News
Wednesday, December 05, 2012
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1. Govt to clear lenders’ road project blocks
2. Comprehensive Analysis on the Construction in India
3. Chhattisgarh mega power project delayed by 4 months
4. CBI to probe graft charges in road project
5. Bankers to get more powers in road projects
Govt to clear lenders’ road project blocks
Business Standard,
December 5, 2012
In an attempt to revive lenders’ interest in highway projects, the government is
planning to provide them the comfort of being able to change the concessionaire in
the event of suspension. At a recent meeting attended by representatives from the
ministry of finance, Planning Commission, the roads and highways ministry and
NHAI, it was decided to include an explicit provision to this effect in the model
concession agreement (MCA).
Currently, the relevant clause — Article 5.2.4 of MCA — does not clearly provide for
the lender to step in and take over the project or propose a new buyer to recover
loans, making it difficult for it to recover loans from the developer or NHAI in case of
any failure in project execution/revenue mobilisation.
Sources said the meeting agreed on the need for NHAI to physically hand over 80%
of the land (right of way) to the developer before he is appointed by the authority. In
the case of new alignment including bypass, 100% of the road portion will be in
NHAI’s physical possession before the appointed date. This decision was taken in
view of the “failure of NHAI” in making available all the requisite land for projects in
time, due to which developers often fail to start operations as scheduled and meet
toll targets.
Sources said secretary-financial services DK Mittal had stressed that NHAI should
make 100% of required land available for road projects before inviting tenders.
However, the authority’s chairman RP Singh contended that giving 100% right of
way to the developer before the bidding would cause significant delays in a sector
where investments have already slowed down. As a solution, Singh said the authority
would accept partial COD (commercial operation date) where 100% land is not made
available in time.
News
Sources said NHAI would now bring an inflation-indexed mechanism in consultation
with the Planning Commission to appraise total project costs (TPC), a move that
could reduce the divergence between its estimate and that of lenders.
Explaining the rationale behind the move to give lenders added safety over project
failures, CII infrastructure committee head Vinayak Chatterjee said: “With many
developers having limited creditworthiness and little investor interest, there is a need
to ease liquidity. The proposed changes will allow lenders to buy out stalled old
projects, enabling them to try and prevent the assets from turning into an NPAs.”
In the roads and highways sector, 18 projects are stuck due to delays in financial
closure. While 39 projects await environment and forest clearance, six are on hold
because of delay in wildlife clearances.
Besides, there are over 30 projects above Rs 1,000 crore which has already been
awarded, but not executed so far.
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Comprehensive Analysis on the Construction in India
Melodika.net (press release),
December 5, 2012
Comprehensive Analysis on the Construction in India
Bharatbook.com included a new research report on "Construction in India - Key
Trends & Opportunities to 2016" This report provides detailed market analysis,
information and insights into the India construction market
Construction in India - Key Trends & Opportunities to 2016
Synopsis
This report provides detailed market analysis, information and insights into the
India construction market, including:
- The India construction market’s growth prospects by sector, project type and type
of construction activity
- Analysis of equipment, material and service costs across each project type within
India
- Critical insight into the impact of industry trends and issues and the risks and
opportunities they present to participants in the India construction market
- Assessment of the competitive forces facing the construction industry in India and
profiles of the leading players
News
- Profiles of the ten largest construction projects in India
Summary
During the 2007–2011 review period, the Indian construction industry recorded
strong growth. This was mainly due to the country’s expanding economy, rising
government spending on public infrastructure, and a supportive foreign direct
investment (FDI) system. In 2011 the industry was valued at INR18.5 trillion
(US$403.4 billion), and grew at a CAGR of 14.71% over the review period. India’s
economic growth has been achieved through increasing demand for commercial,
industrial, institutional and residential infrastructure projects, a trend which is
expected to continue. During the forecast period, the industry is expected to record
growth at a CAGR of 11.92%. http://www.bharatbook.com/construction-marketresearch-reports/construction-in-india-key-trends-opportunities-to-2016.html
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- Assess business risks, including cost, regulatory and competitive pressures
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Scope
This report provides a comprehensive analysis of the construction industry in
India:
- Historical (2007-2011) and forecast (2012-2016) valuations of the construction
market in India using the construction output and value-add methods
- Segmentation by sector (commercial, industrial, infrastructure, institutional and
residential) and by project type
- Breakdown of values within each project type, by type of activity (new construction,
repair and maintenance, refurbishment and demolition) and by type of cost
(materials, equipment and services)
- Analysis of key construction industry issues, including regulation, cost
management, funding and pricing
News
- Assessment of the competitive environment using Porter’s Five Forces
- Detailed profiles of the leading construction companies in India
- Profiles of the top ten construction mega-projects in India by value
Key Highlights
- In 2009, the Indian government announced plans to double the construction of
low-cost houses to 12 million units under the Bharat Nirman project. The concept
of affordable housing in India is comparatively new and has huge potential to grow
over the forecast period.
- In the 2011 budget, the government of India announced an investment of INR2.1
trillion (US$46.6 billion) towards infrastructure development, as well as an
increase in the limit for foreign institutional investors (FIIs) in corporate bonds
with residual maturity of over five years by INR914.2 billion (US$20 billion), to
INR1.1 trillion (US$25 billion). The total investment limit available to FIIs in
corporate bonds will increase to INR1.8 trillion (US$40 billion). The increased
money flow from FIIs will provide adequate funding for the country’s
infrastructure development over the forecast period.
- Owing to high inflation and the increase in salary and wage levels, input costs for
construction companies have increased by 30% since 2009.
- The need for innovation in construction and the demand for environmentally
sustainable construction have increased competition in the Indian construction
industry.
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Chhattisgarh mega power project delayed by 4 months
The Hindu Business Line,
December 5, 2012
The process for setting up the 4,000 MW Ultra Mega Power Project (UMPP) at
Surguja in Chhattisgarh is delayed by another four months.
The Power Finance Corporation Ltd (PFC), the nodal agency for setting up of
UMPPs, has extended the last date for prospective bidders who are keen to compete
for the project. The date for submission of Request for Qualification (RfQ) has been
pushed to April 3, 2013 from December 3, 2012. The RfQ qualifies the bidders for
submitting price bids in the next step.
REASON FOR DELAY
News
The Power Ministry is yet to notify the Standard Bidding Documents (SBDs) for the
12th Five-Year Plan projects. The SBDs determine the framework and norms to
build, own and operate power stations.
Till now, nearly 22 companies have submitted RfQs for the Surguja power project,
the highest number so far for a UMPP. The Power Ministry has indicated that the
SBDs would be notified by December end. Currently, it is holding discussions with
several stakeholders to fine-tune the clauses.
The delay in notification of new norms has also pushed back the UMPP in Bedabahal
in Odisha. Nearly 20 companies have submitted RfQs for the 4,000 MW power
stations. However, things have not moved any further.
The companies that submitted RfQs for Odisha UMPP include Jindal Power, Sterlite,
JSW Energy, Nalco, Signature Energy, Welspun, Tata Power, NTPC, Jaiprakash
Power Ventures, Torrent Power, L&T, Adani Power and Torrent Power.
On November 5, the Ministry of Environment and Forests (MoEF) gave the terms of
reference for setting up a second UMPP in Deogarh, Jharkhand.
The Government has awarded four UMPPs so far, out of the nine projects proposed.
Out of this, Tata Power has bagged the Mundra project, where it has synchronised
three units of 800 MW each.
Three other projects at Sasan, Tilaiya and Krishnapatnam have been awarded to
Reliance Power.
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CBI to probe graft charges in road project
Time of India,
December 5, 2012
The CBI has started an investigation into the multi-crore highway development fraud
in World Bank funded Lucknow-Muzaffarpur stretch. The federal investigation
agency on Tuesday sought details from National Highways Authority of India
(NHAI) in connection with the case.
Government sources said CBI swung to action eight months after the department of
economic affairs (DEA) sent a copy of the report prepared by Institutional Integrity
Unit of World Bank to the highways ministry and asked it to investigate the case. The
World Bank report alleged that the private highway contractors paid bribes and gifts
including gold and silver coins to officials and consultants of NHAI besides "sundry
cash payments" to them, to the tune of at least Rs 2.23 crore.
The allegation relates to the Lucknow-Muzaffarpur national highway project during
the period 2005-2008. The World Bank loan for the project is $620 million.
News
The CBI's initiation of probe came on the day minister of state for road transport and
highways Sarvey Sathyanarayana told Rajya Sabha that NHAI had been asked by the
ministry "to verify the consequences occurred on the outcome of the projects in
terms of quality or project completion and take appropriate action as per provisions
of agreements with contractors/supervision consultants". Earlier, a committee set up
by the ministry had recommended a third party probe into this case since the Bank
had provided evidence of fraudulent practices.
The World Bank's Institutional Integrity Unit had even asked government
departments to seek any help or evidence from the Bank to prove the "fraudulent and
corrupt" practices by private contractors.
The report claimed that Progressive Construction Ltd and a joint venture of PCLMVR, which were engaged in four highway packages funded by the Bank, had
submitted false details and fake invoices showing utilization of funds that they had
initially received as advance. On the basis of this, they took more advances known as
"second stage mobilization advance" and in two cases, PCL had allegedly diverted
portion of this amount to real estate projects in India and abroad.
The Bank, in its report and annexure, also mentioned the data and entries
downloaded from the contractors' computers which showed that cash went to local
officials in the district administration and consultants.
TOI had reported that the Bank had mentioned that there was evidence of PLC
utilizing the second stage mobilization advance of Rs 14.64 crore "to cover encashed
bank guarantee for its Qatar Cultural Village project". In another case, the PCL-MVR
JV had allegedly paid Rs 2.68 crore to Kurup UP Buildings, Jaya Projects, Vijaya
Bhavani Construction Pvt Ltd and Rangaraya Construction Pvt.
The Institutional Integrity Unit had tracked down three companies supplying
aggregates (construction material) in Nepal to establish the fake invoices submitted
by the contractors. The Bank had provided details of how the aggregate suppliers
proved that they had not even supplied 50% of the material. Nepalese companies had
told the investigators how the bills didn't have appropriate company stamps and in
some cases these did not have the mandatory serial numbers.
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Bankers to get more powers in road projects
The Hindu Business Line,
December 5, 2012
The government is set to make amendments to the model concession arrangement
for road projects that will give more functional and supervisory powers to banks,
according to an official.
News
The move is aimed at speeding up execution of road development projects, which are
often held up due to various factors including financing issues. Tardy progress in
improving road infrastructure is often cited as impediment to economic growth in
Asia's third largest economy.
"In the event of suspension of a concessionaire or the company that was awarded the
project, banks will now be allowed to step into project agreements," the official from
the ministry of road, transport and highways said.
The official explained that the amendment would allow lenders to carry out internal
scrutiny and advise the highways authority on selection of the new company for the
project.
At present, bankers have no say in the selection of a concessionaire, and this acts as a
deterrent for banks that are approached for credit. Bankers say the proposed change
will help projects where the present developer is non-performing and banks fear that
the account will turn into a bad loan. "It will also have a deterrent impact on
developers as they know that banks can initiate action against underperformance,"
said the chief general manager of a state-run bank.
Till August, of the 146 road sector projects sanctioned, 83 were delayed, according to
government data.
The ministry of statistics has pointed to delays in land acquisition, environment
clearance and poor performance of contractor as reasons for slow execution of road
projects. According to the official, the government is also considering bankers'
demand that land acquisition be completed before road projects are awarded. "Banks
have said that some projects get stalled because of land clearances, which then lead
to cash-flow issues.
We are looking to resolve the issue," the official said. At present, the National
Highways Authority of India (NHAI) acquires 80% of the land before bidding them
out to developers. To prevent cost overruns, NHAI will also take into account factors
such as inflation while arriving at the total cost of the project. The cost of 146
projects, initially estimated at Rs 92,000 crore, has risen 1.7% to Rs 94,000 crore,
the official added.
Another banker said that if some of these proposed changes are accepted, it will be
easier for banks to utilise schemes such as take-out finance being provided by pure
infrastructure lenders such as IIFCL.
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