 17, 2013 20:10 hrs

The National Highway Authority of India (NHAI) on Thursday dismissed claims of infrastructure majors that recent exits from highway projects were due to delay in environmental clearance, and said the issue was more about the viability of funding for the companies

“Basically, in our view, as to why they are walking out of these two projects is the change in economic scenario and escalation of cost,” R P Singh, Chairman, NHAI, told reporters on the exit by firms GMR Infrastructure and GVK Power & Infrastructure from major highway projects in the past few days.

“Arranging huge private equity is a major problem as these are much bigger projects than what we earlier awarded on BOT (build, operate, transfer),” Singh said on the sidelines of an industry event.

GVK requires an equity of Rs 1,500 crore and GMR may need an equity of Rs 2,000 crore, for their respective projects, Singh added saying that raising this equity was “not possible” for them.

He said raising equity was a major concern for awarding road projects of 10,000 km a year, including 7,000 km of national highways.

It requires Rs 90,000 crore investment, of which one-third (Rs 30,000 crore) should be private equity. Can we really raise Rs 30,000 crore equity? he asked, stressing the need for making road projects lucrative.

On environmental clearances, however, he said the Ministry of Environment and Forest (MoEF) had agreed in-principle to delink the environmental clearance from forest clearance as was the demand from NHAI.

He admitted, however, there were cost escalations on account of the lengthy environment clearance process.

“Unfortunately, the escalation is becoming too high because in the last one-and-a-half years, the rates of aggregates have gone up so high,” Singh said, adding compulsory MoEF clearance for cases was time consuming. Also, Singh dashed the ambitious target of highway construction at 20 km a day stating the target was “not sustainable.”

“Building 20 km a day is not sustainable. There is no point in rushing up with projects where we do not have environment clearance or land acquisition. We must deal with these projects in a way the private equity gets interested,” Singh told reporters.

NHAI has managed to award just close to 1,000 km of contracts so far this financial year as against a target of 9,500 km fixed by Prime Minister Manmohan Singh. GMR last week terminated the contract for the Rs 5,700 crore Kishangarh-Udaipur-Ahmedabad Expressway with NHAI on grounds of “delays in environment clearance.”

GVK on Monday pulled out of the pact for the Shivpuri-Dewas Expressway in Madhya Pradesh, citing “change in law” after a Supreme Court order made MoEF permission mandatory even for extraction of minerals in areas less than five acres.

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