Highways route to economic growth
16 Jan 2013 10:57 PM GMT
Dark clouds hang over private development of national highways in India. Only recently did infrastucture major GMR terminate its contract with NHAI over both the 555 km Kishangarh-Udaipur-Ahmedabad section. This would have been the largest privately developed highways project in India. The reason cited by the company were procedural delays about various clearances, specially those regarding the environment but increasingly it seems that there is economic logic and profitability that is working overtime behind the scenes. The pull out of another major GVK from the 330 km Shivpuri-Dewas section in Madhya Pradesh is a case in point.
Though GVK has also cited procedural delays as the cause of it’s pull out from the project experts and observers say that the private companies maybe actually finding the projects unviable. The two withdrawals may result in a loss of Rs 3000 crore over the next 20 to 3o years for NHAI who had touted both the projects as premium and hence a success when it could attach a whopping over Rs 800 crore as money that could be earned with 5 percent compounded increase of earning every year for the next two to three decades. But the jubilation of NHAI has clearly proved to be short-lived because now it has to invite bidding again. But observers are saying that the logic lies in fact that private companies may not be finding the delays of procedure and eventual earnings big enough. Also, banks have become increasingly miserly in equity pricing thereby giving enough headache to the private developers because without equity guarantee private companies are not able to monetize the projects in the market. Prospective dwindling of traffic may also be a nibbling fear because current estimates of traffic increase are less than was originally estimated. In other words the private companies are finding it difficult to raise money and also fearing that they cannot make profits enough to make a break-even as soon as they would have liked to.
There could be logic in their thinking but the willful entery or exit of private companies cannot be the deciding factor of national economic and infrastructural development. Development of the highways is a crucial part of the growth of the national economy and hence the NHAI cannot simply throw its hands in the air and wait for the next round of bidding. It should find out the causes for delays, work towards it and have a fresh proposal to monetize the building of national highways. Private companies will always want to play the prima donna, but NHAI should be responsible and act in the interest of the nation to develop highways as fast as possible.
Though GVK has also cited procedural delays as the cause of it’s pull out from the project experts and observers say that the private companies maybe actually finding the projects unviable. The two withdrawals may result in a loss of Rs 3000 crore over the next 20 to 3o years for NHAI who had touted both the projects as premium and hence a success when it could attach a whopping over Rs 800 crore as money that could be earned with 5 percent compounded increase of earning every year for the next two to three decades. But the jubilation of NHAI has clearly proved to be short-lived because now it has to invite bidding again. But observers are saying that the logic lies in fact that private companies may not be finding the delays of procedure and eventual earnings big enough. Also, banks have become increasingly miserly in equity pricing thereby giving enough headache to the private developers because without equity guarantee private companies are not able to monetize the projects in the market. Prospective dwindling of traffic may also be a nibbling fear because current estimates of traffic increase are less than was originally estimated. In other words the private companies are finding it difficult to raise money and also fearing that they cannot make profits enough to make a break-even as soon as they would have liked to.
There could be logic in their thinking but the willful entery or exit of private companies cannot be the deciding factor of national economic and infrastructural development. Development of the highways is a crucial part of the growth of the national economy and hence the NHAI cannot simply throw its hands in the air and wait for the next round of bidding. It should find out the causes for delays, work towards it and have a fresh proposal to monetize the building of national highways. Private companies will always want to play the prima donna, but NHAI should be responsible and act in the interest of the nation to develop highways as fast as possible.
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