Home / Companies / News /  GVK terminates NHAI contract

Mumbai: GVK Power and Infrastructure Ltd has pulled out of a road project it was to build in Madhya Pradesh, an indication of the pressure on infrastructure developers hit by delays in project execution and a funding crunch.

The company said in a stock exchange filing that its unit GVK ShivpuriDewas Expressway Pvt. Ltd had terminated the 12 January, 2012 concession agreement it executed with the National Highways Authority of India (NHAI) for the four-laning of the Shivpuri-Dewas section of National Highway No. 3 (NH3) in Madhya Pradesh.

The termination of the agreement is the latest setback to India’s deficient infrastructure sector, which has been struggling with slowing economic growth and weak market sentiment. Delays in land acquisition and securing environmental approvals have hurt project execution.

In recent times, aggressive bidding in the road sector and developers’ growing debt, coupled with banks tightening lending for road projects, have resulted in companies seeking more time to arrange finances for 23 projects and two project awards being cancelled, SBICAP Securities Ltd said in an 8 January report.

For instance, one week ago GMR Infrastructure Ltd had to abandon a plan to widen a 555-km highway stretch between Kishangarh in Rajasthan to Ahmedabad in Gujarat. The company walked out of the 6,000-crore project as it demanded too high a revenue share to the government to win the contract, affecting the viability of the project, Mint reported on 7 January, citing two government officials who requested anonymity.

In January 2012, GVK Power said the four-laning of the Shivpuri-Dewas section would be executed on a build-operate-transfer (BOT) basis under which a developer builds a project and operates it for a specified duration to recover its investment and earn a profit before transferring it to the government.

The project on NH3 entails the widening and strengthening of the two-lane highway to a four-lane highway with a length of 332.46 kms.

The concession was offered for 30 years, including a construction period of 2.5 years.

NH3, commonly referred to as the Mumbai-Agra highway, is one of India’s major national highways and a vital trade corridor connecting Western and Central India to Northern India.

In 2012-2013, the ministry of road transports and highways had been expected to award 8,000 km of road projects, less than its earlier target of 9,500 km, but it has awarded just 1,010 km till date, SBICAP said.

“We find that 60% of road projects awarded in financial year 2012 still has not achieved the financial closure due to strict lending norms..," senior analyst Ankush Mahajan at domestic brokerage Kisan Ratilal Choksey Shares and Securities Pvt. Ltd wrote in a December 2012 report.

Last week, NHAI sought from the Supreme Court a modification or clarification of a 2011 judgement that linked environment and forest clearances.

On 12 January, Mint had reported that the environment ministry, facing flak for delayed approvals to highway projects, had shifted a part of the blame onto state governments. The ministry said it hadn’t received proposals from state governments for 17 out of a pending list of 26 submitted to it by NHAI, which had criticized the ministry for delaying approvals.

Once a project is submitted for forest clearance, it first goes to the state forest department, where it is scrutinized and examined before being forwarded to the environment ministry for approval.

On Monday, shares of GVK Power ended at 15.11 a piece on BSE, up 1.96% from previous close, while the benchmark Sensex rose 1.23% to close at 19,906.41 points.

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