Hyderabad: Infrastructure companies developing irrigation projects in Andhra Pradesh could see their finances coming under pressure on account of the delays by the state in paying for these—the result of a shortfall in revenue collection and fund-raising plans.
The projects are part of the ambitious Jalayagnam scheme launched by the government in 2004, and scheduled to be completed by 2012 at a total cost of Rs1.2 trillion. The Y.S. Rajashekara Reddy-led Andhra Pradesh government had made irrigation projects a priority area when it came to power in 2004. The government is hoping to be re-elected in April; Andhra Pradesh, which sends 42 representatives to Parliament, will also be key to the simultaneous general election.
“An important source of financing Jalayagnam was disinvestment of land by the state government. With meltdown in the realty segment, the funding source has dried up,” Revathi Myneni and Parvez Akhtar Qazi, analysts with Mumbai-based equity research firm Edelweiss Securities Ltd, wrote in a 2 March report. With other sources of revenue also taking a hit because of the economic slowdown, the report stated that the Plan expenditure on irrigation in “2009-10 at Rs14,000 crore is lower than Rs16,500 crore for 2008-09”. The bigger worry, the analysts wrote, relates to cancellation of existing irrigation projects in case a non-Congress government comes to power.
A senior official in the state’s irrigation ministry, who did not want to be named, admitted funding had suffered due to a fall in revenue collections, a large part of which was expected from sale of land assets. Of the Rs16,500 crore, sale of land was expected to contribute “Rs12,500 crore”, said this official. “However, it now expects to end up with only some Rs3,000 crore of funds from sale of land due to slowdown in the real estate sector.”
Infrastructure firms such as IVRCL Infrastructures and Projects Ltd, Nagarjuna Construction Co. Ltd and Hindustan Construction Co. Ltd are developing irrigation projects as part of Jalayagnam.
E. Sudhir Reddy, chairman and managing director of IVRCL, said there had been delays of between 30 and 45 days in payments by the government, but the impact of these would not be significant as far as his company was concerned. Reddy added that it was unlikely that a new government would stop these projects.
The Edelweiss analysts said the delay in payments is a definite cause for concern due to the associated cash flow problems. For instance, the total outstanding to IVRCL is Rs169 crore, of which Rs59 crore has to be paid directly to the company and Rs110 crore to its sub-contractors. IVRCL also has some Rs5,300 crore worth of water sector projects waiting to be executed, according to the analysts.
IVRCL’s Reddy said this was unlikely to be the case. “We have no such problems, since it is the responsibility of sub-contractors to execute the projects and manage working capital.”