Even subsidy fails to draw big players to road contracts

The NHAI had called for bids to award 1,500 km of highways under BOT in the first quarter

Prime Minister Manmohan Singh’s desperate initiative to step up infrastructure investment during the current financial year seems to be at a disadvantage, with the Ministry of Road Transport and Highways unable to award even the first quarter target for construction of highways.

The National Highway Authority of India (NHAI) was unable to find bidders for its projects, portending a rather disheartening scenario, not only with the progress on construction of highways, but in giving momentum to infrastructure in general, which took a hit in 2011-12 itself.

The NHAI had called for bids to award 1,500 km of highways under build, operate, and transfer (BOT) in the first quarter. But to its dismay, found that private infrastructure players had put in bids for just a couple of projects, totalling 100 km.

These projects were advertised for a second time in April, but with no success — this despite the incentives given to big players, when they promised NHAI officials that they would submit proposals.

The sudden disinterest takes a serious tone because big players don’t seem to be attracted even by the 40 per cent subsidy that NHAI had offered for taking up the execution of these projects, converting single-lane to double-lane, two lanes to four lanes, four lanes to six lanes, and two lanes to six lanes.

The Prime Minister held a special meeting to give a thrust to the infrastructure sector, including roads, almost a month ago, when he approved the Ministry of Road Transport and Highways’ target of awarding 9500 km of highways during the current financial year.

Union Minister of Road Transport and Highways, C. P. Joshi, has directed the departmental secretary and NHAI chairman to hold a meeting, and see how the ministry could help it make headway.

The Ministry and NHAI officials are baffled at the sudden change in the scenario in April and May, the first two months of the current financial year, when things appeared smooth in March, the closing month of financial year 2011-12.

Almost 7900 km of highways was awarded in the previous financial year, and some projects fetched premiums. Authorities weren’t expecting premiums this year, but their offer of subsidy going abegging has come as a rude shock.

The poor performance would affect the Prime Minister’s thrust on development of infrastructure to boost investment rates across the country, besides reviving business and investor sentiments.

While projects under EPC (engineering, procurement and construction) and annuity are expected to be taken up smoothly, the bottlenecks affecting BOT projects, which involve bank financing, were unlikely to get resolved easily, officials felt.

Banks were said to be jittery in financing road projects, after suffering losses in some of the power projects, due to the unexpectedly-long gestation period and poor coal linkages. Road construction companies also seem to be affected by the alleged policy paralysis of the government and high interest rates. Officials feel that even if the government were to announce a fresh concession, these were likely to be taken up only around the festival season (Deepavali), and it would take another six months for things to start rolling.