GMR Infrastructure Ltd has filed an arbitration claim against the National Highways Authority of India (NHAI) after the state of Haryana built a road that the company says drives traffic away from the company’s tolled highway project between Ambala in Haryana and Chandigarh.
The GMR-built road, a four-lane, 35-km stretch, saw average traffic of 40,000 passenger cars a day, of which 12,000 passenger cars were being diverted to another road built by the states, said a senior company official, speaking on condition of anonymity.
A GMR spokesperson declined to comment on the matter. The highway project, which is one of two national highways that GMR owns outright, costs the company about Rs 15 crore a year, said the company official cited earlier.
A second company official, who also spoke on condition of anonymity, said the estimated project cost of the Ambala-Chandigarh highway is around Rs 350 crore.
Two senior central government officials, one from the roads ministry and the other from the NHAI, independently confirmed that GMR was looking to initiate arbitration proceedings in the matter. Both officials declined to be identified. They, however, said that the state governments had technically not violated any contractual obligations by building another road in the vicinity of the highway built by GMR.
The ministry official said that the terms of the contract ensure that any new road being built in the vicinity of a tolled highway is at least 20% shorter in length compared with the tolled highway.
“The road constructed by the state government had adhered to this norm,” this official said. “Besides, the central government cannot stop states from building such roads, as they are for the public good.”
GMR has so far built six highway projects comprising 424km, while another 310km is under construction.
Highways accounted for about 5.5% of the company’s revenue in the six months ended 30 September, while airports contributed about 46%.
GMR has interests in airports, energy and roads, among other sectors. If states continue to build roads that compete with national highways, it could affect lending for national highway projects, according to some bankers.
“It is not good for the viability of the central government road projects if state governments build roads that compete with the national highways,” said a senior IDBI Bank official, who declined to be identified. “It will impact the toll collections and delay the break-even for these projects, thus making them risky to fund. Banks insist on state support agreements from respective state governments, which clearly state that they will not build competing roads. But if this is happening, it is a matter of concern and could impact bank lending to road projects.”
An official with a project management consultant said that in this particular case, the original bid placed by GMR was too high. Companies typically bid on the amount of revenue they want to share with the government.
Mint could not immediately ascertain the amount of revenue that GMR said it would share with the government.
“As long as state support agreements will be there, there won’t be a problem. States also have to be careful about what they agreed to do in their state support agreements,” said Amrit Pandurangi, senior director of Deloitte Touche Tohmatsu India Pvt. Ltd.