MNCs eye India as govt ups size of road contracts

MNCs eye India as govt ups size of road contracts
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First Published: Fri, May 25 2007. 12 08 AM IST
Updated: Fri, May 25 2007. 12 08 AM IST
New Delhi: Global highway construction companies and toll-road operators are set to enter India following the government’s decision to increase the size and scale of contracts, which will make it viable for these companies to build and operate highways.
“Many international companies are indeed planning to enter the Indian market,” confirmed a road transport and highways ministry official, who didn’t wish to be named.
The policy was approved in principle last year, but it is only now that these contracts will be put up for bidding, within the next few months. The first of these projects will form part of the fifth phase of the National Highway Development Programme.
The average length of a highway contract has been fixed at 100-plus km, worth between Rs500 crore and Rs1,000 crore—a hike of 5-10 times from the current level, where contracts were in the Rs100 crore range with road lengths awarded in the 50-100km range.
Of the 33 lakh km of roads in India—one of the largest networks in the world— 66,000km are national highways. Although these highways constitute just 2% of the country’s roads, they carry 40% of the traffic.
Abertis Infraestructuras, a Barcelona-based company with interests in toll roads, telecommunications and logistics, has been in “informal talks” with the ministry officials about possible business opportunities in the roads sector. “One of our managing directors attended a conference in India, as part of which he spoke to government officials about doing business in India,” Toni Brunet, an Abertis spokesperson, confirmed.
The company directly manages 3,300km of tolled motorways across the world and has a stake in further 5,000km of roadways owned and operated by different consortia. And India is obviously on its radar. “It is quite clear that India seems to be a major market, not just in the roads sector, but also in airports and other infrastructure sectors,” Brunet said.
The company typically enters a new market by buying a stake in the existing concessionaires, rather than bidding for new projects. In some cases, it would also bid for a greenfield project by entering into a partnership with local companies.
About a year ago, the road transport and highways ministry decided that the package size of highway contracts would have to be increased to ensure quality and timelycompletion, said a ministry official. And now, as a result of the government’s decision, the larger companies of Europe and the US have begun to show interest. “These companies are likely to enter into joint ventures with Indian companies. However, some of themmay also want to start operations by themselves,” said the official.
“There will be a significant learning curve for foreign companies that plan to come here,” said Arvind Mahajan, an executive director covering the infrastructure sector for consulting firm KPMG International. “You cannot transfer learning from one market to another, but for some companies looking at annuities over a 30-year period, this is a very good market.”
Foreign companies—especially from China and Malaysia—have already entered the roads sector in India through joint ventures with local players, hoping to ride the highway construction wave that began with the Golden Quadrilateral project in 1997.
Leighton Asia, a unit of Australia-based Leighton Contractors Pty Ltd, recently announced that it had acquired a stake in two road projects measuring a total 121km.
A spokesperson for D S Constructions, which is building the longest build-operate transfer facility in India at Gurgaon, said the government must keep in mind that such projects, which are typically around 200km long, are difficult to implement. Land acquisition on a large scale, environmental clearances, financial closures are some of the difficulties projects of this size might face.
“This shift (towards larger highway contracts) has attracted the interest of large multinational players from Japan, Korea and Europe among others. However, most will initially prefer to undertake these projects in joint venture with established Indian players,” said D S Constructions.
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First Published: Fri, May 25 2007. 12 08 AM IST
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