Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Industry / Infrastructure/  Muted private sector interest in road projects hurting OMT contracts
BackBack

Muted private sector interest in road projects hurting OMT contracts

Lacklustre response to an invitation from NHAI asking firms to bid for OMT contracts has prompted the roads ministry to relook at the bid documents

The roads sector has seen a severe slowdown over the last two years with the ministry awarding just 3,169km of road projects in the fiscal ended March against a target of 9,500km. Photo: BloombergPremium
The roads sector has seen a severe slowdown over the last two years with the ministry awarding just 3,169km of road projects in the fiscal ended March against a target of 9,500km. Photo: Bloomberg

New Delhi: Muted private sector interest in road projects is now beginning to affect contracts for operating and managing completed roads.

Lacklustre response to an invitation from the National Highways Authority of India (NHAI) asking companies to bid for so-called OMT (operate, manage and transfer) contracts has prompted the roads ministry to relook at the bid documents, three government officials said, requesting anonymity.

“Most projects are getting very low bids, even lower than the threshold estimated by NHAI. Some others did not get any interest. We are examining what the issue here is," said one of the three officials.

With increased focus on awarding road projects under the EPC (engineering, procurement and construction) model funded by the government, the lack of interest in contracts for post-construction management and operation of highways could snowball into a big problem for the roads ministry.

Officials say doubts over the accuracy of traffic projections, and consequent impact on revenue collection in the current economic background is affecting the response to OMT contracts, just like in the case of public-private partnership (PPP) projects.

“The traffic projections have gone so way off over the past few years that companies don’t want to give a revenue assurance or a guarantee on the toll collections. Secondly, bigger developers who are majorly into construction are not interested in this segment," said Vinayak Chatterjee, chairman and managing director, Feedback Infra Pvt. Ltd, an infrastructure consultancy.

A slowdown in economic growth has led to a fall in traffic numbers, affecting toll collections from road projects, over the past two years. The Indian economy grew less than 5% in each of the past two financial years.

“There seems to be a disagreement between the traffic estimates of the government and those of the private OMT firms. The private players are being cautious after the experience in BOT (build-operate-transfer) projects," said the second official.

The ministry is examining the procedures used to estimate traffic numbers and revenue projections used in the bid documents.

“We want to push more and more completed road projects to the OMT model. While the methodology is being examined on one hand, we are also looking at the counter assessments that perhaps the bid benchmarks themselves need to be revisited or have perhaps been set too high," said the third official.

“The returns that NHAI has been offering to OMT contractors do not price the risk adequately. Given the traffic projection uncertainties and operational issues like protests, developers today expect a higher return than what NHAI has been paying," said Pranavant, a director at Deloitte Touche Tohmatsu India Pvt. Ltd, an audit and consulting firm.

“The current returns an OMT contractor can earn by investing elsewhere too, so to attract players, incentives for bearing the risk need to be factored in," said Pranavant, who uses a single name.

The roads sector has seen a severe slowdown over the last two years with the ministry awarding just 3,169km of road projects in the fiscal ended March against a target of 9,500km. The previous year, it could only award 1,916km against a target of 12,000km.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 16 Oct 2014, 12:07 AM IST
Next Story footLogo
Recommended For You
Infrastructure Stocks
₹18.38-2.39%
₹3,706.11.83%
₹266.251.6%
Switch to the Mint app for fast and personalized news - Get App