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Infrastructure: Roads & railways get on the fast track

Seetharaman R | Updated on January 20, 2018 Published on May 22, 2016

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The Road sector has been the principal beneficiary of the Modi government’s thrust on infrastructure. The Centre helped revive confidence among the road players by bringing about a series of changes to the road concession agreement.

Extending the time allowed for premium payment to three years after the date of completion, providing compensation for delayed projects and 5:25 rule for refinancing projects after five years have helped the companies deal with the funds crunch that was crippling them.

Secondly, the Centre’s decision to bear the traffic risk by increasing focus on laying roads through engineering, procurement and construction (EPC) format and hybrid annuity model (HAM) also revived private participation in road construction.

As a result of this change, the proportion of projects awarded as BOT (build own transfer) model dropped to 25 per cent in FY15 from 100 per cent in FY12 and FY13.

The total allocation of nearly ₹55,000 crore to lay 10,000 km of National Highways in the current Budget is expected to increase the industry revenue in the coming years, especially for EPC players.

The policy changes in the road sector have reflected positively on the companies.

The operating profits of Nagarjuna Construction, IRB Infrastructure Developers and IL&FS Transport have improved over the last two years.

Operating profits of major BOT player, Ashoka Buildcon, and the market leader in toll collection for road projects, MEP Infrastructure, too, witnessed a significant jump in the nine months ended December 2015.

Higher tariff

The allocation of ₹1.21 lakh crore towards building railway infrastructure and the proposal to fast-track the rate at which broad gauge tracks are laid from the current 4.3 km per day to 7 km per day will boost the revenue of companies supplying to this segment.

Similarly, the UDAY scheme was rolled out by the Centre to revive State power distribution companies that were sitting on a large pile of debt.

With State governments taking over 75 per cent of the debt of power discoms, the remaining 25 per cent can be financed through debt at lower interest rates or through bond issuances. Ten States, including Rajasthan, have already signed the memorandum of understanding accepting the scheme.

This can pave the way for higher tariff for power generators, thus addressing a long-standing concern of power companies.

The Centre is also trying to address other concerns of power generating companies by improving the availability of coal and gas.

Sagar Mala Project, a project envisioned recently to increase the role of waterways in industrial development, thus decreasing logistics cost, has just started gaining traction.

The institutional, contractual, financial and operational arrangements between the Centre, State and private players will decide how fast the investments — running into ₹8 lakh crore, which is expected to create a million jobs — actually materialise.

Published on May 22, 2016
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