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Economy Jan 18, 2013

Funding crunch not regulatory hurdles is reason for GMR, GVK exits: NHAI

New Delhi: Infrastructure players GMR and GVK are walking out of mega road contracts as they are unable to arrange funding for those projects, and not on account of delays in environment clearance or regulatory hurdles as cited in their notices, NHAI said today.

"Basically, in our view, as to why they are walking out of these two projects is the change in economic scenario and escalation of cost," National Highways Authority of India chief R P Singh said.

"Arranging huge private equity is a major problem (for them) as these are much bigger projects than what we earlier awarded on BOT (build, operate, transfer)," he added.

GMR and GVK are walking out of mega road contracts as they are unable to arrange funding for those projects, and not on account of delays in environment clearance or regulatory hurdles. Reuters

Talking to reporters on the sidelines of a FICCI event, Singh said: "GVK project in our view requires an equity of Rs 1,500 crore. GMR project may require an equity in the order of Rs 2,000 crore. In the present scenario, I think, they are
over-leverged financially. For them to raise this kind of equity is not possible."

He said NHAI "sympathises" with the two major players but was not ready to accept the reasons for termination of contracts as the same are "not tenable."

GMR Infrastructure terminated contract for Rs 5,700 crore Kishangarh-Udaipur-Ahmedabad Expressways with NHAI on grounds of "delays in environment clearance". GVK pulled out of the pact for Shivpuri-Dewas Expressway in Madhay Pradesh on the citing "change in law" after a Supreme Court order made Environment Ministry permission mandatory even for extraction of minerals in area below 5 acres.

Singh said as far as GMR case is concerned their "notice is bad in law because they are supposed to give a three months cure period notice. If we treat this a cure period notice, we are able to fulfil all the conditions within a period of one
month itself."

He said environment clearance was held up because of the forest clearance, but now the Ministry of Environment and Forest (MoEF) has agreed in-principle to delink it from forest clearance resolving the whole matter.

NHAI will ask GMR not to abandon the project and complete the contract as technically no condition was unfulfilled, Singh said, adding that in case of GVK "if you take the Supreme Court's interpretation of the existing law as a change
of law then literally every contract can be abandoned."

Terming the interpretation as "faulty" he said, "their contention cannot be accepted". He admitted, however, that there were cost escalations on account of lengthy environment clearance process. "Unfortunately, the escalation is becoming too high because in the last one-and-a-half years, the rates of
aggregates have gone up so high," Singh said, adding that compulsory MoEF clearance for cases was time consuming.

PTI


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