Hybrid model a win-win deal for govt, road developers: K Ramchand

ILFS Transportation (ITNL)’s managing director K Ramchand expects government’s intiatives to boost development of roads and highways in the country. In an email interview with Sanjay Jog, Ramchand says the target to construct 30 Km per day is achievable. Edited excerpts:


How will the government initiatives help the sector, ITNL?  


The reforms taken by the government will reduce delays and improve the lenders’ comfort. In the current fiscal, we are looking at projects to the tune of Rs 8,000-10,000 crore. In the next fiscal, we could increase our bandwidth as we anticipate a reduction in the interest rates and change in the overall business environment.


Are PPP and EPC models workable? 


Yes, both are workable. PPP was the preferred mode for national highway development in the country mainly because it’s value for money for the taxpayer through optimal risk transfer and risk management. In PPP, there is a creation of added value through synergies between public authorities and private sector companies, particularly through the integration and cross transfer of public and private sector skills, knowledge and expertise. Ideally we believe PPP is best mode of awarding for big size projects and EPC could be adopted for projects with smaller ticket size.


What is your comment on the hybrid model and exit option for those road projects after 2009?


The hybrid model will be a win-win situation for the government as well as developers. The government is expected to fund up to 40% of the project cost while the private player will have to secure finances for the remaining 60%. The revenue risk due to traffic variation is also covered by this model as the Annuity mode is proposed. Here, the concessionaire will be assured of annual/bi annual sums to be paid by the government. The total project cost is likely to be inflation-linked. 100% exit for pre-2009 awarded projects will aid stressed developers and improve lenders’ comfort. These measures will definitely revive developer’s interest.


Is is possible to construct 30 km per day?


The policy reforms and the likely suggestions of the RC Sinha Committee on revamping of the NHAI, if accepted, is likely to improve the national highway execution this year onwards and we believe going forward it’s possible to attain the target of 30 km per day if there is strong commitment from the government.


The government is looking to attract pension and insurance funds to expedite road development. What is your take ?


Given the long-term growth story in the road sector, pension funds have shown interest in increasing their exposure to this area. Pension funds are basically looking for better diversification of investment risk and new sources of return. Technically for them, infrastructure feels more tangible and simple business model to follow than other complex products and derivative strategies.


Moreover, investments can be made for long term and it’s a natural fit with long term liabilities of many pension funds. Investments in the infrastructure sector is socially responsible investing, and could easily bring in pension and insurance funds if we have appropriate policy framework. Banks have to be encouraged to pass on the benefits of the rate cuts to customers, for a significant improvement in the sentiment affecting the road sector.
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