Land Bill to hike proj costs; Q2 to be flat: Gammon Infra

India Inc has been critical of the Land Acquisition Bill as it would increase their costs of land acquisition. Kishor Kumar Mohanty, MD of Gammon Infrastructure echoed these thoughts and added that projects will get delayed as the time to acquire will be atleast 4-5 years, which will increase the project costs by 50 percent. The implementation is the key, he told CNBC-TV18.

He feels that companies should also get support for staying in a project and executing it and not just provide help to people looking to exit projects. This, he said while hinting at number of companies exiting road projects.

He expects Q2 to be flat, but does not see any danger to the topline.

Also read: Land and Food Bills will change face of the country: Jairam

Below is the edited transcript of his interview to CNBC-TV18.

Q: What sort of impact in terms of execution and on ground difficulties a company like yours would face due to the Land Acquisition Bill?

A: For a moment, I am willing to park that the higher cost of acquiring land separately. If you look at the three level of committees, one at the project level, second at state level, third at central level; there are almost 7-10 committees needs to get through. In a reasonable time, even if you think the earliest you can get a land acquisition done is 4-5 years.

In the present time, the cost of implementation increases 10 percent every year. A five year delay means it increases the cost of project by 50 percent. Compared to that the land buying cost is much insignificant compared to the escalation in cost of the project.

If you are planning a project today you are only likely to get the land if at all this is implementable after five years which increases the cost of the project by 50 percent. By that time you do not know what are the parameters which are further changed and kept the viability of project intact or not.

One of the basic drawback and pitfalls of this Land Acquisition Bill, everybody is oblivious of the fact how it needs to get implemented. So more than the cost implementation is the catchword. Already most of the projects today in infrastructure segment all the players being driven out of the segment or already destroyed just due to the delays.

We had five projects two years back. In due time, we got financial closure done for all the projects. We are not among those players where financial closure is not done. It is one and half-two years time, environment clearance, land acquisition, forest clearance is not available and each of the cost has gone up by 20-30 percent in each of the project.

Who in the country in the private sector has this type of equity that will pump on 30-40-50 percent of additional equity into the project?

Q: Are you saying that the problems are going to continue for the road sector? We have seen biddings at one year low. The projects of last two years have not seen any kind of off take. Is this going to continue?

A: We interact with these agencies on a day-to-day basis. The approach of those agencies like National Highways Authority of India (NHAI) in road sector has been very positive in finding solutions for people who are trying to exit projects, but the need of the industry today is they should do something so that the people stay in the project and execute the project.

To find those solutions are very critical. Today they have been very soft in allowing the party who has bid wrongly or situation has changed or financial closure is not done to exit out on very softer terms.

They are not doing anything for the people who are executing projects, willing to execute the project, so that they stay into the project and the activity level increases in the country and it will contribute to the GDP or whatever overall economic scenario.

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Q: How are you doing in terms of incremental funding from banks? Is there difficulty to get additional funding because of the uncertainty which has now emerged on the Land Acquisition Bill, increasing costs coming in from projects?

A: It is too early to really predict, because the Land Acquisition Bill came a few days back. We do not know what will be its impact on the banking sector or finance sector. To be very honest and to due credit to the banks, none of our projects had suffered in the past due to the financial closure, neither today.

The challenges are different. Today after two or three years of getting a project, if you do not get the land, you do not get the environment or the forest clearance, even after finalising the Engineering, Procurement and Construction (EPC) it is difficult to execute such projects. The cost has goes up, the contractor is not going to stay.

The overall situation of the contractors also is coming down. In that situation implementing the project is becoming difficult rather than real finance.

Q: How is the Mumbai-Nasik Highway doing for you now?

A: Mumbai-Nasik Highway is one of our good projects, with much difficulty in a state like Maharashtra which is supposed to be progressive state and there is a State Support Agreement (SSA) with NHAI. We do not get any type of support.

Everyday there is some miscreant or the local people are not paying toll and going. But nonetheless the toll collection is in progress. The traffic has come down by 20-25 percent in the last 2-3 months time and there are other challenges of operations in the grass root level, because everybody wants to go free, nobody wants to pay.

It is little surprising that in a developed state like Maharashtra also neither the state government, nor NHAI, nor central government comes to the rescue of the private operator who by the mandate of the concession agreement is entitled to collect toll, but no administrative protection comes in that.

When L&T toll booth was there some of the miscreants created so much of problem and the toll booth was damaged.

Q: Do you expect Q2 to be another flattish quarter at least on the top-line?

A: It will be surely flattish, but if you understand the development we are not in construction business so that we do not ramp up our business overnight. We already have 7-8 operational projects. The income from that is steady. Toll might have come down 10 percent.

One more project has been added, so that the annuity payments will come. So as you have rightly mentioned it will remain flattish, but there is no immediate danger of having a downturn on our top-line as yet, because all projects are operational and we have completed those projects.

The challenge is for the projects which are under construction and for the projects which implementation needs to start.