Companies & Sectors
7,500km of BOT highway projects at risk: CRISIL
Half of under-construction, 40% of operational highway projects at risk but recent government initiatives, lower interest rates can stem further slippage, the ratings agency says
 
Around 7,500 km of highway projects -- 5,100 km under construction and 2,400 km operational - awarded mostly between fiscals 2010 and 2012 on a build, operate, transfer, or BOT, basis, are at high risk today mainly due to significant cost over runs and weak wherewithal of sponsors, says ratings agency CRISIL.
 
According to an analysis by CRISIL Ratings, around 50% of the projects under construction are at high risk of not being completed because of significant cost over-runs and weak wherewithal of sponsors. "We believe the remaining will benefit from proactive moves by the government to facilitate right of way and other clearances. We find the recent government move to ensure 80% right of way, or ROW, before a project is awarded very constructive," it said.
 
Interestingly, just two days ago, setting a goal of 100 km of road construction a day, Nitin Gadkari, Minister for Road Transport and Highways had said, bureaucratic dragnet and red-tapism would no longer be tolerated and such officials would be thrown out to cleanse the system. “The world is ready to invest in India, especially in the highways sector, but we are not able to utilise our budgetary allocation. For work worth Rs5 lakh crore to get rolling, we need faster clearances, quick project report preparations but there are officials sitting on files, not taking decisions,” Gadkari was quoted in media reports. 
 
The government also decided to use ISRO-aided satellites and drones to monitor its highways construction programme, aimed at fast-tracking building of roads in the country, the minister had said.
 
According to CRISIL, reforms of the last one-and-a-half years have improved the prospects – and pace of award – of highway projects after the lull seen in fiscals 2013 and 2014. Yet almost half of them being constructed under the build, operate, transfer – or BOT, model, with sanctioned debt of Rs45,900 crore, are at high risk of not being completed.
 
"Right of way – or land – issues are the primary reason for time and cost overrun in projects and low overall progress of highway construction in India, the ratings agency said, adding, "Weak financials of sponsors and inability to bring in equity as well as support for cost overruns in a timely manner are expected to aggravate matters."
 
According to the research note, the equity and cost overrun support required for under-construction BOT projects alone is around Rs28,500 crore, of which Rs9,300 crore could potentially be raised through stake sale by sponsors at a special purpose vehicle-level as well as raising equity through capital market. Another Rs6,700 crore is expected to come from operations and additional borrowings at the sponsor level. That leaves a significant shortfall of Rs12,500 crore, it added.
 
CRISIL said, "Today, as many as 26 operational highways spanning about 2,400 km and covering 40% of the total length of operational BOT projects are unable to service outstanding debt amounting to Rs17,100 crore. Of these, 24 are struggling because of lower-than-estimated traffic. Timely support from sponsors to bridge cash-flow mismatches in these projects, therefore, has become critical."
 
Over next two years, operational BOT projects are expected to face a shortfall of Rs1,000 crore in servicing their debt obligation. To avert this, CRISIL said, their toll revenue would have to increase a steep 37% compared with a forecast of around 10% for the near term. And this has to be largely driven by growth in traffic because toll rate increases are linked to WPI inflation, which is in negative territory at present. The probability of such high traffic growth is next to none in the near-to-medium term, it added.
 
CRISIL said several reforms and policy changes have been announced to address the issues. Some of these, such as faster land acquisition and clearances and direct monitoring of progress by the Prime Minister’s Office (PMO), are expected to help avert delays due to right of way issues, while reforms such as premium deferment and allowing 100% exits, should bring relief to both completed and under construction projects. However, timely implementation of these reforms remains critical to the sector.
 
Apart from the measures introduced by the government, developers with operational portfolio can also raise additional debt to support their fund commitments, or improve the viability of their projects by realigning debt repayment with project cash flows and reducing interest cost by tapping the capital market. This is particularly relevant in the current environment of softening interest rates. 
 
CRISIL said it believes around Rs15,000 crore of debt can also be refinanced through capital market including Infrastructure Debt Funds, or IDFs. "However, given the poor wherewithal of private developers, we believes future award and execution of highway projects will be funded largely by the public sector. We expect more highway projects to be bid on the engineering, procurement and construction, or EPC, and hybrid annuity models with large funding from the government at least over the next two years," it added.
 
Steps taken to ensure right of way and other clearances prior to project award, and tapping funding avenues available for developers will help straighten out the future of India’s highway sector, CRISIL concluded.
 
According to the research note, the equity and cost overrun support required for under-construction BOT projects alone is around Rs28,500 crore, of which Rs9,300 crore could potentially be raised through stake sale by sponsors at a special purpose vehicle-level as well as raising equity through capital market. Another Rs6,700 crore is expected to come from operations and additional borrowings at the sponsor level. That leaves a significant shortfall of Rs12,500 crore, it added.
 
According to the research note, the equity and cost overrun support required for under-construction BOT projects alone is around Rs28,500 crore, of which Rs9,300 crore could potentially be raised through stake sale by sponsors at a special purpose vehicle-level as well as raising equity through capital market. Another Rs6,700 crore is expected to come from operations and additional borrowings at the sponsor level. That leaves a significant shortfall of Rs12,500 crore, it added.

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COMMENTS

vnrao

1 year ago

MOst of the bot projects are fraud the bidders have no wherewithal basing on corruption these projects got alloted promotors without using their money are trying to complete these projects banks for reasons best known to them financed them withoutlooking at viability except based on letter of intent govt should scape the bot system build on their own

Shirish Sadanand Shanbhag

1 year ago

Highway building scam is not new to our country. With this scam, PPP has added, another scam of Toll Highways, a permanent source of high income, for several generations, by bleeding the motorists, permanently for years after years.

TRAI, IRDA, PFRDA too reach Supreme Court on Aadhaar issue
The SC is likely to announce its decision on Wednesday on applications by RBI, SEBI and others for permission to use Aadhaar card for schemes 
 
Seeking clarification on usage of Aadhaar number, other regulators like Telecom Regulatory Authority of India (TRAI), Insurance Regulatory and Development Authority and Pension Fund Regulatory and Development Authority (PFRDA) too have reached the Supreme Court. These regulators along with Reserve Bank of India (RBI) and market regulator Securities and Exchange Board of India (SEBI) have  asked for clarification on the apex court's order notwithstanding the fact that the SC had for the fourth time on 11 August 2015, had reiterated that Aadhaar cannot be a condition for obtaining any benefits otherwise due to citizens.
 
"No personal information of Aadhaar card shall be shared by any authority," a three-judge bench headed by Justice J Chelameswar and comprising Justices SA Bobde and C Nagappan told Attorney General Mukul Rohatgi. UID or Aadhaar will not be used for any other purposes except PDS, kerosene and LPG distribution system ruled the apex court, and made it clear that even for availing these facilities Aadhaar card will not be mandatory.
 
Markets regulator SEBI, in its application, has urged the court to modify its order to permit it to use Aadhaar number in the securities market for the confirmation of address of the brokers and intermediaries under the know-your-customer (KYC) scheme.
 
Similarly, the RBI has sought the modification of the order saying that if customers voluntarily share their Aadhaar number, then they may be permitted to do so for the purpose of banking transactions.
 
The Unique Identification Authority of India (UIDAI) in its application too has urged the Court to permit it to issue Aadhaar number to the people who are voluntarily approaching it for the same.
 
While anyone can approach the highest Court seeking directions, none of the regulators are interested in making permanent account number (PAN) card issued by the Income Tax Department as mandatory. Most of the regulators are related with money matters and therefore it would be ideal for all of them making PAN mandatory for money transfer instead of depending upon a third party, unverified and audited ID like Aadhaar. In addition, anyone using Aadhaar is required to pay usage fees unlike PAN number. 
 
As Dr Anupam Saraph had stated in his article, by raising the need for clarification, it now becomes ever more important for the regulator to answer the serious concerns that RBI's own had raised about financing terrorism and money laundering before reluctantly agreeing to the use of Aadhaar in 2011. "It is even more important that an independent court monitored probe investigate the serious Pandora box of money laundering and financing terrorism unleashed by the Aadhaar linkage to bank accounts and money transfers," Dr Saraph wrote.
 
The three judge Bench while issuing directions on 11 August 2015, had referred all the petitions before it to a larger bench to determine whether right to privacy was a fundamental right.
 
The issue arose as the central government contended that right to privacy was not a fundamental right as it pointed to conflicting apex court judgments on the issue.
 
During a hearing on 29 September 2015, senior counsel Shyam Divan appearing for Karnataka High Court's former judge KS Puttaswamy, had said that the applications were not served on them and they knew nothing about their contents. The Bench then directed the listing of the applications for hearing on 6th October.
 
The SC is likely to announce its decision on Wednesday on applications by RBI, SEBI and others for permission to use Aadhaar card for schemes other than PDS and LPG distribution.

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COMMENTS

Avinash Murkute

1 year ago

One must understand that AADHAR is not at all one pill for all ailments and as pointed by above article, it can have it's own evils. Those who are trying to make it compulsory and mandatory have their own agenda. AADHAR is big failure in LPG distribution system. Many people have subsidy twice and thrice without booking cylinders. And many cylinders were sold causing loss to exchequers.

Indirect tax collection up; but no room to spend extra
For India, the windfall on indirect taxes may be offset by shortfalls on direct taxes and disinvestment, says Nomura
 
During the first five months, April to August of FY2016, the indirect tax collection for the Indian government grew by 36.2% against a budgeted target of around 19%. However, with shortfalls on direct tax collection and disinvestment, the windfall from indirect tax collection will get offset, says Nomura in a research note.
 
"While indirect tax collections have been buoyant, we expect them to largely compensate for the potential shortfalls in direct taxes and disinvestment targets. On Monday, the government also announced that it expects a 5%-7% shortfall in direct tax collections about Rs50,000 crore or 0.4% of GDP. As such, we do not expect any fiscal space to open up to spend above budgeted amounts," Nomura said.
 
During the April-August period, direct tax collection grew 8.5% against the budgeted target of 16.1%. Weak disinvestment receipts of Rs12,800 crore over this period against the budgeted target of Rs69,500 crore for FY16.
 
In addition, government spending has already accelerated (up 8.8% during April-August versus budgeted growth of 8.1%), led by higher public spending on infrastructure, particularly roads, rural and urban development, reflecting the government’s effort to front-load spending to kick-start growth, Nomura said.

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