11 Aug 2012
‘Bidding Was Flawed In The Past’
Gajendra Haldea, advisor to the deputy chairman of the Planning Commission, explains the delays in handing out road projects and in road building
When you ask the National Highways Authority of India (NHAI) for the reasons for the slowdown in both the handing out of road projects and road building, the authority points to several causes. Not the least among them is what NHAI officials call the “Haldea factor”. Incidentally, the Planning Commission often steps in to correct what it sees as incorrect practices and systems. BW’s Anjuli Bhargava spoke to Gajendra Haldea, advisor to the deputy chairman of the Planning Commission, to determine whether he has solutions or is part of the problem. Excerpts: ‘I think, of late, NHAI has rolled outsome projects that are not viable’
Q:Very few companies are bidding for road projects now. Why?
A:That is not true. In March 2012, several PPP projects witnessed robust competition. However, a few projects rolled out in April/May received lukewarm response. This is primarily because the projects were less viable. We need to recognise that bidders will come forward only when projects are bankable and well structured. In the past too, during the periods when there was robust interest, there were some that got just one or two bids. Hence, the phenomenon is project-specific.
Q:Companies say bankers have become wary and many projects are finding it hard to achieve financial closure...
A:This is partly true. Some of the banks may have reached sectoral limits while some others may have reached group exposure limits. Among other things, the government is encouraging infrastructure debt funds which will take out loans of existing projects from the books of the banks and refinance them. This will create space for new projects. In some cases, bankers may feel that bidders have overstretched themselves or bid too aggressively. Who do we blame that for? It is always possible that some players may make mistakes and they ought to pay for that.
Theoretically, if out of 100 projects, 5 don’t achieve financial closure, NHAI has to quickly forfeit the bid security and rebid. It’s no big deal. But I do think that the system of bidding for road projects has been a bit flawed in the recent past. If you want keen competition, you must get credible players and short-list them. In the US, the number of short-listed bidders is fixed at 5 by law. That is also the international best practice. PPP projects require a lot of effort and expenditure in bidding. So if you ask 20 people to bid, serious players often withdraw. Too many players tend to cause disorderliness. That is why you don’t have 20 telecom operators competing in the same area. Normally about 3 to 5 credible players produce keen competition. In the case of NHAI, it has, often, allowed far too many players to bid at the final stage.
Q:Why are companies looking for buyers for many of their existing assets?
A:The prevailing market sentiment is not something I entirely go by because infrastructure is a long-term game. As we have observed in the past, everybody seems over-exuberant in good times and in the not-so-good times, everyone imagines himself in the doldrums. I think the balance lies somewhere in between. At present, some companies may be wanting to sell off for their own reasons. But this cannot be generalised as a trend.
Q:But NHAI is not meeting its target in awards, leave alone completion.
A:NHAI has not been stable in processing and awarding of projects. In the last 8-9 months, it has been deficient in its preparation of projects. It’s not that projects are not there; it’s just that they are not ready to be offered. In March 2012, NHAI hurriedly awarded a number of projects in just two weeks, primarily to show higher achievements in 2011-12. Actually, many of these projects would have normally gone to 2012-13. As a result of this, NHAI had little to show in April/May.
Q:What about NHAI’s record on completion?
A:A number of PPP projects have been completed. Conventional item rate projects in any case take much longer — an average of 5 years to complete while PPP projects take about half that time. It has now been decided by the government to give up the archaic item rate system and move to the turnkey approach. We have consulted extensively to make sure that the new system is acceptable to all.
Q:What is the learning from the Delhi-Gurgaon expressway?
A:This was awarded before the model concession agreement (MCA) was approved and has some weaknesses. The toll plaza has become a hold-up point. Clearly, there is some fault in the contract and/or it may a case of faulty enforcement. To take care of such problems, there is a provision in the MCA which says that if the traffic goes above the designed capacity of the road, you either have to terminate the contract or upgrade the service. Long hold-ups at toll plazas are also not allowed. Once you charge a user fee, you owe a certain level of service.
Q:You are looking at building expressways. What will this cost and how will it be financed?
A:The Minister for Roads and Highways has asked us to structure the first expressway between Delhi-Jaipur. This will be followed by Delhi-Chandigarh. The Delhi-Jaipur project may cost about Rs 15,000 crore. This will need private investment and some viability gap funding. Some real estate development or other support may also be necessary.
(This story was published in Businessworld Issue Dated 20-08-2012)
When you ask the National Highways Authority of India (NHAI) for the reasons for the slowdown in both the handing out of road projects and road building, the authority points to several causes. Not the least among them is what NHAI officials call the “Haldea factor”. Incidentally, the Planning Commission often steps in to correct what it sees as incorrect practices and systems. BW’s Anjuli Bhargava spoke to Gajendra Haldea, advisor to the deputy chairman of the Planning Commission, to determine whether he has solutions or is part of the problem. Excerpts:
‘I think, of late, NHAI has rolled outsome projects that are not viable’