NHPC may bid for road construction contracts

  • The new business opportunity is being considered by NHPC in India and overseas as part of its diversification strategy
  • NHPC wants to leverage its learnings from the work done under PMGSY roads in Bihar to tap the booming business

New Delhi: In what will add to the competition in the road-construction space, state run NHPC Ltd. is exploring to bid for road projects, said a top company executive.

This development comes in the backdrop of a revival of the highway sector and will pit the public sector unit (PSU) against private road sector developers such as IRB Infrastructure, Hindustan Construction Co. Ltd, Larsen and Toubro Ltd and Ashoka Buildcon Ltd among others.

The new business opportunity is being considered by NHPC in India and overseas as part of its diversification strategy, said Balraj Joshi, chairman and managing director, NHPC in an interview.

Given that hydropower projects are located in far-flung areas, the PSU has been constructing roads in remote locations for its own usage. Also, in comparison to a road project, executing a hydropower project is time-consuming and tedious.

“We can venture into roads. We are already doing some PMGSY roads in Bihar," said Joshi.

NHPC wants to leverage its learnings from the work done under the Pradhan Mantri Gram Sadak Yojana (PMGSY) roads in Bihar to tap the booming business. While the firm has constructed around 3209 km of roads in Bihar, the 3229 km project was awarded on a turn-key basis under the marquee scheme, entailing an investment of Rs1725.65 crore. The plan now is to participate in ‘tariff-based or toll-based’ bids.

PMGSY was launched in 2000 by the previous National Democratic Alliance (NDA) government with the objective of providing all-weather road connectivity to unconnected rural habitations.

“This opportunity can be anywhere, whether in India or elsewhere. We have thought about it and will explore it," Joshi added.

NHPC is also attracted by the state run National Highways Authority of India’ (NHAI) Bharatmala project wherein under the first phase, 24,800km of roads and highways will be built over five years for an estimated cost of Rs5.35 trillion.

Experts believe that there is space for new players in the Indian roads sector.

“With an increased focus on awards of contracts, there is room for fresh players to compete in the highway programme of the government," said Jagannarayan Padmanabhan, director, CRISIL Infrastructure Advisory.

“With HAM (hybrid annuity model) and EPC (engineering-procurement-construction)being NHAI’s preferred mode of award, and having taken away much of the project risk from the plate of the private player, this presents an exciting opportunity to developers/contractors who have dabbled in road construction before," added Padmanabhan.

Under HAM, a variant of public private partnership (PPP) launched in January 2016, the government bears 40% of the project cost and gives money to the developer. The rest comes from the developer over the execution period. The NHAI collects toll and developers are given annual payments over a specified period.

“Having said that, it’s important to foray with a long term strategy and not treat it as an opportunistic short term play," Padmanabhan said.

NHPC, formerly National Hydroelectric Power Corp. Ltd, plans to concentrate on hydropower generation in the country and has also been appointed as an electricity aggregator by the government wherein it will be procuring 2500 MW for three years. It has a generation capacity of 7071.2 megawatts (MW) and plans to boost capacity to 10 GW by 2022.

It is also looking at setting up pump-storage projects, wherein cheap power is used during off-peak hours to raise water to a height and then released into lower reservoir to generate electricity.

“The future area of growth is renewable energy and we would want to go towards pump-storage," Joshi added.

Given that battery storage is still expensive and needs to be replaced, pump-storage projects are being looked at as a viable option. This assumes importance given India’s clean energy push, with India’s ambitious target of 175 gigawatt (GW) by March 2022.

The government is seeking to leverage the advantages of hydro power defined by low life-cycle tariffs, reduce carbon emissions and lower dependence on thermal power. With hydropower holding the key to meeting the country’s peak shortage as it is relatively easier to switch on and off, compared with thermal sources; the government is worried about the shrinking share of hydropower in the country’s energy basket.

Hydropower is seen as an important source of energy to meet India’s mounting needs but—at 45.4 gigawatts (GW)—it makes up only 13% of the nation’s installed power generation capacity of 349 GW.