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Govt gets windfall from highway projects

Govt gets windfall from highway projects
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First Published: Sun, Oct 09 2011. 11 07 PM IST

Money matters: A file photo of an under-construction road in Warangal, Andhra Pradesh
Money matters: A file photo of an under-construction road in Warangal, Andhra Pradesh
Updated: Sun, Oct 09 2011. 11 07 PM IST
Bangalore/New Delhi: The government has received as much as Rs 15,729 crore in premiums from the winning bidders of at least 16 big-ticket highway contracts that it has invited bids for since April.
That’s in contrast with the Rs 660 crore the government estimated it would have to pay in order to plug gaps in the commercial viability of the projects, via the so-called viability gap financing.
Money matters: A file photo of an under-construction road in Warangal, Andhra Pradesh
The projects in question are tolled roads that the government has been bidding out on a build-operate-transfer basis. The projects are part of the National Highways Development Project (NHDP) and envisage the construction of 2,599km of roads at a total cost of Rs 24,503 crore.
NHDP, first implemented in 1998, is aimed at rehabilitating, upgrading and widening 45,000km of national highways in the country at a total estimated cost of Rs 2.2 trillion.
Viability gap financing refers to financial support that the government provides, typically in the form of one-time or deferred grants, to infrastructure projects that are taken up via the public-private partnership route. The government does this to make the project commercially viable.
Data in Mint’s possession shows that among the 16 contracts, the government made the most from the stretch of highway between Ahmedabad and Vadodara in Gujarat. In this contract, while the government was hoping to get just Rs 63 crore (in net present value) by way of premium, it ended up with Rs 3,542 crore, a 56-fold increase. Similarly, in Barwa-Adda-Panagarh (from Jharkhand to West Bengal) and the Beawar-Pali-Pindwara (Rajasthan) contracts, the variation between the projected and bid amounts was to the tune of 18 times and 9.5 times, respectively.
This discrepancy in the numbers, said analysts, could be because the government may have been quite conservative in its estimates of traffic projections and, therefore, revenue generation from these roads.
Amrit Pandurangi, a senior director with Deloitte, said that companies will feel the need for longer concession periods in order to make up for the large sums that will have to be paid upfront.
The issue has raised questions on how road users may be subsidizing the government—apart from the taxes they already pay—by having to potentially pay tolls for longer periods, he said.
Another analyst, who did not want to be named, said the numbers being cited by winning bidders did appear to be very aggressive. This could imply that the bidders knew something about the projects that was not otherwise known, or that there would be a lot of them failing in the next two-three years.
J.N. Singh, member (finance) at the National Highways Authority of India, said the government hasn’t been conservative. “While calculating traffic projections, we take a flat year-on-year growth of 5%,” he said. “Private contractors calculate their own figures, and this is where the difference occurs.”
Singh says that while projection figures vary from project to project, developers typically account for a year-on-year growth estimate in the range of 8-8.5%.
He further says that the concession period is determined by the authority and is agreed upon at the time the contract is finalized. “Not only that, even the tolls that the developers charge are listed in the contracts and publicized, so that they cannot overcharge,” he says.
While for most contracts, the concession period is 20-25 years, in some cases it can stretch up to 28 years.
rahul.c@livemint.com
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First Published: Sun, Oct 09 2011. 11 07 PM IST