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NHAI to take Panagarh-Palsit project to its board again

C. Shivkumar/P. Manoj

BANGALORE/NEW DELHI, May 7

THE annuity method of building highways is precariously poised with the National Highways Authority of India (NHAI) preparing to take the Panagarh-Palsit project to its board again for approval after being deferred at an earlier meeting.

A decision either way is going to decide the fate of the annuity method of developing highways in the country.

``Being the first project of its kind, the Panagarh-Palsit project on NH-2 in West Bengal is really going to be a test case. In that respect, it is going to be a trend-setter for undertaking future projects on the annuity method'', Government sources tol d Business Line.

Besides, the Panagarh-Palsit project, the NHAI is taking up six more projects on the annuity route and all of them are in various stages of the bidding process.

Malaysia's Gamuda-WCT combine had emerged the lowest bidder with a semi-annual quote of Rs 69.8 crore when financial bids were invited by the NHAI for the second time from the short-listed bidders in February.

Subsequently, the NHAI board had taken the lowest bid quoted by Gamuda-WCT to its board for approval. ``But, the board deferred a decision seeking additional information and clarification, basically on the price quoted by the lowest bidder'', the sources said.

It is understood that the proposal was deferred at the behest of the Finance Ministry which had sought details on the break-up of the price bid submitted by Gamuda-WCT.

``In view of the controversy over the price bids quoted by the three bidders during the first round of financial bidding for the project, the board wanted to be more convinced before giving the go-ahead for the project'', the sources said.

``We will soon be approaching the Board for the second time with the proposal alongwith all the additional information sought by it at the earlier meeting'', the sources said. Once the Panagarh-Palsit project is approved by the Board, it will have a posi tive impact on the other annuity projects under bidding.

As per the annuity approach of building highways, the private operator will not collect tolls from the users directly, but will be paid a semi-annual sum by the NHAI during the concession period to compensate him for the capital cost, operation and maint enance expenses of the project and returns thereon.

According to the bidding criteria, the bidder quoting the lowest annuity amount from the NHAI would be awarded the contract.

The NHAI had called for financial bids, after relaxing certain technical specifications, for the second time in February from all the six short-listed bidders on the grounds that the annuity amount quoted by the lowest bidder in the first round was on th e higher side.

Gamuda-WCT combine had quoted the lowest annuity amount of Rs 88.5 crore in the first round of the financial bidding. But, the NHAI decided not to accept the financial bid of the lowest bidder then, arguing that he had factored in a higher risk premium i n arriving at the annuity amount.

This was despite the fact that under the annuity approach, the traffic risks are borne entirely by the NHAI.

The NHAI had decided to introduce the annuity method since it is a deferred payment concept besides giving more comfort to the private investors. But, the Finance Ministry had taken the stand that the annuity concept lacked `commercialisation' since the traffic risks are totally removed from the project.

Instead of the NHAI bringing in funds upfront to develop the highway project in this case, the private operator will bring in funds to construct the project,operate and maintain it for a certain number of years for which he will be paid an annuity by the NHAI.

But, if the price that the NHAI will have to pay as annuity is found to be `too high' over and above assuming the traffic risks, then the highway agency will have to explore some other option by which additional funds can be mobilised to develop the high ways by itself through construction contracts, the sources said.

The additional resources could be raised in the form of more bond issues by the NHAI to build the highways, they added.

Being a sub-sovereign entity, the NHAI would be able to raise funds at lower cost to fund the projects instead of paying higher annuity to private operators, the sources said.