There are 46 projects which have been identified by NHAI as languishing with a total length of these projects is 4,860 km. covering a total project cost of Rs 51,338 crore. Out of 46, issues have been resolved in 27 cases whereas issues on 19 projects are yet to be sorted out.
Reasons responsible for project delays:
Lack of equity with the concessionaire: In several sections (e.g. Motihari-Raxaul section, Rohtak-Jind section, Gurgaon-Kotputli-Jaipur section, Haridwar-Dehradun section), the lack of equity with the concessionaires has delayed the projects much beyond the scheduled completion date. In some projects, this has also resulted in the bankers not disbursing even the loan sanctioned at financial close.
Diversion of funds: In few cases the physical progress of work is not commensurate with the financial progress. These are likely cases where the funds may not have been utilised towards the projects and concessionaires are finding it difficult to bring back the funds so diverted.
Delays due to reasons not attributable to the concessionaire: The Authority has also defaulted in fulfilling its conditions precedent in a number of cases due to land acquisition, environment /forest clearance /utility shifting /RoB issues. In cases like Rimoli-Roxy-Rajamunda, delay in forest clearance has turned the project unviable and therefore has to be terminated and re-bid.
Refusal of banks to accept first charge of NHAI: For any languishing highway project in BOT (toll/annuity) mode that has achieved at least 50 per cent physical completion, NHAI will provide financial assistance to complete the project subject to first charge on the toll/annuity receivables of these projects. However, the banks have refused to accept the first charge of NHAI and therefore no progress in implementation of this policy to complete languishing projects is being achieved.
High cost of interest during construction (IDC): The cost of construction in case of delay, whether due to concessionaire or the Authority, results in increase in the cost of debt which turns the project unviable. In case of termination due to delay by concessionaire during the construction period, there, too, is no termination payment.
Difficulty in obtaining additional debt in stalled projects: In projects where the concessionaire is already faced with delays, there is no possibility of obtaining additional debt to complete the project as the account in many cases may have already turned NPA.
Overleveraged balance sheet of the developers anticipating high level of growth. The economic downturn seen in the last few years has caused revenue realisation at a much lower rate than was anticipated. Many developers have taken future obligation which created difficulties in debt servicing.
Stress on the existing road infrastructure loan portfolios of FIs: Reduced revenue realisation due to economic slowdown affected debt servicing by the concessionaire as the contracted debt servicing obligations could not be met with the existing revenue. As the sector got affected, the lenders debt portfolio for roads came to have a disproportionally high level of debts. NPAs saddled banks with additional capital adequacy requirements, provisioning demands and income recognition restrictions.
Long period of revenue collection: The current practice of financing large infrastructure projects based on revenue streams spread over 20 to 30 years, but with project debt having tenure of 10 to 15 years, is also unsustainable.
Debt sanctioned by banks higher than total project cost estimated by NHAI: Because the project debt is based on the developer’s cost estimates, which is, on an average, 35 per cent more than the NHAI project cost, the lenders are exposed to a higher risk particularly in the event of termination of the concession agreement, wherein NHAI guarantees compensation based on its own appraised project cost and not the developer’s estimate.
Corporate debt restructuring has been affected in many SPV debt: Concessionaires unable to service debt have to propose to the lenders to restructure the debt: While the first restructuring exercise is permitted by lenders without any adverse asset classifications, any exercise going forward automatically affects the asset classifications in the books of lenders. A second restructuring necessarily requires that the debt be classified as non performing.
Sector exposure norms of FIs getting exhausted: With the debt obligations mounting on account of debt repayment deferment, sector exposure increased, reaching exposure norms for this sector.
Higher cost of financing: The lenders who provide major part of financing in the form of debt are concerned with the downside risks which influences the project progress and debt serving capability and consequently to mitigate the risk of financing have enhanced the cost of lending to the sector.
Bond market for infrastructure financing: The Bond market can provide a viable option for long term financing. Under the Infrastructure Debt Fund, Banks have to accept the first charge of Infrastructure Debt Funds on termination payment . As projects have been financed at a much higher cost than the NHAI total project cost, the debt due may not cover the complete senior debt leading to resistance of banks to first charge of Infrastructure Debt Funds.