Infrastructure major GMR is facing yet another controversy – this time, it’s at home.
The company has sent a notice to the National Highways Authority of India (NHAI) informing its intent to exit the project to widen a 555-km road between Kishangarh, Udaipur and Ahmedabad.
The NHAI, on its part, is planning to deal with GMR firmly for non-compliance with the prescribed procedure for exit.
A spokesperson of GMR refused to divulge the reasons behind sending the notice.
However, other company sources said GMR was facing difficulties in taking the project forward.
“There are three issues on which the project was stuck. Land acquisition, toll notification and the environment clearances – none of which is in place. While land acquisition and toll notification were to be done directly by the NHAI, environment clearances were to be routed through it. GMR has been waiting for these issues to be resolved for the last 16 months. The company has also invested on men and machines to kickstart the project, but nothing happened so far,” the source explained.
With a target to commercialise the project in 2015, GMR has sought a credit arrangement for about Rs2,300 crore and an equity infusion plan of about Rs800 crore. But the company has not drawn down any debt so far towards the project.
According to the source, the exit notice has given a time of about 15 days for the formalities to be completed, even a week after serving the notice there has been no response from the authority.
Meanwhile, the NHAI is furious at the way GMR has decided to call it off without going through any cure period.
It was in September 2011, GMR had won a contract to develop the road project with an outlay of about Rs7,200 crore.
The design, build, finance, operate and transfer (DBFOT) project was to remain with GMR for about 26 years and the brownfield project was expected to start flowing in revenues from day one. Keeping the viability of project in view, GMR had agreed to pay a premium of about Rs 636 crore to the NHAI in the first year and increase it by 5% every subsequent year.
With the exit notice landing in the NHAI unexpectedly, the authority too is said to be working on a strategy to handle it appropriately.
JN Singh, member-finance, NHAI told DNA Money that GMR had skipped the procedures as contractor by not complying with the prescribed 90-day cure period before serving a notice.
"Three days back GMR slapped a notice on us stating that they are exiting the project which is a complete breach of contractual agreement as the company has avoided a 90-day cure period. We are preparing a strong reply on that," he said.
According to Singh, the authority would have solved the issues that are coming in the way of the project if GMR had provided the cure period. “But the contractor’s willingness to exit the project by skipping the normal procedures showed that there are some other reasons for this exit,” he said.
When insisted on disclosing the “other reasons” that would have encouraged GMR to serve the notice, he said,"GMR had quoted a premium to NHAI which it may now feel is hard to deliver and they are finding excuses like delay in environmental clearances."
Analysts, too, find the decision of GMR not fully backed by substance since the road projects in various parts of country have been facing issues and the government through the Cabinet Committee on Infrastructure (CCI) has been working on clearing the issues despite the delays.
An analyst of a domestic brokerage firm also viewed that there is more to it than what meets the eye."GMR’s precarious financial position due to high debt level could have forced the company to exit the project," he said.
“Today, many road projects are in deep stress and developers including GMR have put their road assets on block but no one in market is ready to buy these projects. GMR may have gone completely wrong in assessing the viability of the project and quoted such a high premium. Moreover, slowdown in the economy and muted traffic growth also must have encouraged it to exit from high premium project," he said.