VD Mhaiskar, CMD, IRB Infrastracture Developers, says that there was delay in getting environment clearance (EC) and forest clearance (FC) for the Ahmadabad-Baroda project but now the clearance is in place and IRB Infrastructure has taken over that project from NHAI on January 1.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Statements from National Highway Authority of India (NHAI) suggests that Ministry of Environment and Forests (MoEF) rules are very opaque and they have asked MOEF to keep them in the loop. The Prime Minister (PM) also intervened in this matter and got both of them on the table to try and sort out issues. Do you see the issue being solved in the near term?
A: All possible attempts are certainly being made so I don’t think there is complacency and there is a genuine effort that is been taken by all the stake holders to resolve this issue.
Q: Two players have walked away and that has thrown up some fairly emphatic responses from the PM. But do you still fear that others would walk away for reasons which suit them as well. Clearances have always been delayed from the government and various government agencies. Given the tightness of the money situation and falling demand is it likely that we will see more walk away from contracts already won?
A: It won't be fair on my part to comment on other competing companies but IRB has always stood by and taken up challenges. As far as present situation is concerned, there was delay in getting environment clearance (EC) and forest clearance (FC) for the Ahmadabad-Baroda project but now it is in place and we have taken over that project from NHAI on January 1.
Q: Where are the bottlenecks? Is it largely environment or other issues like land acquisition? Which are the major clearances that normally come in the way and are tough to get? Secondly, do you see from the NHAI and the government any efforts being made to mitigate those?
A: We have to understand that this is a public private partnership (PPP) project. So there has to be effort from either side to make it a success. Land acquisition, EC and FC are the three basic things which are required to be tackled by NHAI and make land available for the developer to take up the challenge. This is the basic understanding of the contract.
Under this, a lot of handholding is required to be done by the developer. For example when we say that these projects are design built fund operate transfer projects then when we are designing it we are the ones who have to chart out what trees are required to be axed, what utilities are to be shifted and so on. So unless we map those, format the information and submit it to NHAI, they also cannot proceed in getting the clearances in time. So it is a partnership where both the parties need to work hand-in-hand and give confidence to each other and move forward. If that is done it can certainly help the process to move at a little better pace then it moves usually.
Q: Vinayak Chatterjee suggested that NHAI should bid out pre-cleared projects. Other experts suggested that timelines should be given to all the clearing authorities and if they don't give a clearance by default it should be taken as done. From what you are saying these are not that facile, you can't have pre-cleared projects because the designer and the developer only knows what clearances and how many trees to be cut?
A: Timeline with regard to submission of application and clearance of those regulations are possible. If we take a very strong stance that everything should be pre-cleared like in Ultra Mega Power projects (UMPP) in power then the whole process will get delayed tremendously.
The aspect that needs to be looked that now NHAI has moved from say 50 percent of land being handed over on the appointed date to 80 percent. If we insist for 100 percent then there will be two aspects to it.
First, cost would escalation tremendously because for that 20 percent to come we may delay the project by a year or so. So as stake holders do we really want to delay that project execution by a year? Or we are willing to take that one step forward and say okay we start on the 80 percent land available and you make it available balance 20 percent in a reasonable time frame because no developer will start the whole 100 percent length on day one.
Then there is a commitment that comes into play that that 20 percent has to be made available in a reasonable time frame. If that happens then there is not much of an issue. But if that doesn't happen then the lenders become jittery.
We also need to understand that all these projects that we are executing are all brownfield projects because they are either two-lane roads being four-laned or four-lane roads being six-laned. Now, there is no connectivity issue where if that 20 percent land doesn't come through the road doesn't get connected from one point to another.
The connectivity always stays. What would only happen is that for that 10-15 percent length of the section there will have a narrow road width. Now, the toll rates are also sync with per kilometer of road length that we are tackling so even on 80 percent basis, I don’t think the project should be held back for want of 100 percent things to be in place on day one.
Q: We have seen a lot of competitive pressures in the past like developers taking up road projects at very competitive rates. For example, in Surat-Dahisar people estimate IRB to make a loss at profit after tax (PAT) level. Do you share the same view or is it out of the way now? Given all these issues that developers will have to tackle it is unlikely that people will be very competitive from hereon?
A: Surat-Dahisar is a first large project in India of 240 kilometre size, which has been completed at a cost less than what we assumed at the beginning and we are not making any losses on it. On cash basis, we are making reasonable amount of money on the project. So moving from that I think aggression is a result of what kind of traffic flow one estimates. So, defining aggression on a bid is a little tricky. So, one will have to look at an overall returns that the project gives over a longer term perspective.
Q: In the build-operate-transfer (BOT) projects that you handle what kind of traffic growth can we assume given the slowdown in the economy. Would 5-6 percent be a more reasonable assumption for 2013?
A: If we look at the geography in which our projects are situated, which is primarily the Western half of the country, I think comfortably one can pencil in a 6 percent growth on an annualised basis for a longer term view.
Q: Can we expect the Goa-Kundapur project to start by March? You have received the clearances. By when do you expect construction?
A: No, we are yet to sign the concession agreement so after that comes the financial closure procedure, which is around 6 months. So, I think a reasonable timeline would be somewhere in September or October 2013 that we can start the project.