It’s time NHAI got its act together
Judicial activism, reduced lending by financial institutions and lack of interest by developers are some of the other challenges
Besides the delay in execution, the other challenges that the National Highways Authority of India faces have to do with public agitation in the event of toll being levied on new highways, judicial activism, reduced lending by financial institutions despite the Reserve Bank of India designating lending to this sector as “secured loans” and the most important availability of equity for infrastructure projects, the NHAI white paper states.
Except for a few, virtually all the tolled stretches are under open tolling (not access controlled). Villagers often cut passages through the medium to go to the other side. Traffic entering from side lanes disrupts the orderly flow of traffic on the highway.
Many cases have been reported where the villagers use the wrong side of the highway for plying their vehicles. Slow moving vehicles disrupt traffic and increase the potential for accidents.
There’s also the challenge of toll collection due to public agitation in some projects. Though not widespread this increases the risk profile of road projects resulting in sub optimal bid realisations.
Lack of equity with developers: Most real estate companies are predominantly family-controlled business entities, having low capital base. The special purpose vehicle (SPV) structure of project execution, mandatory in the build operate transfer model (BOT), often masks the real availability of capital with the developers. More often debt by the developer is used to subscribe to the equity of the SPVs. The economic downturn seen in the last few years has caused revenue realisation at much lower rates.
“M a n y d e ve l o p e r s h a d assumed higher revenues and had undertaken correspondingly high level of equity obligations. As the revenues crashed the availability of the equity even to meet existing commitments became inadequate, and none were left for future projects. Hence many projects under BOT went without eliciting response from bidders,” says the white paper, adding that, having anticipated high levels of revenue growth, many developers had undertaken future obligations which had overleveraged their balance sheets.