>ROADS: BACK ON TRACK (MOTILAL OSWAL)

Government continuity to result in accelerated execution

■ Mr. Kamal Nath appointed as Union Minister of Road Transport and Highways: Mr Kamal Nath, who had held Commerce and Industry portfolio in previous term (FY05-09) of United Progressive Alliance (UPA) government has been entrusted with an important role as Union Minister of Road Transport and Highways. The key priorities have been identified as: increased focus on execution, improving capital availability and addressing operational issues in consultation with state governments.

■ National Highway Authority of India (NHAI) project award during FY07-09 has not been encouraging: During FY05-09, total road projects completed stood at 9,819kms; of which projects completed during FY07-09 stood at just 4,575kms. Also, new projects awarded during FY05-09 stood at 11,502kms; of which projects awarded during FY07-09 stood at just 3,571kms. The key reasons for delays in terms of project awards during FY07-09 were largely due to restructuring of NHAI, formation of 'PPP Advisory Committee', introduction of new Model Concession Agreement, etc. Also, restriction in terms of number of bidders for each infrastructure project and Clause 2.1.18 which restricted eligibility of each company to bid for infrastructure projects also affected investor interest. Apart from the above, there were issues in terms of land acquisition, shifting of utilities, execution challenges, etc which impacted project execution.

■ Revision in concession terms leads to improved viability, 10 projects awarded since December 2008: NHAI has approved higher capital costs, increased concession periods, etc which has led to improved viability. Also, project costs have been reduced through changes in project design. Restrictions in terms of number of bidders for each infrastructure project and also Clause 2.1.18 have been relaxed.

■ 9,531kms of projects have reached RFP stage, expect accelerated project award: Based on our analysis of NHAI projects, 100 projects with total length of 9,531kms and with project cost of Rs1,178b have already reached Request for Proposal (RFP) stage. Of these, bids have already been called for 29 projects with total cost of Rs562b (total length of 3,071kms). Given that a large part of the administrative issues have been sorted, we expect acceleration in terms of project award.

■ Easing liquidity to aid project financing: The Surat-Dahisar Project (245km, Rs25b), awarded to IRB Infrastructure in February 2008, has achieved financial closure in Febuary 2009 at 12.5% (domestic debt) with Canara Bank and IOB leading the consortium. This project was one of the five awarded in February 2008 (1,095km). Companies with robust cash flows (e.g. L&T, Reliance Infra. and IRB Infra.) are relatively better positioned to address the financing issues.

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