GMR, GVK notices untenable, says highways authority

January 18, 2013 12:00 am | Updated 05:31 am IST - NEW DELHI:

“They suffer from inherent financial weaknesses”

Taking a tough stand, the Union government on Thursday said GMR Infra and GVK Power and Infrastructure Limited, which had served notices on the National Highways Authority of India (NHAI) stating that they were withdrawing from two major highway projects owing to delays in environment clearances, suffered from inherent financial weaknesses.

The government maintained that the construction of 20 km a day and the awarding of 9000 km of contracts annually were unsustainable and the performance of the sector was likely to be poor.

“The notices of GMR Infra and GVK Power and Infrastructure Limited are untenable and their claims for terminating their contracts are incorrect. They can’t renegade from the contracts,” was the firm message that NHAI chairman R.P. Singh sought to convey to industry leaders at a seminar organised by FICCI here on Thursday.

The real problem with the two companies was that they had leveraged their balance sheets a bit too far and were unable to raise equity which was proving to be a stumbling block in getting a financial closure for the two respective projects, Mr. Singh said.

While GMR was expected to raise an equity of Rs. 2000 crore, GVK needed to pool in Rs. 1500 crore for constructing a Rs. 5387 crore 555-km Kishangarh-Udaipur-Ahmedabad Expressway and a Rs. 3200 crore 373-km Shivpuri-Dewas Expressway in Madhya Pradesh respectively, he said.

GVK Power signed the contract in August, 2012 and served the notice to terminate the contract within five months — on January 14, while GMR signed its contract in September 2011 and served just a 15-day notice on December 15.

Hoping they would continue with the contractor, Mr. Singh said the NHAI was willing to consider adjustments within the ambit of the contracts. He evaded questions relating to slapping of penalties, saying it was not appropriate to talk in these terms right now.

Incidentally, both the companies have obtained stay orders to prevent the NHAI from confiscating their security deposits.

Mr. Singh said the GMR notice was unlawful, as the 15-day notice it had served was against the grain of the contract that said a termination notice could be served with a 90-day cure period. Their concern about toll and delay in environment clearance was addressed.

As regards GVK, Mr. Singh said their contention that the law had changed in the wake of a Supreme Court ruling that permission of the Ministry of Environment and Forests was mandatory for even mining a small patch of five acres was untenable as it could allow any contract to be abandoned.

At the macro level, he held the present economic scenario, drop in traffic and escalation in the cost of construction arising from delay in their execution as responsible for the crisis.

Against this backdrop, the NHAI chairman ruled out meeting the current financial year’s targets; be it on the construction front or awarding of contracts. He was only hopeful of constructing 2500 km of highways, against the target of 3000 km, and so far contracts for only 1000 km of roads had been awarded.

We are willing to consider adjustments within the ambit of contracts: R.P. Singh

Both companies have obtained stay orders to prevent NHAI from confiscating their security deposits

Top News Today

Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.