The Hindu Business Line : Road operations turn profitable for Government

Road to profit
There has been a reassessment of risk in road industry Contractor and developer community have a track record to fall back on Traffic on roads is growing driven by the over six per cent economy growth

New Delhi , July 15

Instead of paying up (subsidy) to get highways constructed, the Government can expect making substantial money for some stretches. An increasing section of the private sector has started perceiving road operations as profitable venture and is ready to shell out money (called negative grant) to the National Highways Authority of India (NHAI) for building and managing roads.

The NHAI recently awarded two road-widening projects in Gujarat to L&T and a consortium led by Ideal Road Builders for a total negative grant of Rs 975 crore. Earlier, the NHAI had mopped up a much lower negative grant of Rs 925 crore from 15 projects in the first three phases of National Highway Development Programme (NHDP).

The two projects involve widening from four to six lanes in high traffic density roads (under NHDP Phase V) and developers would be earning revenues even in the construction phase, say experts.

Investor perception

There has been a reassessment of risk in road industry, Mr Shailesh Pathak, Co-head, Public Private Partnership Initiative, IDFC, said. Investors clearly perceive a better return on risks in the road building projects now, echoed Mr Rajesh Samson, Vice-President, Ernst & Young. Industry experts clarify that projections on higher returns are based on expectations of higher toll collections and not on any real estate activity on the stretches.

Better traffic data

"The contractor and developer community have a track record to fall back on," said Mr Mohanjit Singh, Vice-President, Srei Infrastructure Finance. Initially, there was not much experience and thus the Government had to take the lead. Now, companies have witnessed projects that have been profitable and not so profitable as well, Mr Pathak pointed out.

While the data from build-operate-transfer projects, where the toll risk is taken by private sector, helped, even the annuity projects (where the toll revenue risk is taken by the Government) helped private sector estimate traffic data, Mr Singh said. The base traffic data available is much better now, Mr Samson said.

Not all is rosy

However, not all projects would invite huge negative grants even though the competition is heating up. "A six-lane project in a tribal belt would obviously not attract negative grants," Mr Pathak stated. A word of caution came from Soma Enterprise Director Mr A. Maganti, "Even if there is tremendous economic growth, we are forecasting traffic for 15-20 years. Several BOT tenders run the risk of being overoptimistic."

The traffic on roads is growing driven by the over six per cent economy growth during past few years, said Mr Singh. And more traffic means more toll revenues for road operators.

More Stories on : Infrastructure | Roadways

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Road operations turn profitable for Government

Negative grants are a positive story

NPCIL gets going on additional nuclear capacity

Deviations in VAT rate contained to 3%

Bajaj Auto posts 28 pc rise in Q1 net profit

Auto exports rise 27.32 pc in Q1

Law Minister for simpler income-tax assessment