BackGMR, GVK exits due to viability issues: NHAI
Authority says it will fail to meet its target this fiscal; projects stuck because of delays in green nods
Premium(Satish Kaushik/Mint)
New Delhi: National Highways Authority of India (NHAI), the agency that oversees construction and maintenance of roads, conceded on Thursday that it would fail to meet its target this fiscal year and blamed the declining viability of highway projects for two infrastructure firms recently terminating a pair of concession agreements.
GMR Infrastructure Ltd and GVK Power and Infrastructure Ltd walked out of their agreements with NHAI this month in the latest blow to India’s deficient infrastructure sector. Many highway projects have been stuck because of delays in developers securing environmental approvals, problems in land acquisition and a funding crunch in the face of slowing economic growth.
“The basic reason for GMR and GVK walking out is not environment clearance in my view, no matter what they say," said R.P. Singh, chairman of National Highways Authority of India.
“It is because of the decreasing viability of the projects and fall in traffic. GMR requires ₹ 2,000 crore and GVK requires ₹ 1,500 crore equity for these projects and, I believe, in the current environment it is difficult to tie up for this amount of equity."
If these issues are resolved, NHAI would welcome them back to the highway projects the companies have exited, he said.
“We would encourage them not to abandon the projects and complete them," the chairman said.
Given the current environment, the authority will not be able to meet existing targets for road construction. “I don’t think 20 kms a day or 7,000 kms a year is a sustainable target," Singh said.
NHAI will be unable to meet the target to build 9,000 km of roads set by the ministry of road transport and highways and its own internal target of 3,000 km this fiscal, Singh said. “We are confident of constructing 2,500 kms and may even do better than that."
Cost overruns because of delay in approvals will continue to plague these projects unless the NHAI is given the authority to recast the concession agreements with contractors, said Abhaya Agarwal, a partner at Ernst and Young who oversees the infrastructure practice at the consulting firm.
“There are substantial cost overruns because of delay in clearances that render projects unviable," said Agarwal. “Concession agreements need substantial restructuring. NHAI should be totally empowered to remodel these agreements so the issues can be resolved faster. Around 40 odd projects are still awaiting financial closure, so there is no point in awarding more projects unless the issues stalling these projects are sorted."
A GVK spokesman declined to comment.
A GMR spokesman declined to comment on the issue.
GMR issued a notice to NHAI this month seeking to terminate an agreement to widen a 555-km highway stretch between Kishangarh in Rajasthan and Ahmedabad in Gujarat because the Union government had failed to provide land and environment clearances for the project.
Following GMR’s exit, GVK Power terminated a concession agreement with NHAI for four-laning of the Shivpuri-Dewas section of National Highway No.3 in Madhya Pradesh.
Delayed environment clearances have deterred participation in highway projects, Singh said.
“Till now we have not been getting even a copy when objections are raised by forest departments, their communication remains confined to the environment ministry. Environment ministry now, however, is coming around our concerns and I hope they will be resolved in a month or so," he said.
Last week, the highway authority had approached the Supreme Court to seek a modification or clarification of a 2011 judgement that linked environment and forest clearances. The judgement allowed French cement maker Lafarge SA to mine limestone in the forests of Meghalaya and asked the government to make an interim arrangement for forest clearance till a national environment regulator is set up.
The ministry of environment and forest is awaiting clarification from the Supreme Court on delinking environment and forest clearances.
The NHAI chairman sought more flexibility in decision making so that his office could act promptly to resolve contractual disputes with developers.
“National Highways Authority should be allowed to function under its board as contracts need dynamic management. Over a period of time many stakeholders have emerged," Singh said.
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