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NEWS UPDATES: March 06, 2012

TABLE OF CONTENTS:

NHAI hits fly-ash hump BIA road toll nominal Rs 23 cr released for development of roads, says Muniyappa Rs 60.7cr to be spent on Gurgaon roads Smart tags soon for Delhi-Chandigarh highway Better highways save time and logistics costs Toll collection disrupted Where do we go from here Banks want developers to bring in more equity Sgr-Jmu highway upgradation project in limbo Realtors' body seeks more tax sops for consumers, developers NHAI to miss FY12 target says PINC Research State proposes flyover at Hero Honda crossing 3 extra lanes at Gurgaon toll plaza Road projects: from despair to hope MCD sanctions 54 projects, Rs 160 cr in 15 minutes to beat election code PE interest in road sector on the wane Close look at borrowing must: ex-Fin Secy

Infrastructure

Specialists

Roads

Bridges

Railway

Power

Sanitation

Water Works

Renewables

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NHAI hits fly-ash hump

As Odisha guns for more power from thermal sources in the years to come, the challenge of everincreasing generation of fly-ash looms menacingly large, prompting the State Pollution Control Board(SPCB) to crack the whip. The Board, for the first time, has issued a showcause notice to the NationalHighway Authority of India (NHAI) for not using fly-ash in the widening of Panikoili-Remuli stretch of NH215. The move is aimed at paving the way for increasing fly-ash utilisation since the State is going togenerate millions of tonnes in the next few years.

Going by the Ministry of Environment and Forests (MoEF), use of fly-ash is mandatory in 100-km radiusof a thermal power plant. The Fly-Ash Notification of MoEF in 2009 clearly prescribed that no agency,person or organisation shall, within a radius of 100 km of thermal power plant undertake construction orapprove design for construction of roads or fly-over, embankment with top soil.Top soil is considered extremely essential for environment protection but the NHAI was found using it inroad expansion work along the Panikoili-Remuli stretch.

When the NHAI proposed its four and six- laning work, it was sanctioned the consent to establish withthe condition to utilise fly-ash to maximum extent and the project authority had submitted to complywith the provisions of Environmental (Protection) Act. In its notice, the SPCB pointed out that the NHAIwas yet to submit the compliance status whereas work for the road expansion has already begun.

Interestingly, the NTPC-SAIL Power Company Ltd (NSPCL), a joint venture between the two PSUs forcaptive power generation, which is located at Rourkela had also communicated to NHAI for utilisation offly-ash from its ash pond since it is located 55 km from Rajamunda.

The Board which invoked the Water (Prevention and Control of Pollution) Act and Air (Prevention andControl of Pollution) Act stated that since road widening of NH-215 has been started, the NHAI has toreply within 15 days as to why fly-ash is not being utilised in the construction though constructionactivities are being carried out within 100 km radius from thermal power plants operating in that area.

The Board will initiate legal action if no response is received.

The NHAI is expanding the NH 215 in two stretches - 163 km from Panikoili to Remuli and 106 km fromRemuli to Rajamunda. Contacted, General Manager, NHAI, Keonjhar, Chander Kant said, the notice is yetto reach them.

Bangalore Mirror

BIA road toll nominal

Highway authorities say the current Rs 25 will go up once the route becomes signal-free corridor in a

years time

First the good news. In about a years time, the International Airport road will be a signal -free corridor. And th

bad news is, once that happens, you will have to cough up a higher toll.

National Highways Authority of India (NHAI), which is developing the six-lane road, says the current toll (of R

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25 for cars, going up to Rs 175 for a return pass for oversized vehicles) is nominal and it will be enhanced whe

the road is turned into a signal-free corridor. The work is going on at a brisk pace and may be ready for operatio

from March 2013.

When questioned about the exact increase in the toll, the NHAI officials were tightlipped. They said as per rules

the more the investment on the road, more will be the collection and toll will be revised once the road iupgraded to a world-class highway.

An official, however, said, The exact amount will be decided a month before the collection date. So, at this poin

of time, it may not be possible to specify the toll hike.

He said as per the agreement (between the NHAI and the construction agency), there will be an annual revisio

of toll on the expressway starting April 1 every year. The toll hike will be based on the wholesale price index,

he said.

ONE-WAY TOLL

So far, the toll burden had fallen only on motorists entering the city from other states, while those exiting the citwere exempted from paying the toll. Once the toll collection plaza is widened, vehicles moving in both direction

should pay the toll.

Unlike the advantage on Tumkur or Hosur Roads, where motorists can avoid the toll by taking the service road

there is no escaping the toll plaza on the international airport road.

DOUBLE TOLL

Meanwhile, the NHAI is widening the toll plaza. Currently, due to shortage of space, no toll is collected from

vehicles moving out of the city, while those entering the city have to pay a double toll. What we are seeing now

is only a temporary toll plaza. We are widening it and will start collecting the one-way toll soon, said the official

But the major disadvantage is the absence of a service road on the route. The officials claim they would provide

service road up to the plaza but if one chooses to go beyond the plaza, then he/she needs to switch to the mai

carriageway. Which means there is no escaping the toll.

However, the NHAI officials said two-wheelers will be exempted from paying the toll.

No logic

According to traffic expert M N Sreehari, There should be an option of the service road being kept free beyon

the toll plaza so the common man who doesnt want to pay the toll can use it.

He said he couldnt understand the logic of collecting toll and then revising it. Why cant they wait till the road i

completed as the NHAI is yet to collect toll on the completed four-lane roads on Kolar and Devihalli route?

Among the NHAI roads, the Nelamangala elevated highway allows motorists to either choose a toll highway o

the service road, which is free.

Another transport expert Ashish Verma said there is definitely an issue over location of the toll collection plaza:

whether or not to have it just before the trumpet interchange.

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ELEVATED STRETCH

The airport expressway corridor will be a crucial link between Bangalore and Bangalore International Airpor

As per the project plan, the initial 3.2-km stretch between Hebbal flyover and the beginning of Yelahanka bypas

(near GKVK) will be an elevated stretch.

From Yelahanka-bypass to the trumpet interchange (gateway to the BIA), all the major junctions will be mad

signal-free. For instance, two flyovers will come up at the Kogilu Cross and Vidyanagar junctions, while four mor

grade separators will come up at other crucial junctions.

According to officials, once the project is complete, motorists can reach the airport within 15 to 20 minutes from

Hebbal as against 45 minutes now.

The project was announced by then union minister of state for surface transport K H Muniyappa.

DECCAN HERALD

Rs 23 cr released for development of roads, says Muniyappa

Seeks more funds for water supply to Sghatta taluk

A grant of Rs 23 crore has been released for development of roads in the taluk, said MLA V

Muniyappa.

He was speaking after laying foundation for developing a road between Doreganahalli and Palicherlu at acost of Rs 50 lakh, on Thursday.

Grant has been released under Public Works Department (PWD), Pradhan Manthri Gram Sadak Yojana

and Central Reserved fund, and the road works throughout the taluk will begin by March end, he said.

Out of total 6.3 crore grant from PWD, Rs 1.4 crore will be spent on developing road betweenJangamakote Cross to Shidlaghatta city; Rs 1 crore each for road from Shidlaghatta to Vijayapur;Shidlaghatta to Cheemangala and development of Cheemangala tank bund; Rs 50 lakh for Doreganahalliborder to Palicherlu road; Rs 40 lakh for road from Goramadagu to K Muttagadahalli; Rs 90 lakh each forThimmasandra to Dibburahalli and Kencharlahalli to Chilakanerpu road. Tender process is underway andthe road work will begin shortly, he added.

Under Pradhan Manthri Gram Sadak Yojana, Rs 3.5 crore will be utilised to develop Peresandra to Sadaliroad which goes via Iragappanahalli, Gadiminchenahalli, Devaganahalli. These roads come underChintamani and Bagepalli. For developing 11th Milestone Road in between Palicherlu, Dibburahalli andChintamani, Rs 3.5 crore will be spent. Rs 1.5 crore for Marihalli, T Peddanahalli, Chowdareddahalli,

connecting road from Doddatekahalli to Dibburahalli. RS 2 crore for repairing roads at Bellooti,Bhaktarahalli, Kakachokkandahalli, Ankatatti to connecting road from Vijayapur to Shidlaghatta.

Amount of Rs four crore has been released by the Central Reserve Fund. This will be utilised fordeveloping roads from Chokkanahalli to Kundalagurki, that is Y Hunasenahalli, Sheegehalli, Gajjiganahallito Kaivara road.

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Roads being asphalted

After a wait of four years, either sides of the Ashoka Road is being asphalted. A proposal of Rs 30 lakh toasphalt the complete road, has been sent to the concerned authorities. Work will begin as soon as thefund is released, legislator said.

Taluk Panchayat president Venugopal, former president of Zilla Panchayat V Subramani, formerpresident of Block Congress Munikrishnappa and others were present.

Water funds

Speaking to the media later, Muniyappa said drinking water has become severe in the taluk.

I get telephone calls from more than 10 villages asking to solve the drinking water problem. Thoughborewells are being sunk, it is not helping solve the problem. The fund released by the government in thisregard is not sufficient, he said.

Presently there is stock of fodder, which will suffice for some more days. But surely in comi ng days, the

officers have been directed to see to it that situation of fodder scarcity does not arise, he said.

The authorities concerned have also been asked to take action to solve water problem. Acting on thedirection, the authorities are conducting task force meeting once in a week, in every taluk. District-leveltask force meeting will be organised once in 15 days, In charge Minister A Narayanaswamy willparticipate, he added.

I will request the minister to release adequate fund to solve water related problems. This year under dueto various reasons, work was nor carried on under MGNREGS. In this backdrop, the minister will beasked through the task force, to release fund under drought scheme and Employment GuaranteeSchemes, he added.

THE TIMES OF INDIA

Rs 60.7cr to be spent on Gurgaon roads

The public works department has announced its plan to spend Rs 60.70 crore on construction of roads

and buildings in four blocks of Gurgaon. An official spokesman said that out of the total amount, Rs 54

crore would be spent during the next financial year whereas work on projects amounting to Rs 6.70 crore

was already in progress.

He said the department had prepared a work plan to carry out construction works in the next fiscal year

under which these development works would be undertaken in Gurgaon, Sohna, Farukhnagar and

Pataudi blocks in the district. New roads would be constructed and old roads would be repaired.

A multipurpose hall would be constructed in the government college of Sector 14 in Gurgaon for which Rs

7.26 crore has been sanctioned by the state government. He said that bridges would also be constructed

in Kulvaka village on way from Nimoth to Ghanghola atGurgaon canal at an investment of Rs 1.62 crore.

The scheme of works includes construction of the buildings such as tehsil office, primary health centre,

sub health centre and rooms of colleges. The official said that a tehsil office would be constructed in

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Farukhnagar block at a cost of Rs 3.18 crore and a sub-magistrate's office would be built at Pataudi at Rs

8.86 crore.

THE TIMES OF INDIA

Smart tags soon for Delhi-Chandigarh highway

The highway ministry's ambitious project of introducing a common smart tag for all toll plazas across thecountry will be tried out on the NH-1's Delhi-Chandigarh stretch. By May-end, the new technology will betested on a pilot basis before other tolled stretches are included in the project. The government aims tointroduce a singe radio frequency identification (RFID) smart tag that can be used at all toll plazas byend-2013.

At a meeting held on Friday, under the chairmanship of highways minister CP Joshi, it was decided thatthe first project - on the 250-km stretch in NH1 - needs to be expedited. Three toll operators owndifferent stretches of the corridor, and the NHAI will also test the technology's inter-operability. Sourcessaid the facility would be first installed at the toll plaza in Panipat.

A major private banker has offered free service to manage the collection and disbursal of the toll charge

among all the three operators - GMR, Soma-Isolux and L&T. The bank will provide facilities for recharging

the tags at commuters' convenience. The RFID tag promises to improve vehicle clearance at toll plazas

since the vehicle users don't have to stop and pay cash at counters. The censors placed at toll gates will

read the tag from a certain distance and bamboo barrier will go up automatically.

The new tags will come cheaper and are likely to shift most of the cash lane users to tag users, reducingcongestion and help plug revenue leakage. Annually, the NHAI loses about Rs 1,200 crore due to leakagesand several man hours are also wasted because of idling vehicles at plazas.

Better highways save time and logistics costs

One of the fastest growing infrastructure enterprises in the country with interests in airports, energy,highways and urban infrastructure sectors, GMR Groups top boss spoke to Vikas Srivastav on issues

related to construction, project funding and land acquisition in the country. Excerpts:

What is the status of mega highway projects and freight corridors? What are your expectationsfrom such projects, would you like to participate in them? The National Highway Authority of India (NHAI) announced 10 mega highway projects, of which only one

has been awarded as a mega highway, while 3 others have been split into 2 projects each.

The fate of others is yet to be known. Mega projects will continue to be a priority area for us. Freightcorridor is still in a nascent stage and will take off later than planned.

How aggressive are the bids now? Are collections likely to go down by the time the projects start

collecting tolls? Do you expect any decline in the estimate of toll collection?

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Some of the bids may be aggressive, but not all can be said to be so. Variation in toll revenue depends onlocal reasons unless the economy as a whole is not doing well. Since the economy as a whole is still good,there may not be reduction in revenues for projects coming up for toll collection in the coming years.

Another issue is that of lower entry barrier for concessionaires. How is it affecting the developers

and would it impact on the overall growth of the sector?

Though encouraging competition is beneficial for the society as a whole, it is important to look for all-round capability of a concessionaire which requires great financial, technical, implementation,managerial and operations and maintenance capabilities.These are not verified in the present bidding system. This leads to a large number of bidders, who in turnface shortage of consultants for pre-bid services. This also results in incomplete and inadequate analysisof the project cost, as well as financials that lead to bids which may not be correct. For a new bidder withlower capabilities, it becomes difficult to implement the project on time. In general, this will impact theNHDP programme itself.

What is the total lane kilometres that GMR has constructed and how much is under construction?

We have about 1,684 lane km under 6 operational projects and another 1,636 lane km under

construction. This excludes Kishangarh-Ahmedabad project of 3,333 lane km, which has been awardedrecently.

How challenging is the funding of these projects? How much is required to be raised for the

upcoming projects?

The financing of projects has not been a challenge for us. Normally, we are able to tie up financing at70:30 debt equity ratio.

How important are the state road projects to your portfolio and which states are you participating

in actively?

The state highway projects are equally important to us. We are keen to participate in large state highwayprojects.

Land acquisition is feared to pose a serious challenge to the construction of 20 km of road per day

by 2014. What could be other challenges for the NHAI and what is the way out?

Other than land acquisition, some of the challenges that the NHAI will have to encounter would be due tolack of research and slow adoption of technology for the biggest road development programme in theworld. Policy issues like the NHAIs dynamic bid schedule, which clubs a large number of projects in shortspan for bidding, followed by long periods of inactivity.Also, the quality of feasibility reports and wrong assessment of local needs at the project preparationstage apart from the high escalation risk due to increase in costs of bitumen, diesel, steel and cementimpacts the overall progress of our road projects.

How do you see the sector as a whole to progress in the next couple of years? Overall, the privatisation in highway sector has produced good results for the economy. Without privateparticipation, it was impossible for the government to mobilise such huge investment in one sector alone.The improved highway infrastructure has resulted in reducing the transportation and travel time alongwith the logistics costs.The average speed on highways has increased from 20-25 km per hour (kmph) to almost 50-60 kmph.

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However, safety and maintenance on highways still needs to be improved if we are concerned with theoverall growth of the sector.

Toll collection disrupted

Will face toll boycott issue legally: officials

Toll collection at the Namakkal toll plaza on the Salem to Madurai National Highway (NH-7) atKeerambur was disrupted for six hours as members of the Namakkal Taluk Lorry Owners Association(NTLOA) boycotted it from 8 a.m. to 2.30 p.m. on Thursday.

The demonstrators led by president of the State Lorry Owners Federation Tamil Nadu (SLOFTN) K.Nallathambi stopped toll collection as the contractors had failed to complete the pending works in theNamakkal - Karur stretch of NH-7 before February 29.

Mr. Nallathambi, who is also an Advisory Committee Member of the National Highways Authority of India(NHAI), said that the protest was to oppose toll collection while lot of other works on the 42.6 km-longstretch of the highway were pending for more than two years.

Collection of toll in the plaza began on September 22, 2009 after the contractors obtained the ProvisionCompletion Certificate from NHAI, he said and added that the contractors were supposed to complete

the pending works in six months from then. He alleged that the contractors continued collection of toll tothe tune of lakhs of rupees everyday while no effort was taken to complete the works. He noted that themajor pending works were laying service roads and connecting roads to the National Highway at 26locations in the stretch.

According to him, minor pending works include constructing toilets, resting sheds and drinking waterfacilities at the toll plaza. He alleged that they failed to complete works despite repeated representations.

Earlier, the demonstrators decided to boycott toll collection from February 1, 2012, but postponed itafter the contractors assured to complete the works before February 29, at a meeting chaired byNamakkal Sub-Collector in January. The protest came to an end after Project Director of NHAI (Karur), M.Thangamani chaired a meeting with the demonstrators in which a written assurance was given to thetruckers promising completion of the minor works before March 15 and major works before April 15,2012. Toll plaza officials claimed that more than 2,000 light motor vehicles, buses, trucks and other heavyvehicles passed the gate without paying the toll during the boycott. Stating that they incurred a loss ofnearly Rs. 2.5 lakh during the demo, they said that they would face the toll boycott issue legally.

Where do we go from here

Nothing behind me everything ahead of me as is ever so on the road. Jack Kerouac, author of On the Road

http://www.thehindu.com/

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Ever since policy liberalisation began in the early 1990s, Indias road sector has never looked back.Roads, the unsung heroes of Indias economic reforms, have been the catalysts for the growth of Indianeconomy from a frail slow-moving nation to one of the largest and fastest growing economies in theworld.All roads lead to the target of building 20 km a day. After initial hick-ups, all concerned now seemconfident of achieving the target by 2015, if not by the scheduled date of 2014. In the rush to meet the

target, however, India could be potentially endangering the ambitious National Highway DevelopmentProgramme (NHAI) itself and derailing what has been the countrys single-most successful infrastructuredevelopment story of the past 10 years.

An array of top executives from toll road companies and road construction companies that FC Weekendspoke to is hopeful that the target would be achieved, provided the issues related to increasedcompetition, aggressive bidding, financing and land acquisition are taken care of, without any time lag.Credible voices associated with India's highway development, in the public and private sectors, cautionagainst the race to meet the target without addressing these basic issues.So, is it time to pause and look back on the road? Where do we go from here?The Golden Quadrilateral that connected the four metros Mumbai, New Delhi, Kolkata and Chennai is 99.81 per cent complete, with 5,835 km out of 5,846 km already laid. As on January 31, in the North-South-East-West (NSEW) corridor, 5,945 km of the total 7,300 km is complete while the rest is under

implementation and around 420 km as balance is yet to come up for awarding of contracts.

Several other highway projects across the country are at various stages of construction, bidding orplanning. Amitabh Mundhra, managing director of Simplex Infrastructure, a Mumbai-based infrastructuremajor, says the progress of India on the roads and highways has been tremendous and even better thanwhat countries like Thailand and Malaysia have achieved, given the vast and varied geography of India.China has a bigger infrastructure development programme compared with what we have, but the two

cannot be compared for reasons that China is a totalitarian country and only focused on execution,whereas India has to have interaction with the public, which does not happen in China. Given theseissues, we believe that NHAI has done a very good job of executing big projects, says Mundhra.

The ministry of road transport and highways has set a target to build an average of 20 km of road per day

which would translate into 7,300 lane km in a year and over Rs 10,000 crore in toll revenues. The bigquestion is whether the target is achievable by 2014, the deadline set at the beginning? NHAI hopes thatthe target would be met by 2015, with a delay of one year.

The role of roads cannot be underestimated, given India's massive growth in vehicular traffic and growthof GDP at over 8-9 per cent in the past decade.India has the worlds second-largest road network of over 4.24 million km comprising national highways,expressways, state highways, major district roads, and village roads, while an additional around 50,000km is in process of being laid over the next five-six years. These are huge numbers and raise doubts in theminds of people over the estimates and capabilities of the developers and NHAI alike, given the concernsof higher raw material cost and land acquisition issues, as the concession awards now move into smalltowns and villages, and financing of these projects such as availability of credit to achieve the targetwithin the stipulated time frame.

For the benefit of readers, let us explain how the target of constructing 20 km a day was reached. It wasreached on the premises that the government would have awarded contracts for around 7,000 lane kmannually from 2010 for the next four years, that is by the end of 2014.

Chief general manager of NHAI, G Suresh, says India has around 5,000 km of road work in progress atpresent, around 5,000 lane km was awarded in 2010-11 and this financial year has already seen an

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award of 5,000 km by the end of December, which is expected to go up to 7,000 km by March. Thepipeline of roads to be awarded by NHAI in next financial year is also large, at around 6,000 km. It wouldtake the capacity of operational roads to around 23,000 km by 2013, which theoretically would meanIndia would achieve the target of 20 km per day by 2013 itself," claims Suresh.

But is it a simple arithmetic as it looks on paper?

Paresh Minocha, managing director of transport division at Feedback Infrastructure, says that though 80per cent of the land is given when the project is awarded, the remaining 20 per cent leads to a delay ofaround one-and-a-half to two years. The very nature and location of the land and i ssues of environmentare going to be major roadblocks during the next round of awards when they pass through hinterlandsand villages, says Minocha.

There are several infrastructure-related development activities going on in India be it theconstruction of metros, development programmes in Bihar and Uttar Pradesh and NREGA, which takeaway the major chunk of labourers. Also, lack of engineers for the road projects would be anotherchallenge, since every 100 km requires some 70 engineers. Our dependence on the IIT-bred engineersneeds to be curtailed through adoption of technology and higher level of mechanisations, Minocha says.

Besides, NHAI does not have a chairman for over one-and-a-half years and that has affected newinitiatives, direction and decision making at the top level. There is an urgent requirement of a chairman,a regulator for the road sector and an empowered group of people, who would look into the issues moreseriously, says Minocha.Another major concern bothering developers is the persistent competitive intensity seen over the pastfew years for bidding of projects due to lowering of entry barriers. This has resulted in aggressive bids.

This could result in defaults by small players who would not be able to achieve financial closures.

Morgan Stanley in its latest report on road sector said the established players have won a majority of theroad awards over the past three years, further frustrating new entrants. Hence, we expect thecompetitive intensity to remain at elevated levels in the near term restricting IRRs (internal rate ofreturns) of projects to lower teens.

Arun Kumar Sharma, CEO-highways, GMR Group, told FC Weekend that with low entry barriers forparticipation, many of the bidders who bag projects are not capable of delivering. This would hampertimely completion of national highway development programmes as a whole."

Lalit Jalan, CEO of Reliance Infrastructure, also believes that bids were aggressive with highly unrealistictraffic growth being assumed, at least in the past one year. We have been conservative in our bidding

process. So, we have not won any project in roads, in the past two years. We are comfortable with ourcurrent order book and have no compulsion to bid at a supernormal premium. We look for profitablegrowth and do not want to devalue our portfolio," Jalan said.NHAI is not perturbed by the aggressive bids as they get substantial positive premium from the build,operate and transfer (BOT) projects. However, it acknowledges that aggressive bidding would eventuallylead to default in later years. The authority can penalise bidders who pull out of the projects by takingback the projects and blacklisting them against future awards.

Abhinav Bhandari, senior infrastructure analyst at Elara Securities, says although NHAI, on its part, hastime and again urged players to analyse the longer-term financial consequences of aggressive bidding.

We don't expect a respite in the same until the basic policy framework relating to the PPP (public,private partnership) format and structural issues across major infrastructure segments (power, railways

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and water supply) are favourably addressed keeping interest of the developers and stakeholders inconsideration, said Bhandari.

The irony is that aggressive bids are also supported by bankers and lenders who are lending to theseprojects without looking at the downside risks. Earlier, the feasibility reports were made with hardly 5per cent upside, but now, developers factor in a lot of upsides like higher traffic potential and early

completion with very little space for downside risks.

I believe bankers should be more reasonable and saner in lending to these companies and due diligenceshould be done thoroughly. The process has started now where bankers are holding up the funds evenwhen the financial closure is achieved by the companies. Hence, the biggest trouble for developers is theavailability of hard cash, even as financial closures are achieved," said Vishwas Udgirkar, partner, seniordirector at Deloitte Consulting.

Udgirkar adds that if NHAI does not accept the lowest bid, the officials may come under the scanner ofCentral Vigilance Commission and the likes. But what they can do is to set a low and high benchmark,beyond which no one can bid. Also, he adds that despite various issues being raised over lack of traffic

growth as estimated for several projects and aggressive bidding, there has been no defaults yet.

The road sector was among the most successful of all segments within the infrastructure sector, in thepast decade. The financing mechanism of an autonomous body like NHAI is much better compared withrail and coal sectors and even compared with the ports sector, due to a senior-level board thatindependently takes care of financing. Besides, NHAI gets around Rs 4,000-5,000 crore in the form of cesson oil. A part of the cess charged on petrol and high-speed diesel goes to NHAI.

(According to the ministry of road transport and highways, half of the cess on high-speed diesel (HSD) oilis meant for development of rural roads. The other half of the cess on HSD and the entire cess collectedon petrol are allocated thereafter as follows: An amount equal to 57.5 per cent of such sum for thedevelopment and maintenance of National Highways, an amount equal to 12.5 per cent for constructionof road under or over bridges and safety works at unmanned railway crossing; and an amount equal to30 per cent on development and maintenance of state roads. Out of this amount, 10 per cent should bekept as reserved by the Centre for allocation to states for implementation of state road schemes of inter-

state connectivity and economic importance to be approved by the Union government. The balance cessof 50 paise per litre is entirely allocated for development and maintenance of national highways.)

Besides, NHAI gets a premium from BOT projects, which takes care of its viability gap fundingrequirements. It is also the reason why public has invested in their highly successful tax-free retail bonds,oversubscribing them several times.However, it is assumed that with some sort of maturity being achieved by the organisation in the pastdecade, it is high time that innovations are introduced at the level of standardisation of documents andcontracts that would help them ramp up projects.

Now, we need to look at some innovation in terms of standardisation of projects, as the same yardstick

cannot be applied to all projects of different sizes. Where some projects are coming up for second-timebidding and is mostly conversion from four lane to six lane, the same model cannot be applied that was

used when roads were converted from two to four or when they were awarded the first time, saidUdgirkar of Deloitte. Virendra Mhaiskar, chairman and managing director of BSE-listed IRBInfrastructure, a leading toll road operator, moots the idea of NHAI handling the shifting of utilities suchas pipelines and cables, at the planning stage itself, instead of leaving them to developers. This wouldhelp in early completion of projects. Also, the railway foot-over bridges require some 22 clearances in alland is the major impediment in completion of projects on time, Mhaiskar said.

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NHAI has already approached the railway ministry in this regard and the matter is resting with theCabinet committee, according to senior NHAI officials.Mhaiskar suggests that a lot of projects under phase IV where roads need to be upgraded from one laneto two lanes at a total investment of some Rs 15,000 crore should be funded by the government, and oncethey achieve the scale and traffic and need further upgradation, private players should be invited fordevelopment of toll roads. This would give them good premium and they can recover their cost in a few

years. It would also help in developing the infrastructure in smaller towns and villages, he adds.

According to him, land acquisition would not be a major challenge as only a narrow strip of land would berequired; there wont be massive requirements as with the special economic zones. Besides, NHAI is a

good paymaster and they compensate the farmers very well. "One reason land acquisition could be achallenge is due to the long-awaited National Land Acquisition and Rehabilitation & Resettlement Bill(LARR) which was cleared by the Cabinet committee in September 2011, but has not been passed byParliament yet. It is expected that people are holding up their lands in expectation that the bill would bepassed soon, this would change the whole compensation policy leading to three to four times the price forthe land they would pay now. Abhinav Bhandari of Elara, however, says, "We don't expect the LARR Bill

to be presented for debate in either houses before the monsoon session slated in July 2012.Consequently, projects where the acquisition wasn't entirely through are already facing executionchallenges in the wake of rising protests by villagers/locals and land owners demanding higher prices for

selling their holdings.

NHAI, on its part, says that India always had the capability to award around 7,000 km of roads fordevelopment, but it was weighed down by structural deficiencies. However, now the outlook is brighterand the next two to three years would see awarding of around 20,000 lane km.

Suresh of NHAI says that barring minor land acquisition issues in pockets such as Kerala, Goa, WestBengal and Orissa, where the state governments have not been cooperative in allocating the land to theawarded projects, it is relatively a smooth road ahead. We do not see any major problem in achieving

our target. We hand over pieces of land stretches to developers as we complete the long process ofseeking approvals. However, this delay is seeking approvals is not a big issue as no developer, even thebiggest player, is capable of completing more than 15 per cent of the total length awarded at a given

time, says Suresh.

Ronak Sarda, auto analyst at Morgan Stanley, said in another road report that the viability of toll-basedprojects depends on the traffic growth of the light commercial vehicles (LCV) which is expected toregister 15 per cent compounded annual growth (CAGR) over financial year 2011-13 estimates, andheavy & medium commercial vehicle (H&MCV) segment which is expected to grow by 10 per cent duringthe same period. "We believe these growth rates coupled with Indian economy growing by 7-8 per centyear on year, would ensure sufficient growth for toll-based stretches. It should be noted that CVscontribute the most to total revenue collection of Indian toll roads (around 70 per cent of total tollcollection)."

NHAI believes that even as the road sector faces a slew of issues of land acquisition, environment,clearan-ces from the railways and aggressive bidding by concessionaires, the target of ach-ieving the 20

km per day of road construction will be ac-hieved by 2015, if not 2014 itself.

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Banks want developers to bring in more equity

The aggressive bidding for new road projects and higher interest costs, which is resulting in lowerprofitability, has spurred banks to demand more equity participation from road developers.

Rajiv B Lall, MD and CEO of IDFC, told Financial Chronicle Weekend, I do agree. Lenders have to becautious against aggressive bidding and not dilute their underwriting standards.

Pawan Agrawal, director, Crisil Ratings said, several road projects have been awarded with a negativegrant. The sector is seeing participation from smaller players with a relatively limi ted track record.Higher size of individual projects is enhancing the project implementation-related risks. Also, thechallenge to secure land for the project continues. Therefore, banks are likely to demand more equityparticipation from developers.

As per the latest central bank data on sectoral deployment of bank credit, total outstandings in the sector,as on January 27, grew 26 per cent to Rs 1,09,700 crore from Rs 87,210 crore a year ago, on January 28,2011. Banks total outstanding in the sector was Rs 66,960 crore as on January 29, 2010.

Funding road projects has gathered momentum only in the past four years with banks emerging asprimary lenders to the sector. Around 70 per cent of the lending is through banks while the remainingfunds come from NBFCs and ECBs.Total bank lendings to the sector has nearly doubled in the past three years. This represents nearly 2.5per cent of the total bank credit outstandings. Given the ongoing projects under construction and theexpected pace of awarding new projects, total debt in the sector has a potential to more than double overthe next three years, added Agrawal.

Public sector banks with larger appetite for longer tenor loans are keen to fund good road projects.Project completion takes 36 months while repayment takes more than 7 years.

Anjan Ghosh, senior group vice-president at Icra, said, During the construction phase, land acquisition

and consequent delay are the two major risks while in the operational stage there is a risk of traffic notramping up as estimated. Once traffic ramps up as estimated then a road project becomes safer.

SK Goel, CMD of India Infrastructure Finance Company (IIFCL), said his companys total lending to the

road sector was Rs 6,000 crore as on January 31, recording a growth of 60 per cent. Bidding has notstarted for road projects and is pending with NHAI, said Goel. According to him, the delay could be due

to land acquisition or the bidding documents being incomplete. We are bullish on the road sector. There

are no NPAs. We expect a growth of 50-60 per cent in financing to continue for the next two to threeyears, Goel added.Punjab National Bank deployed advances of Rs 5,553 crore as on December 2010, which increased to Rs7,791 crore on December 2011, a growth of 40 per cent.

We do not have any problem in funding to the road sector, said KR Kamath, CMD, PNB. Of the total

restructured amount of Rs 16,888 crore from April 2008 to December 2011, none came from the roadsector, he said.A senior official of Union Bank of India said the entire viability of a road project depends on the overalltraffic volume, stretch of the road and toll collection. Our total exposure to road sector is Rs 3,557 crore

as on December 2011 and is growing by 12 per cent.

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Since most road projects sanctioned are under implementation, repayments will come when they are

completed. We dont have any NPAs. Toll collection has started in few cases, said the official.

Agrawal said that the debt capital markets can provide additional funding to the sector throughsecuritisation, especially for the operational roads with a track record of one-two years. Industry officialsbelieve that the sector could be better off if few other funding options were made available. Cr eation of

infrastructure debt funds for the sector, takeout financing scheme of India Infrastructure FinanceCompany (IIFCL), and credit enhancement scheme of IIFCL (under which it will provide partial guaranteeto enhance the projects credit rating) could be otheroptions, said an industry official.

GREATER KASHMIR

Sgr-Jmu highway upgradation project in limbo

Two Crucial Sectors Await Centres Approval

Srinagar, Mar 4: While successive regimes in Jammu and Kashmir and at the Centre are crediting

themselves for 4-laning project of Srinagar-Jammu highway, the chances of timely accomplishment of thiscrucial flagship project seem to be very bleak as work on its two vital patches is yet to be approved by theGovernment of India. The project is to be completed by 2016.

Informed sources told Greater Kashmir that completion of 4-laning of Srinagar-Jammu highway is likelyto be delayed as two out of the total six sub-projects, are yet to be approved by Public Private PartnershipAppraisal Committee (PPAC), an inter-ministerial committee and Cabinet Committee on Infrastructure(CCI).

The National Highway Authority of India (NHAI) which is the overarching body for the implementationof the project has divided the work on widening of the highway into six sub-projects which includeSrinagar-Banihal sector (67.76 Kms), Qazigund-Banihal sector (15.25 Kms), Banihal-Ramban sector (36Kms), Ramban-Udhampur (43-Kms), Chenani-Nashri (12 Kms) and Jammu-Udhampur (65 Kms).

While contract for Srinagar-Banihal segment has been awarded to Ramkey Infra and JPTEG Indian-China,QazigundBanihal has been awarded to Navyuga Engineering Co. Ltd, Chenani-Nashri to IL&FSTransportation Networks Ltd, JammuUdhampur to Shapoorji & Palonji Co. Ltd, the tendering process forRamban-Banihal and UdhampurRamban sections is yet to be completed.According to sources in NHAI, the tenders were invited for these two sections twice in 2010, but wererejected, both times, due to higher bids quoted by the private firms.

Now, we have restructured the proposals and they will be put before PPAC for approval. Then theproposals will go to CCI for final nod, they said, adding, Tenders are unlikely to be floated by the end ofthis year as the clearance of the same is going to take some time.

Not only this, NHAI is yet to take over few portions of the highway from Border Roads Organization(BRO), that have already been awarded to the private firms.NHAI was supposed to take over the entire highway by March- April 2011. But till date they have onlytaken over 100 Kms, Chief Engineer Beacon, Brigadier TS Rawat told this newspaper.

He said that initiation of new work becomes difficult as two agencies cannot work on the same stretch.

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Project Director of NHAI Srinagar, Veerendra Singh admits that work on the two stretches is yet to takeoff, but at the same time expressed ignorance over the reasons behind the delay.

He further said that work on other segments is in full swing and it will be completed within thestipulated time.

Jammu and Kashmir Government too echoed the same views for delay in undertaking the work.

I dont know the cause for delay in bidding of this 79-kilometer patch (Ramban-Banihal and UdhampurRamban). We have nothing to do with tendering as it is prerogative of Centre, Minister of State for Roads

& Buildings, Javaid Ahmad Dar said.

He said their mandate is confined to facilitating the land acquisition, but added that Chief Minister OmarAbdullah is actively pursuing the matter with the Centre.This highway project will not only shorten the distance between Srinagar and Jammu, but would also

give us respite from the frequent closure of the highway and the accidents taking place on it, he added.

Once the project is completed, the distance between Srinagar-Jammu will be reduced by 50 Kms.

Pertinently, the work on the four segments of highway was handed over to the private companies underBuild Operate Transfer (BOT) package through bidding by NHAI.

It will also have two long tunnels. The 9-km Qazigund-Banihal tunnel is being constructed by NavayugaEngineering Company Limited while work on Chenani-Nashri tunnel is being undertaken by IL&FSTransportation Networks Limited. Besides the two long tunnels the highway will also comprise of 12short tunnels with a cumulative length of 6.2 kilometers.

The 4-laning project of Srinagar-Jammu highway is part of the North-SouthEast-West Corridor (NS-EW)- largest ongoing highway project in India. It is managed by the NHAI under the Ministry of RoadTransport and Highways.

Realtors' body seeks more tax sops for consumers, developers

With a view to accelerating housing development in the country, the National Real Estate DevelopmentCouncil (NAREDCO) has suggested a series of measures to boost growth in the sector, including taxbreaks and incentives for consumers and developers.

In its pre-Budget recommendation, the apex body for real estate development has sought an increase inthe exemption limit of rental income and also hiking of deduction limit on account of interest payment onhome loans from Rs 1.5 lakh to Rs 3 lakh.

Deduction of Rs 1.5 lakh paid as interest on home loan was introduced in 2001. Before that, 100 per centof interest paid on home loans used to be deducted. Ten years have passed and on the basis of cost ofinflation indexation, Rs 1.5 lakh in 2001 would be close to Rs 3 lakh in 2012. Also the indexed cost of Rs20 lakh property in 2001 would be around Rs 40 lakh in 2012. We believe there is a strong case toincrease deduction limit on account of interest payment on home loan, Mr Navin M. Raheja, Managing

Director and President, NAREDCO, told reporters.

http://www.thehindubusinessline.com/

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Other recommendations include providing special incentive to developers to undertake construction ofsmaller houses. There used to be incentives for 100 per cent deduction of profits derived from theconstruction of housing projects up to 100 sq. feet built up area in Mumbai and Delhi. This waswithdrawn in 2009. We believe that this was a big incentive for developers to construct smaller sizehousing units to suit the requirements of low and medium income households, he said.

NAREDCO also sought bestowing the tag of infrastructure on housing sector. This will enable developersand housing finance institution to raise funds at low rate of interest from domestic and foreign markets.It will also incentivise developers by bringing down their income tax liability,

MY IRIS

NHAI to miss FY12 target says PINC Research

``With only one month left to meet its target of 7300 km, National Highways Authority Of India (NHAI)is putting its act together to award the remaining 3015 km of road projects. Considering the awardedprojects, current bid stage and execution; we believe NHAI will miss both its target of awarding andcompletion,`` said PINC Research. It further said the following:

Till date (FY12), NHAI has awarded 4,285 km of road projects worth Rs 408.9 billion. We believe it`sdifficult for NHAI to award 7300 km this fiscal, as current bid stage of projects suggest possibility ofawarding 1635 km by end of March. Though NHAI may stretch and award 2000-2200 km, still it will fallshort by 800-1000 km of awarding.

The Cabinet Committee on Infrastructure had approved three projects worth Rs 35 billion spanning 332km and awarding of these projects will start from today. Though we have witnessed very competitivebidding throughout the last year, we believe competition would ease going forward, as alreadydevelopers are facing challenges regarding financial closures and our channel check suggest 40 projectsare on the block. Our stance get further vindicated by looking at the recent bid of Kiratpur - Ner Chowk inHimachal Pradesh won by ILFS Transportation that witnessed only four bidder.

Recent sentiment dampeners like policy paralysis, difficulty in environment clearance, and achievingfinancial closure had impacted execution of projects. Total length completed has only increased by 8.6%YoY till December-end, despite record awarding of projects last year. Till December 2011 NHAI hascompleted 1,258 km of roads and is likely to miss its target of 2,500 km. However, we expect NHAI tocomplete 2,110 km in FY12 an 18.2% YoY growth.

State proposes flyover at Hero Honda crossing

Haryana government has proposed to build a flyover across the Gurgaon expressway at Hero Hondacrossing in place of the NHAI's proposal of an underpass without any government investment.

The state submitted this plan after opposing the Centre's proposal of equal cost sharing for construction

of an underpass here by the state and NHAI.The new proposal that has been submitted to the road

transport highways ministry recently is on the lines of elevated roads built in Tokyo.

http://timesofindia.indiatimes.com/topic/Hero-Hondahttp://timesofindia.indiatimes.com/topic/NHAIhttp://timesofindia.indiatimes.com/http://timesofindia.indiatimes.com/topic/NHAIhttp://timesofindia.indiatimes.com/topic/Hero-Honda

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The proposal says the elevated roads can be built across the expressway by any private party, which

would get long lease of properties that would be developed as a part of the composite

project."Commercial space can be created in these buildings over the expressway. Enough clearing space

can be left for straight moving vehicles.

Those heading towards Jaipur Sector-10 side or those from Hero Honda towards Delhi can take the

elevated roads which will be through different floors of the buildings," said a senior Haryana government

official.He added that the issue was discussed and a sketchy model has been submitted to the highways

ministry at a recently held meeting in the capital. The official, who has been associated to the Hero Honda

issue for long, said that there would be private players to undertake the project under build operate and

transfer (BOT)mode."The project can go to a private player who would quote the minimum years of lease

for these commercial spaces.

The lands for commercial development can be identified by the HUDA. We will have a solution and that

too without any government investment," said the official.A highway ministry official also said that they

are considering the proposal and a high-level technical committee would look into the case for a quick

decision. Once awarded, it would take about two years to complete the project. He agreed that without an

innovative solution, the mess at Hero Honda crossing cannot be addressed.However, this means

commuters who have been suffering for years due to indecisiveness of both the Centre and Haryana

governments would have to live with the mess for at least 2-3 years from now.

3 extra lanes at Gurgaon toll plaza

Commuters travelling from Delhi to Gurgaon can bid goodbye to long queues at the Sirhaul Toll (KM 24)

as three additional lanes are being added to the existing 16. With this, the total number of lanes on the

Delhi side will increase to 19, while the total number of lanes on both sides will increase to 35.

At present, construction work is underway and the existing sidewalls, pillars and lamp posts are beingdismantled.

The Haryana Urban Development Authority (Huda) administrator, Praveen Kumar, inspected the site onSaturday to take stock of the situation.

He also directed DS Constructions, the toll-maintaining agency, to complete construction work within 15days.

Officials of DS Constructions said they will add 10 to 12 lanes on both the sides in future.

Currently, we have 16 fixed lanes and two reversible lanes on eac h side. The additional three lanes on

the Delhi-Gurgaon side will ease congestion by about 25 per cent, said the spokesperson of DSConstructions.

Upon completion, staff will be deployed at the three additional lanes and they will carry out operationstill a final decision is taken by Huda, Gurgaon traffic police and DS Constructions.

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The issue of lane-widening was discussed during a meeting held between National Highway Authority ofIndia (NHAI) chairman AK Upadhyay, Huda administrator Kumar and officials of DS Constructions onFebruary 13.

The matter came up for discussion after a proposal was forwarded by the Huda administrator. Thechairman had given his nod to the widening work. This is being done in the larger interest of the public,

said Kumar.

Heavy traffic jams are witnessed during peak hours at the toll plaza. With long queues of vehiclesbecoming a routine affair, city residents have staged several protests demanding removal of the toll plaza.

Gurgaon residents have also given several representations to NHAI, Gurgaon administration, andHaryana chief minister Bhupinder Singh Hooda for removing the toll plaza.

MINT

Road projects: from despair to hope

Intense competition, aggressive bidding at lower margins, and subsequent uncertainties on toll traffic,

however, still pose risks

Since September last year, road projects in the country have gained greater momentum than other

infrastructure segments such as power, water and irrigation. Shares of companies, including IL&FS

Transportation Networks Ltd, IVRCL Ltd, Ashoka Buildcon Ltd, GMR Infrastructure Ltd and IRB

Infrastructure Developers Ltd, with significant exposure to road projects, have mirrored this

improvement. The question isdoes it make these companies investment-worthy?

Poor order inflow was a grave concern, but its getting better now. A road sector report by Icra Ltd

states, About 1,898km of projects were awarded in the December quarter, taking the nine-month figure

up to 4,553km during fiscal 2011 (FY11), 3,338km during FY10 and 643km in FY09. Although the award

of such projects may continue, it is unlikely to translate into higher investor returns in the near term for

many reasons.

With other infrastructure segments in limbo, theres increased competition in roads. Industry estimates

are that about 90 companies have pre-qualified for National Highways Authority of India projects. The

competition, aggressive bidding at lower profit margins to secure orders and subsequent uncertainties

on toll traffic estimates are risks that are yet to be alleviated.

Average revenue clocked by six leading road construction companies shows that the poor pace of

execution has brought down year-on-year growth rates over the last five quarters to around 15% at the

end of the December quarter. The risk-reward ratio, therefore, remains unfavourable, given the long

working capital cycles, stretched balance sheets, poor returns on equities and corporate governanceissues in some companies.

What can improve the scenario is a reduction in interest rates. The December quarters average interest

cost as a percentage of sales for six leading road companies (that are also into other infrastructure

projects) jumped 230 basis points from a year ago, although it was lower by 200 basis points from the

preceding quarter. According to Rohit Inamdar and Shubham Jain of Icra, As interest rates cool off, we

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will see higher funding possibilities for projects, as they become more viable. One basis point is one -

hundredth of a percentage point.

Also, debt refinance measures on project completion have already improved the morale among road

makers. Further, companies themselves are trying to divest equity and non-core assets to fund critical

projects that can improve revenue and cash flow.

The Union budget may give these companies a shot in the arm by raising tax exemption limits for

investments (currently up to Rs 20,000 under section 80 CCF) made in infrastructure bonds and perhaps

increasing the limit of foreign institutional investment (now at $25 billion, or Rs 1.23 trillion today) in

these projects. Private sector participation needs to be boosted, given the pathetic fiscal state of the

government.

These measures could improve sentiment towards the sector. But it may translate into earnings

momentum only from the second half of FY13.

MCD sanctions 54 projects, Rs 160 cr in 15 minutes to beat election code

In a frenzy to clear projects before the election code of conduct kicks in on Monday, the BJP-led MCDpassed 54 projects to the tune of Rs 160 crore in a span of just 15 minutes on Saturday.

Nearly 60 proposals were tabled in the Standing Committee meeting. While six projects were postponed,the remaining were given the nod without any discussion.

These projects were listed on the agenda. Some of the additional projects were introduced at the last

moment. All these proposals are for development projects. We had to pass them urgently over theweekend as the poll code will come into effect on Monday, said Standing Committee Chairman Yogendra

Chandolia.

More than half of the Rs 160 crore was sanctioned for road and drainage works. Targeting the urbanvoters, the Committee approved a majority of these projects in the up-scale area of South Delhi.

A road strengthening project to the tune of Rs 50 lakh was approved in Block A, B, C and D of LajpatNagar. Around Rs 5 crore has been sanctioned for construction and maintenance of Mathura Road.

In Defence colony, Rs 4.89 crore has been approved for maintenance of roads and Rs 58 lakh for drainage

development. Apart from this, the meeting passed a multi-level automated parking lot plan at DefenceColony. Another Rs 40 lakh has been reserved for roads in Rajouri Garden and Moti Nagar. Around Rs4.97 crore has been sanctioned for the roads under Central Zone.

If this wasnt enough, the MCD also approved 20 road renaming projects.

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The councillors, too, are working round-the-clock, taking part in inaugural ceremonies across the city.Over 500 inauguration and foundation-laying ceremonies have been organised over the last two days.Since the day the Election Commission announced dates for the municipal polls, councillors have be enbusy with inaugural ceremonies. Each councillor is inaugurating three projects a day, said BJP councillor

Vijay Prakash Pandey.

Pandey was present at the inauguration of the First Naturopathy Hospital in Delhi. Health CommitteeChairman Dr Vijay Monga also attended a series of inaugural ceremonies on Saturday. We need to put ina lot of time, energy and money into the campaign. There is just two days for the code of conduct to comeinto force. I have a few inauguration ceremonies to attend in my ward before that, he said.

PE interest in road sector on the wane

Private equity (PE) investors, who ramped up their investments in Indias road sector last year, have hit a

slow lane now. PE giants such as JP Morgan, Morgan Stanley and Goldman Sachs, which found a fancy forroads, are taking a more cautious approach.

Darius Pandole, partner at New Silk Route Advisors, an Asia-focused private equity firm, said a lot of PEinterest is seen in road construction companies with a diversified portfolio. The pure-play asset owners(BOT players) in road sector have drawn limited attention from PE players, because of the relatively lowmargins they offer. The low entry barrier in road sector has led to high intensity of competition, andtypically low margins, says Pandole.

Newer players are trying to break into the sector due to the low entry barriers. Several big players vie

for relatively smaller projects, and pricing gets beaten down to uneconomical levels, says Pandole.

An investment banker with Morgan Stanley told Financial Chronicle Weekend that aggressive bidding is

driving down the internal rate of return (IRR) in the sector. PE investors fund special purpose vehicles(SPVs) with few projects under their belt. Since the PE investor does not have any sway over itsoperational management, the SPV may continue to bid for other projects aggressively, raising its riskprofile. This is a major concern, he said.

The sector doesnt look rosy any more to PE investors. In 2011, PE investors increased their expo sure tothe roads sector to $670 million, up from $120 million in just two deals in 2008, as the biggies in the PEbusiness sensed lucrative exits in the coming years. In fact, the past four years have seen PEs pumping inaround $1.5 billion into several companies in the road sector, according to Venture Intelligence, whichtracks PE or VC deals.

Of late, however, PE interest in the sector is on the wane, says another Mumbai-based PE investor.

Alok Gupta, managing director of US-based private equity firm Gerken Capital Associates, said while theroad sector has attracted quite a lot of capital historically, PE investors are taking a cautious lookbecause now returns are hard to come by, due to several constraints. According to him, there are

worries of projects getting delayed, leading to cost escalation. In a few cases which may involve viability -gap funding, there have been delays in funds from state governments. Besides, land acquisition hasbecome a major cause for projects getting delayed. As a result, private equity players are taking a call on a

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case-by-case basis and will commit more capital when the government addresses these issues, Guptasaid.

However, Pritish Kandoi, associate director investment banking, Equirus Capital feels that the sector islikely to wrap up some major PE investments during this year. We expect the trend of PE investments to

continue for the remaining of FY12 and the next financial year due to heightened activity in terms of

contract. Road developers will also benefit from slowdown in the power sector, which usually competeswith roads for investments from infrastructure-focused private equity funds.

Among the major deals in the road sector in 2011, Morgan Stanley invested $200 million in the unlistedIsolux Corsan India, followed by JP Morgan infusing funds in the tune of $110 million in Soma Enterprisesand 3i IIF investing $97 million in KMC Infratech, Venture Intelligence data showed.

Ajay Jindal, executive director of Four-S, a research firm, said: With increased focus on road projects, wemay see more private equity firms looking to close deals in infrastructure companies, focused on the roadsector. Private equity firms will be more interested in companies executing build own transfer (BOT)projects where visibility is high.

Despite some operational hiccups faced by the sector, there has been increased focus on roads, which hasresulted in several steps by National Highway Authority of India (NHAI) fast-tracking the process ofawarding projects and bringing in more transparency with the introduction of processes like e-tendering,according to Pritish Kandoi of Equirus Capital.

Close look at borrowing must: ex-Fin Secy

When Finance Minister Pranab Mukherjee presents the Union Budget 2012 on March 16, experts will bekeenly hearing his comments on fiscal deficit. India's fiscal deficit is a cause for worry now. It is expected

to exceed the targeted 4.6% of GDP.

Former finance secretary S Narayan says, fiscal deficit in percentage terms will be optically low due toinflation. "Projected fiscal deficit for the next year is unlikely to be below 5%," he adds. According to him,one needs to look at borrowing figures closely in the Budget.

Narayan says, Oil and Natural Gas Corp 's (ONGC) auction was mismanaged. ONGC share auction wasaffected by a system glitch due to large last minute orders. He further says, the auction needed better co-ordination. "The auction was mispriced and didn't factor in the market condition," he asserts.

Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and MitaliMukherjee. Also watch the accompanying videos.

Q: How you have read this reworked plan by the government in order to raise cash from some of thepublic listed companies and what look like a fiasco that went down with ONGC yesterday?

A: A little bit of strategy in putting it into the market was lacking from the investment ministry, thefinance ministry, disinvestment ministry and the petroleum ministry. They saw that the market was

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going down. They priced the issue fairly high. They didn't have plan B of picking up the shares, if theretail interest was not there. So, I think a bit of strategy was missing.

I do hope going forward, when they do the disinvestment of the other PSUs, they would work out a verycarefully planned strategy. We saw only last week a very well managed public issue where a privatecompany was able to get 55 times its offer subscribed. So, I think there is a lesson to be learnt there more

on the processes and the details, nitty-gritty of the offer. This is very important because it makes adifference between Rs 12,000 crore and Rs 8,000 crore, it makes a difference in asking LIC to come in atthe last minute to pick up the shares. So, I think there are a lot of lessons to be learnt in pushing throughthis disinvestment carefully.

Is it important? I think it's important because if this is not done then there is very little room for thefinance minister in the forthcoming Budget. The fiscal deficit is fairly large, it's very big. If he allows thisfiscal overhang to carry-on to the next year then he would have very little room for anything in theBudget in terms of any expansionary public expenditure. He would have to go and cut subsidies veryseriously, he would have no opportunity of giving any benefits to industry or manufacture.

The effort that the government is making, at this time, I would call it a necessary effort. I would perhaps

call it an effort that is dictated by the circumstances in which the effort is being made.

Q: Do you think the Finance Minister can in anyway indicate a sub-5% fiscal deficit target for next year,given the way growth is and the kind of growth assumptions that he may realistically be working with orbe projecting as also the kind of subsidy pressures that are coming in now from crude oil etc? Do youthink it's possible that he can indicate sub-5% number, which the market or economic participants willbelieve?

A: I think there is a clever arithmetic in the fiscal deficit, if you are looking at it in terms of percentages. Ifyou have a high inflation rate then automatically the GDP in nominal terms goes up. The denominatorgoes up. So, with the same kind of a gap, you can still show a lower deficit. In a way, you are inflating yourway out of the fiscal deficit. So, the numbers of 5-5.5% need to be viewed with caution.

What you need to look at very carefully is the kind of borrowing that the government is making. If theborrowing is going to be substantially higher than what it was last year and if it is eating into the totalamount of liquidity that is available in the market then you have a serious problem; money available forcapital investment, infrastructure money available in the market reduces. So, without the inflationarynumbers, I don't think he can give a number which is lower than 5%.

Q: What is your sense of how growth will pan out? We had 6.1% print on the GDP few days back. People,who we speak to, are saying that that is the trough and we should not worry about it because things aresubstantially on the mend, despite some of the capital formation figures looking quite awful. Should onebe complacent about how tepid growth could be over the next four-five quarters?

A: My anxiety comes from a slightly different source. If you read the report of the Prime Minister's

Economic Advisory Council, they saying that you would get about 7% growth and it is good compared tothe rest of the world. So, in a way, we have started patting ourselves on the back that we are going to bearound 7%, which is better than a lot of countries. That means somewhere along the line the real fight forgetting 8-9% growth has been more or less given up.

If you look at the capital formation, the numbers are certainly worrying. That means that the results ofany fresh capital formation would be available in the goods and services sector only about two-three

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years down the line. That means that certainly an immediate improvement in 2012 appears very unlikely.So, with the best efforts of the Finance Minister, with the best possible opportunities of FII flows, moneyflows and even if FDI is opened up in several sectors, I do see that 2012 being only close to 7%, at themost 7.5%, no better than that.

Q: What would strike a warning bell to your mind in terms of the borrowing figure that the Finance

Minister sets out? By extension of that, what kind of position does that leave the Reserve Bank, which inany case is struggling to manage what is a very tight liquidity situation and they haven't been able tomove on rates yet?

A: I think bond yields, particularly government bond yields, would be a signal. At this moment, the bondyields are artificially kept a little low because of the OMO operations that the Reserve Bank is doing. But ifit were not doing that and this is the kind of a borrowing that the government is going to make in themarket then one would certainly see interest rates of these bonds having to go up. That would beworrying.

A major worry for me and signal worry for me was the recent issue of tax free bonds by people like NHAIand by other companies, which offered more than 8% tax free. That means government, in a way,

surrogate of the government is prepared to pay 12% pre tax for borrowing. That's a huge burden on anykind of industry or infrastructure or any kind of public expenditure activity. So, these are the kind ofsignals that I find very much worrying that the government has to borrow a costlier paper. Unless it isdirecting these funds into areas where the returns are atleast equal to the borrowing rates, I think wewould be starting to dig ourselves into a fairly deep hole.

Q: Growth has slipped considerably over the last few quarters, but the sense seems to be that in thisBudget the government will not be able to move too much in terms of spend either on any of the ruralschemes or on infrastructure. It's going to be more or less status quo with few incentives here and there.In that case, would you be more worried about what the course of growth maybe over the next fewquarters or atleast through this calendar year?

A: I think consumer demand is still robust. Employment formation in the goods and services sector,

particularly in the services sector IT, continues to be robust. If employment growth is robust, that meansconsumer demand will continue to be robust. So, I don't think that you would see great softening of theIndian growth story.

It is important that the Finance Minister incentivises this growth. He can do that by providing some goodincentives for the manufacturing industry. In fact he can target those industries which are growing veryfast and give opportunity for them to grow little faster. He could give incentives to exporters. He couldgive incentives for bringing in more capital through ECBs. He could give incentives for fast trackingpower projects and other infrastructure projects.

I think there is a lot that he can do by giving a few incentives, which would not necessarily haveimmediate revenue implications. So, I would even think that that is a good way for the government toproceed, while at the same time going back to the expenditure control board and saying where one cancontrol expenditure. He can perhaps bring back his earlier idea of reducing subsidies on diesel, providingfor some kind of LPG distribution where the number of cylinders under subsidy is limited.

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There are a lot of opportunities available to him. All in all, I do see this Budget as an opportunity for himto have course correction, to have a good developmental Budget, given the fact that the fiscal room islimited.

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