Search the Internet          Tips  Sites: Finance, Investment

Foreign firms seen cornering lucrative highway contracts

Anil Sasi

DELHI, 13 MAY With the more lucrative and larger stretches of the Rs 540-billion National Highway Development Project coming up for award of contract now, most of the "viable" stretches may be cornered by the international companies leaving domestic companies with smaller, less attractive sections.

"Not enough thought has been given to encourage participation of domestic companies in the project, with the stipulations for taking up larger sections of the project being overtly in favour of international players, sources said. NHDP entails multi-laning of 13,252 km of national highways in the country.

"The concession agreements worked out by the National Highway Authority of India, which stipulates eligibility norms for participation in the project, are loaded in favour of international construction companies, especially in stretches proposed to be taken up under the annuity scheme. Domestic players would lose out only because they lack experience and capital," sources said.

However, NHAI officials refute the contention that there has been a discrimination against domestic construction companies.

"Of the 82 contracts awarded so far, 56 have been bagged by domestic players, 17 are joint ventures with foreign players and only 9 are being executed purely by foreign players. This is enough proof of the fact that the domestic companies are not subject to any discrimination," an NHAI official said.

But with the government now preferring the more investor-friendly annuity scheme, foreign companies are better placed as compared with their local counterparts.

This is because these companies have more experience of managing long-term road maintenance contracts, which the annuity schemes are basically all about. Under annuity, the government gives a semi-annual payout to operators for building and maintaining the stretch, instead of the operator having to collect tolls from the traffic passing through the section.

In the first annuity stretch of NHAI -- the Palsit-Panagarh section on NH-2, only two domestic firms, Reliance Industries Ltd and Larsen & Toubro -- were among the six firms to be pre-qualified for the project. The others- Kvaerner Construction International Ltd was from UK, while Road Builders M, IJM Corporation Bhd and Gamuda WCT were from Malaysia.

"Among the three players who have finally submitted their bids for the $69 million project, the Malaysian firm, Gamuda WCT has quoted the lowest semi-annual payout amount, which will be given by the government to the company throughout the concession period, in lieu of the firm maintaining the 64 km stretch, and is on course to win the contract," an official said.

Domestic companies have traditionally been executing civil projects under engineering projects contractor scheme which is the commonly used mechanism for construction work on the country roads.

They lack the financial strength to maintain the stretches following construction for the time period specified in the concession agreements, sources said.

However, critics argue that since most of the projects, which have been awarded so far, are being executed on the build-operate-transfer basis, are not considered a lucrative option by bigger international players.

Consequently, response from international players has not been very encouraging to the BOT stretches, resulting in smaller domestic players getting these projects.

Till now, investments have been coming into smaller stretches on the NHDP, including sections such as rail-overbridges and bypasses, which is not considered very lucrative by foreign players.

With the annuity scheme being planned in a big way to encourage private participation in the project, more foreign players will dominate the scenario, say sources.

Powered by

YOU MAY ALSO WANT TO READ:
The Rediff-Business Standard Special
The Budget 2001-2002 Special
Money
Business News

Tell us what you think of this report