Road Sector Way ahead....

Road Construction-Another Land Grab On The Way

The GOI's Surface Transport and Roads Minister claims India will build as much as 20 km of new roads per day over the next 5 year. If the Minister's past record is any evidence, then the Road Construction projects too will turn out to be no more than an exercise at land grab, this time by led by construction companies like L&T, NJCC, HCC and IVRCL.

Investors would need to remember that most of the SEZs created in the previous 5 year term of the previous government are either stalled or being de-notified. This means that the peasants who sold off their Agricultural land at fabulous price to the Builders mafia are now rich, but the Builders are poor. Or is it the Banks which funded these builders.

Next in line will be the construction companies. They have before them failed BOT projects like the Noida Toll Bridge, the Kotputli-Jaipur BOT, and the Delhi-Ambala BOTs to evaluate. It must be realised and soon enough that India is a nation built upon freebies-users are not prepared to pay for services.

India's highways minister said he plans "a quantum jump" in road building in the coming year and this month begins a world tour to try to revive foreign interest in investing in Indian infrastructure.

"This is a paradigm shift, not merely an increase in spending," Kamal Nath, minister of road transport and highways, said of his building plans.

India has been trying to make $500 billion in upgrades to its crumbling roads, ports and airports -- with about one-third of the investment coming from the private sector.

But the plans announced with great fanfare two years ago have fallen short of expectations, as foreign investors, weighed down by the financial crisis, have mostly stayed away.

When the National Highway Authority of India put out requests for proposals for 60 road projects at the end of last year, it received no bids on 38 projects.

Mr. Nath, India's commerce minister until the newly re-elected Congress party gave him the highway job in May, is setting out on a roadshow to Hong Kong, Singapore, the U.S. and Europe to sell highway construction in India as an investment opportunity.

ICICI Bank Ltd., India's largest private bank, is setting up the roadshow, Mr. Nath said. The government wants foreign investors to help fund infrastructure improvements in return for profits from tolls and other fees.

India's decrepit infrastructure threatens to hinder growth, even in an economy less affected than others by the financial crisis.

In his office Monday evening, just a few hours after Finance Minister Pranab Mukherjee announced a 23% increase in the country's highway budget -- lifting it to $4 billion -- Mr. Nath showed detailed plans for increasing the pace of road building. The plans, with timelines for land acquisition, bidding and building, envision the construction of 127 roads in the coming year, at a cost of 982 billion rupees (about $20 billion.)

This investment plan envisions funding from the government as well as Indian and overseas investors.

India has been building about two kilometers of roads a day. Mr. Nath says he has challenged his department to increase the pace to 20 kilometers a day. The goals represent such a large increase in building that his department "doesn't know what hit them," he said.

Tushar Poddar, an economist for Goldman Sachs in Mumbai, says India's infrastructure projects, including highways, remain too high risk with too low an expected return to be attractive to most foreign investors. Goldman Sachs is staying on the sidelines for now, he said.

"The investment opportunity is not great by any stretch of the imagination," he said. "It's got a long way to go."

Mr. Nath said foreign interest is high. "I see a huge amount of money coming in," he said. "India remains a good parking lot, a good investment destination."

Mr. Nath said in the recent past the problem has been timing. When foreign investors were announcing fund after fund focused on Indian infrastructure in 2007, the Indian government was still fine-tuning the terms of the public-private partnership agreement that would guide the projects, he said.

When these so-called concession agreements were finally ready last year, Mr. Nath said, the financial crisis had hit and foreign interest had diminished.

To draw more bidders, he says, he has changed the conflict-of-interest rules so that investors can hold a small interest in multiple groups competing for the same road projects as long as that interest is below 10%. Until now, investors who held more than a 1% interest in a project were barred from investing in other groups bidding for the same project.

The change will allow existing investors to bid on more projects, but won't solve the broader problem of many foreign investors remaining weighed down by the global financial crisis, says Supratim Sarkar, senior vice president and group head at SBI Capital Markets Ltd., the investment-banking subsidiary of the government-controlled State Bank of India.

"The European and U.S. investors have to first clean up their own books before they can invest here," Mr. Sarkar said.