Jun 13, 2012 12:05 PM IST | Source:

Infrastructure sector on radar: UR Associates

UR Associates has come out with its report on infrastructure sector. This sector witnessed a much needed push last week by the Central Government when Prime Minister Manmohan Singh sent a strong signal by outlining an ambitious agenda to put infrastructure projects on the fast track.

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Infrastructure sector witnessed a much needed push last week by the Central Government when Prime Minister Manmohan Singh sent a strong signal by outlining an ambitious agenda to put infrastructure projects on the fast track. This is an excellent development to improve the sentiment across the sector.

However, pertinent thing to note here is that with general elections round the corner and almost a tarnished image of the Central Government, these announcements were anticipated. Though the current thrust by the Prime Minister may increase the pace of tendering of key projects but what the sector really requires now is implementation and financing of the infrastructure projects. 

Infrastructure sector continues to be one of the exciting growth opportunities in India. However, given the large quantum of projects and the majority funding being targeted through the PPP route, funding and timely execution have assumed key significance. The government should set milestones for infrastructure projects, which should be monitored. The effectiveness is to be monitored on the execution front, as mere announcements may not help in the near term.

The government has plans to rely more on infrastructure investment by private sector and has targeted for private investment contribution of 50% in 12th Plan. This indicates increased PPP projects/participation in future. India's economy grew at its slowest pace in almost a decade in the year's first three months, an evidence of its growth story turning sour amid global uncertainty and its government's failure to push through reforms. Apart from the road sector, other infrastructure segments have almost come to a standstill. Road sector no doubt has kept the order book maintained for most of the players in the infrastructure space and still offer significant opportunities. Without a regular Chairman now for about 17 months, the sector has still managed to meet its target. However, leadership vacuum at the top may delay the award process.

The infrastructure sector needs to have stable interest rates. The sector apart from the PM’s positive approach also witnessed RBI signaling further cut in key policy rates, when Mr. Subir Gokarn (Deputy Governor, RBI) hinted of rate cut, citing slowdown in economic growth as the main reason. Though rate cuts will act as a definite sentiment booster, a meaningful recovery in investment cycle has to be triggered by policy action.

NHAI to award nearly 55 projects on BOT basis in FY13: The National Highway Authority of India (NHAI) has set a target of awarding 9,500 kilometers of road projects in FY13. Mr. A. K. Upadhyay, Chairman of NHAI, said that about 3,000 kms would be awarded on engineering procurement and construction (EPC) basis and around 5,000 - 6,000 kilometers (50-55 projects) is expected to be awarded on build-operate-transfer (BOT) toll or annuity basis. As per Mr. Upadhyay, he does not see any problems for top and established companies facing difficulties in raising funds and are still bidding for projects. In terms of competitive intensity he believes that the market will even out in the long run and feels that if the bids are very aggressive, there will be auto correction. He said that there are projects where in a single project there were 19 qualified bidders and there were also few projects which witnessed single or two bids.

Power tariff hikes by SEBs bring relief to Lanco Infratech: Increase in power tariff in Tamil Nadu has come as a relief for Lanco Infratech, which has been facing the brunt of delayed payments from state electricity boards (SEBs). With Rs 1,000 mn coming in from Tamil Nadu State Electricity Board, the company is hoping to get its dues from SEBs cleared in another six months. The company is yet to receive payments from states like Tamil Nadu, Karnataka, Andhra Pradesh, Uttar Pradesh and Haryana. SEBs has been facing financial stress due to power procurements costs in the past and fewer hikes in tariffs. This has realized into mounting debt and increase in pending payments for power generators. Over the last few months, however, many of them are taking remedial measures and some went into debt restructuring. Tamil Nadu state electricity board, for instance, raised money through a state government guaranteed bond issue. 

Two year liability on road builders: If the cabinet clears a road ministry document prepared after a tussle with the Planning Commission, contractors who build highways will now be responsible for maintaining them for two years. The RFQ document was drafted after the Prime Minister’s Office (PMO) intervened to settle the differences between the road ministry and the Planning Commission. The document says the contractors must deposit a caution money equivalent to 12.5% of the project cost and deductions will be made from it for delays or failure to finish a project. For the first time, a penalty clause will be written into the contract under which the contractor must pay a fine for each day of delay. The document’s main feature is the “defect liability period”. According to the note prepared for the cabinet, this period will be two years for roads and five years for bridges, foot over-bridges and the like.

BHEL may not join RINL, MECON for Rs 20 bn steel unit: BHEL may not join hands with steel maker RINL and MECON for the proposed Rs 20 bn joint venture that plans to set up a factory at Vishakhapatnam for manufacturing steel for core sectors. As per sources, BHEL has expressed its unwillingness to be a party in the venture at a meeting with steel secretary D R S Chaudhary last week. BHEL is not keen on setting up any such manufacturing unit as it already has factories for manufacturing equipment for power, auto and rail sectors at Trichy, Ranipet, Haridwar, Hyderabad, Bangalore and Bhopal. It does not find the proposition viable at this point in time.

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To read the full report click on the attachment

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