Of highways

Highway developers are forking out premium to construct projects in a reversal from the past trend when the government paid a subsidy. Of the 15 projects awarded so far In 2011, 10 projects have yielded a premium of Rs 77,034 crore for National Highways Authority of India (NHAI) over a period of 30 years. Based on the net present value, it translates to a premium of Rs 14,945 crore. This year, NHAI plans to award over 59 projects covering adistance of nearly 8,000 km. While all other infrastructure sectors are not doing well, the highway sector has been attracting unexpected private investment. Several infrastructure developers, including the likes of GMR, L&T and GVK have been active in the space and have been aggressively bidding for projects. The bidding in which private builders are quoting high premium has stumped market watchers, considering the fact that there were few takers just 18 months ago. The biggest highway contract — the 555-km Ahmedabad-Udaipur-Kishangarh project, which is estimated to cost over Rs 5,000 crore is expected to earn Rs 32,000 crore premium for NHAI over 26 years. Even the lesser-known stretches such as Orissa-Aurang border, bidders have quoted an annual premium of Rs 29.7 crore against the expectation of government grant of Rs 382 crore to make the venture viable. While paying a premium, the private developer not only raises funds for construction but also pays a certain fixed amount to the government. This amount increases 5% every year. “In four other projects, the preferred bidders have quoted much less VGF (viability gap funding) than what was expected while clearing the projects for awarding. Only in one case the grant quoted is more than what was expected,” said a senior NHAI official. The authority has projected the saving could swell to Rs 65,982 crore over 30 years. The net present value of the saving is pegged at Rs 15,922 crore. NHAI officials said that in two annuity projects the private developers have sought less annuity than the projection of PPP Appraisal Committee (PPPAC) and Cabinet Committee on Infrastructure (CCI).