Slowdown, delays impact developers' interest in PPP models

Liquidity constraints, approval delays and the lingering slowdown have forced developers not to take up large infrastructure and road projects on PPP basis, compelling government agencies to award projects as cash-contracts, say industry experts.

The government has laid emphasis on developing infrastructure projects on public private partnership model to reduce its burden and to encourage private sector participation. However, the current economic scenario is impacting developer sentiment who are not willing to take the risks attached with PPP projects, an expert said.

According to rating agency India Ratings, the National Highways Authority last September had insisted the government award projects as cash contracts.

"This was primarily because of the lacklustre response NHAI had witnessed in awarding projects through the PPP model," India Ratings associate director (infra and project finance) Chintan Lakhani said.
Dwindling developer interest in the PPP model became evident when NHAI awarded a paltry 123 km of its 2000 km PPP target as of last November.

Cash contract or EPC model is being preferred by developers as the onus of funding, getting approvals, among others, lies on the government.

"Not many projects are awarded on BOT, on the contrary, developers are willing to bid for EPC projects as the risks involved in the latter model are far much lesser as compared to the former. Risks of financing including high interest rates, approvals, traffic under performance in case of road projects, are some of the concerns raised by developers. In the EPC model, the funding risk is on the government," Lakhani said.

Large infrastructure projects like the Rs 9,630-crore Mumbai Trans-Harbour Link, the Rs 23,000 crore Colaba-Seepz underground metro line, Rs 1,300-crore water transport along the east coast and Rs 750-crore passenger water transport along the West Coast, among others have been taken up on EPC basis as they failed to receive the desired response.

"We did not receive the desired response for the Trans-Harbour project from the developers. So now we have decided to go ahead with the project on EPC basis," MMRDA Commissioner UPS Madan said.

Lakhani further said, "if implemented, cash contracts could help developers to concentrate on the core business and improve their liquidity. This could provide a boost to the slowdown-hit infrastructure companies which have not been showing keen interest under the PPP model."