Highway contractors prefer government funded projects
Eager to place bids for projects based on the engineeringprocurement-construction (EPC) model, about 60 infrastructure development companies have applied for pre-qualification. The projects are expected to be built through 100 percent government funding, include eight projects in Rajasthan and some additional ones in Uttar Pradesh. The eight Rajasthan projects are estimated to be worth between Rs 200-500 crore apiece. But, the profit margins for the contractors is expected to be a maximum of 10 percent, but, despite this matter, large contractors like L&T, GMR and Gammon have applied for pre-qualification. This is because they prefer government funded projects as it eliminates the hassle of raising loans from banks and applying for clearances. Securing loans for the BOT model has become difficult, more so as interest rates have soared from 8.5 percent to 15 percent and banking authorities have become cautious in lending. Therefore, the contractors feel that getting more than Rs 2 lakh crore in credit to complete 7,500 km of highways will be difficult.
However, NHAI is confident that the BOT model will continue to work and will not have to be shelved completely. Recently, NHAI received bids for two toll nakas to be constructed on the BOT model after a lull of six months, signalling a pick-up in the segment. Also, four-laning of the Salasar-Haryana border project, a total stretch of 154 km estimated to cost Rs 601 crore has been given clearance. One of the bidders quoted a 27 percent VGF, much lower than the government’s cap of 33 percent. Though big players are leaning towards EPC, the ministry is hopeful of the trend changing to BOT as greater risk also signifies greater profits.