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Foreign cos dominate highway project bids

Foreign cos dominate highway project bids
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First Published: Wed, Jan 09 2008. 12 07 AM IST
Updated: Wed, Jan 09 2008. 12 07 AM IST
New Delhi: Foreign bidders dominated the latest round of bidding for national highway projects, winning three of the five stretches on offer. This is the first time foreign companies won more bids than domestic ones; the five projects are together worth an estimated Rs5,390 crore.
Government officials who did not wish to be identified said the foreign companies are Emirate Trading Agency, IJM Corp. and Isolux Corsan Group, each in partnership with an Indian firm.
Indian companies IRB Infrastructure Developers Ltd and Larsen and Toubro Ltd (L&T) won the remaining two stretches.
The bids were opened on Tuesday and the government is yet to send in formal communication to the winning bidders. On the basis of the bids, the government’s share in toll revenues in these projects varies from 2% to 48%.
The projects, which cover 881km of highways, were awarded under the fifth phase of the National Highway Development Programme, or NHDP, that plans to expand existing four-lane highways into six-lane ones. NHDP was envisaged to six-lane nearly 6,500km of highways in the country.
Under the scheme, existing toll stretches on these highways will be handed over to the private bidders who will start paying money (revenue share) to the government from the date of the project’s financial closure.
Companies such as GMR Infrastructure Ltd, Reliance Energy Ltd, Lanco Infratech Ltd, Ramki Infrastructure Ltd, GVK Power and Infrastructure Ltd, Hindustan Construction Company Ltd, Nagarjuna Construction Company Ltd, Gammon India Ltd, IVRCL Infrastructures and Projects Ltd and Infrastructure Leasing and Financial Services Ltd (IL&FS) failed to win any bids.
A total of 42 bids were placed, with some companies bidding for more than one stretch.
The five stretches on offer were Chennai-Tada, Andhra Pradesh (43km), Gurgaon-Jaipur (226km), Surat, Gujarat- Dahisar, Maharashtra (240km), Chilkaluripet-Vijaywada, Andhra Pradesh (82km) and Panipat-Jalandhar (291km).
L&T, and consortiums of Emirates Trading Agency and KMC Construction Ltd, IRB Infrastructure Developers and Deutsche Bank, IJM Malaysia and Infrastructure Development Finance Co. Ltd (IDFC), and Spain’s Isolux Corsan and Soma Enterprise Ltd were the winning bidders, respectively.
“There was some aggressive bidding on the part of the companies. The highest response was for the Jaipur-Gurgaon stretch. The response shows that there is still interest in the highways sector,” said an official with the National Highways Authority of India, or NHAI, the regulator for the roads sector.
The official, who did not wish to be identified, said that the bids also proved that ending the system of awarding contracts by accepting negative grants (where bidders pay the government for being allowed to develop a stretch of highway) had not hampered interest in Build Operate and Transfer projects (where bidders build and operate the stretch for a certain period of time before transferring the asset to the government).
A GMR official confirmed that the company had participated in the Gurgaon-Jaipur bid but declined comment on the development. Other losing bidders could not be reached for comment.
Mint had reported on 17 May 2007 that the government is changing the practice of “negative grant” and replaced it with a revenue share agreement, where bidders agree to provide the government share in toll-revenue. The revenue share percentage, which is the basis for selecting the winning bidder, increases by 1 percentage point every year, as the cost of servicing loans for the concessionaire decreases.
Some analysts, however, said the size of the revenue shares could be a cause for concern.
“On a stand-alone basis, very high revenue shares could be a concern,” said Arvind Mahajan, executive director at audit and consulting firm KPMG Advisory Services Pvt. Ltd.
“It could be that some of the players are bidding to win first, and then thinking of re-negotiating later. They seem to be operating on wafer-thin internal rate of return margins,” he added.
The NHAI official said that Emirates Trading Agency and KMC Construction offered the highest revenue share of 48% for the Gurgaon-Jaipur stretch.
Among the other winning bidders, L&T offered a revenue share of 17%, IRB Infrastructure, 38%, IJM Malaysia, 2%, and Isolux Corsan, 20%. Audit and consulting firm Ernst & Young Pvt. Ltd was the financial adviser for the bids.
An executive at a winning bidder, who did not wish to be identified before an official announcement, attributed the high revenue shares in some cases to the fact that all five stretches are already collecting toll-revenue.
Mint could not immediately ascertain the current toll-revenue from the five stretches.
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First Published: Wed, Jan 09 2008. 12 07 AM IST