To award 5400 km road projects in FY16: NHAI's Chandra

Chandra said hybrid annuity projects will be awarded November onwards.In the hybrid annuity model, the government provides 40 per cent of the project cost to the developer to start work, and the developer puts in the rest.

Speaking in the same discussion, Paresh Mehta, Chief Financial Officer, Ashoka Buildcon said his company participated in one of the BOT projects awarded this year so far.

Ashoka Buildcon’s current order book stands at Rs 3100 crore, he said.

Below is the verbatim transcript of Satish Chandra & Paresh Mehta’s interview with Reema Tendulkar & Sonia Shenoy on CNBC-TV18.Sonia: Last time when we spoke to you, you had indicated that the target of road award set by NHAI for FY16 is at 9,000 kilometers. Can you give us a status check of how the first two months have been? Have any projects been awarded yet?Chandra: Target for current 2016-2017 is 5,600 km for NHAI and total target for the ministry is 9,000 km, remaining would be implemented through state Public Works Department (PWDs) and by the ministry itself. In the current year we are planning to award 2,100 km of build-operate-transfer (BOT), 2,500 km for engineering, procurement and construction (EPC) and remaining 800 km in hybrid annuity model (HAM). In the first one and a half month of the current financial year, we awarded 3 BOT projects and the bids for the remaining projects are under process. 

Reema: So just to re-confirm the NHAI wants to award a total of 5,600 km in FY16, Is that right?Chandra: Yes.Reema: could you give us the total size of the 3 BOT projects which you have already awarded in the first one and a half month ?Chandra: The size is about 350 km and the investment in about Rs 4,500 crore.Sonia: Out of the 27 projects that were awarded in FY15, for how many projects have you already secured land approvals?Chandra: Land approval is complete for all the projects. In fact, we awarded 35 projects in the last financial year and work on 12 projects has already started. We have also started Work for all the projects awarded in 2013-2014, 2012-2013. So now we do not award any projects unless we have 90 percent of land in our possession.Sonia: As of now are there no issues with land clearances at all?Chandra: No issues. In fact the projects are not even appraised by the ministry unless we have 90 percent of the land under our possession.

Reema: Out of the 5,600 km you said you have awarded worth 350 km . So, can you tell us what is going to be the timeline of NHAI putting the remaining 5,250 km  for tendering? Will it be concentrated in Q1, Q2 or towards the end of the fiscal year?Chandra: Except for the hybrid annuity project for which the request for proposal (RFP) document is yet to be finalised. Hybrid annuity projects will be awarded from November onwards and for BOT and EPC, the same will be spread out through out the year. They are not bidded out in particular months.Sonia: There is also some news flow that the NHAI is looking to raise a large quantum of fund from the bond market over the next three years. There are some talks that it could be a cumulative amount of Rs 1.7 lakh crore of fund raising? Can you take us through how you plan to do this? Also you have never done a magnitude of fund raising of this kind before so what could the timeline look like? How much funds are you looking to raise overall?Chandra: NHAI was given 55,000 km of road projects and as of now 20,000 km is yet to be implemented. Ministry wants that this 20,000 km of projects be awarded within 2 years and if there is no response in BOT then go for EPC. That is why we have drawn up such an ambitious plan. For 20,000 km road projects we need about Rs 1,80,000 crore of funds for the next 3-4 years. Last year we spent about Rs 21,000 crore and in the current year  the expenditure would be about Rs 72,000 crore, which is Rs 51,000 crore more as compared to last year.

Reema: Is lack of private sector interest one of the key bottlenecks in these projects going through according to you?Chandra: Till last year there was lack of response from private parties. It was mainly because during 2010-2011 and 2011-2012 we awarded projects without much preparation. After 2 and 2.5 years we had to terminate about 45 projects and we could not arrange land for these 45 projects even after 2.5 years.Many projects were delayed and that is why there was no response from private parties. However, now we are going mainly for engineering, procurement and construction (EPC). During 2014-2015 only 750 km were awarded in build-operate-transfer (BOT) and remaining 2,400 km in EPC mode.However, all issues of private parties have been settled now. For issues like that of forest environmental clearances, General Agreement Drawing (GAD) approval of railway or bridges etc, a committee has been constituted under the chairmanship of minister for Ministry of Road Transport & Highways (MoRTH) comprising of ministry of environmental forest and ministry of railways. Reserve Bank of India (RBI) has also come up with 5:25 circular which allows India Infradebt Fund (IDFs).Number of other initiatives has been taken up to alleviate the problems faced by these private people. We have received bid for 3 BOT projects in the current year and we are very hopeful that response from private parties would be quite encouraging.Sonia: In terms of a timeline when can we expect to see some movement on the public private partnership (PPP) projects front? You were telling us that the RFP has been finalised for this hybrid annuity model but when can we expect movement on that?Chandra: Ministry has identified 17 projects for implementation in hybrid annuity mode. RPF document is under finalisation and will take about 1 month or so. Thereafter we will go for bidding in hybrid annuity mode and the award will start in October-November this year.Sonia: So these 17 projects are worth how much in kilometers?A: 800 Kilometers.

Reema: You heard what Mr. Chandra had to say, what is your assessment? In the three BOT projects that NHAI has awarded the first one and a half month, has Ashoka Buildcon participated and he also indicated that in the prior years we have seen less participation or interest from private sector. What is the view now?Mehta: Ashoka Buildcon is a focused road developer cum EPC contractor and whatever Mr. Chandra has explained is what is on the ground and things are definitely picking up. In the BOT space the three projects which were built, we did participate in one of the projects though we could not succeed. Even the promise of the ministry on doing three lakh crore of work being bid out in this year, I believe it is a mix of roads as well as sports but it is a very promising target and the sector definitely will kick start the whole process of the sector itself and economic growth also. So we believe that this is a strong signal to the economy as a whole that things definitely will pick up in a short while.Sonia: What is your own order book currently and you just mentioned that you participated in one of the projects, which project was that?Mehta: We participated in a Chitradurga-Hospet project where we were L2 but we found that it was a good bid and the participation was very interesting. As of date we have an order book of around Rs 3,100 crore and we will target to build it up over the period of next two months, when substantial bidding is supposed to be happening.Reema: What are the margins now in the BOT project because there is increased activity, there is increased interest as well. Is there higher competition and therefore lower margins?A: The competition level keeps shifting as projects keeps on bidding. So, in the initial phase there could be a bit of aggression but things have settled down now and it is quite a healthy competition. As far as the BOT projects are concerned, generally these projects are bid at an equity internal rate of return of around 16-18 percent depending on everybody’s hurdle rates. So, this is also quite healthy and receptive for the equity players as well as the financial investors who participate in this portfolio of BOT projects.