In the past, banks have funded projects based on NHAI backing. However, it has been known that the authority has not given due importance to lenders. As Vijay Agrawal, Executive Director, Equirus Capital, says, “Even in many stuck projects, NHAI has issued penalty notices and tried to recover penalty at the cost of lenders.” Hence, public-sector banks are averse to lending to the roads sector, which is visible in the delayed financial closure (FC) of HAM projects.” As alternatives, he suggests:
- “Banks can tie up with the help of partial NHAI credit guarantee after bidding – like PCG structures seen in the past by agencies (IIFCL) to boost credit grade and offer the bank comfort.
- Making appropriate changes in InvIT laws to create an environment where retail investors and long-term investors like pension funds are confident to invest in InvIT.
- NHAI can increase TOT bids and raise more funds to attract long-term funds and increase FDI flows.”
For his part, Rajeshwar Burla, Assistant Vice President & Associate Head-Corporate Ratings, ICRA, expects the government to make an announcement on equity raising plans and/or launch InvIT to fund the ambitious Bharatmala programme. “The financial burden on the government will be lowest in the case of the BOT toll model followed by BOT HAM and EPC models,” he adds. “To support the huge investments required for Bharatmala, private-sector participation remains a key. Hence, a good mix of BOT toll and BOT HAM projects is desirable. The provision to renegotiate contracts is an important suggestion made by the Kelkar Committee to balance risk-sharing among stakeholders in the PPP model.” Thus, setting up a PPP Project Review Committee and Infrastructure PPP Adjudication Tribunal to renegotiate concessions if there is evidence of distress in projects (not because of aggressive assumptions or irrational bids), which is likely to result in default (if the direct cost implications on account of renegotiation are less than the financial outcome of doing nothing), would be a step in that direction.
Given the funding situation at the NHAI level, EPC cannot be a long-lasting solution should targets remain as ambitious, in Devayan Dey’s (Director-Capital Projects and Infrastructure, PWC) view. PPPs or private investments will have to be brought back eventually, he says, sharing:
- “The question is can we bring back PPPs in its current form? Yes we can. The current landscape of PPP project structures caters only to three stakeholders: The government, developer or construction companies, and lenders. However, the market now has a fourth stakeholder: Secondary market investors. Without taking onboard their interests, capital recycling will eventually hit a roadblock. So given the (a) interest of secondary market investors in upside of toll projects; (b) reduced bandwidth of NHAI for annuities or complete EPC; and (c) protection of debt sought by lenders, BOT toll projects with minimum revenue guarantee structure can be looked at.
- In item rate and EPC projects per se, the funding scene can be improved by improving fund utilisation itself. In a recent study, we found that 90 per cent of projects with mobilisation delay never recover to be able to deliver on time or within cost. In such cases, escrow mechanisms similar to PPPs can be examined where use of funds can be monitored and regulated.
- In terms of pure funding sources, it may be the appropriate time to implement highway congestion pricing schemes to incentivise distribution of traffic across DFC, IWT, highways, etc. For example, additional toll on commercial vehicles in routes where rail and waterway alternatives are available may help distribute traffic. Diverted traffic enhances viability of other modes as well as delays the need for capacity augmentation of highways until the network balances out.”
Points to ponder, surely.