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Slowing highway bids point to problems in planning

Slowing highway bids point to problems in planning
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First Published: Thu, May 07 2009. 10 59 PM IST
Updated: Thu, May 07 2009. 10 59 PM IST
New Delhi: India’s ambitious highway programme has hit a speedbreaker as wary investors shy away from funding, but experts say the problem lies deeper and the process of offering and bidding for highway upgradations needs a review.
Bids came in for just 22 of the 60 projects the National Highways Authority of India (NHAI) offered last fiscal to private firms to build and operate, and industry officials expect a tepid response to the next round of bids in 2009-10 as well. The lacklustre reaction is in marked contrast to India’s success in attracting funds for roads until two years ago. By 2007, the share of investment into roads went up to 13% of all investment, from 1% in 2000, World Bank data showed.
The immediate cause of the souring was a spike in interest costs, but the manner in which the government pushed unviable projects and developers lapped them up without stringent evaluation is also to be blamed, analysts say.
“The credit enhancement that was necessary through a combination of making debt available at a low stage and derisking the project was missing. And that’s where someone needs to do serious introspection,” said Jai Mavani, head of infrastructure at consultancy KPMG.
For India’s government, the Rs3 trillion expansion of the road network is vital to sustain the country’s economic expansion. But the hurry led to a rush to market projects even without acquiring the land.
“There was a certain measure of overconfidence in the institutional arrangement and in investor sentiment before the meltdown...investors were expected to assume higher risks” added Siddhartha Das, head of public-private partnership practice at consultancy Ernst and Young.
“Nobody took care of what is your profitability level, what is your return on investment,” M. Murali, director general of the National Highways Builders Federation, said, estimating 80% of the projects contracted were making losses.
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First Published: Thu, May 07 2009. 10 59 PM IST
More Topics: NHAI | World Bank | KPMG | Ernst and Young | Highway |