Transport Minister Nitin Gadkari has set ambitious targets for FY17 of awarding 25,000 km stretch of road projects as against 10,000 km in FY16. Speaking to Bloomberg TV India, MEP Infra Vice-Chairman and Managing Director Jayant Mhaiskar says the targets are steep but reforms have paved the way for easier funding and faster growth in the sector. The good news is that infra and PE funds have started acquiring assets, which frees up cash flows and helps developers redeploy the capital in the sector, he said.

Transport Minister Nitin Gadkari has set an ambitious target of awarding 25,000 km stretch of road projects during FY17 as against 10,000 km in FY16. How realistic are these targets?

If you look at the trajectory of the project being awarded over the last two years particularly on the engineering, procurement and construction (EPC) and or hybrid annuity, I think there has definitely been some road to recovery. If you see the FY15 numbers, the awards were close to 8,000 km and the construction was of approximately 4,400 km.

As against FY15, in fiscal FY16, the total awardshave been in excess of 10,000 km and construction of close to 6,000 km of roads have been completed.

The targets set for this year are definitely steep. I think the initiative taken by the government would stimulate that kind of a growth. I think after two quarters, we will have a real picture.

Talking about ground realities, you have received the letter of award (LoA) under the hybrid annuity model and the first one to do so under the EPC and the BOT mode. What we have seen in the past is the problem of completion and financing. Do you think most of those hurdles are out of the way?

There are two aspects to this. One is the availability of funds. Lenders are now comfortable after the reforms which the Ministry has taken up in the last two years. Under the hybrid annuity model, the actual contribution by the lenders is been 75-80 per cent (1:3 or 1:4 ratio).

The actual participation by the lenders is restricted. The other risk for the lender in this whole BOT concept is on the toll traffic or the expected growth in toll revenue, which has been mitigated by the government under the hybrid annuity model.

As far as completion of projects is concerned, the major hurdle envisaged a few years back was predominantly land acquisition.

As far as the current projects are concerned under the EPC contract, most of the land is already acquired. Under the hybrid annuity model, up to 80 per cent of the land has to be made available prior to commercial operation date. So the developerdoes not severely face a challenge. Developers have faced speed bumps when they try to monetise the assets as they are unable to sell their equity stake. Has that problem eased?

I would say yes for two reasons. First, developers who had ventured into the BOT space are slowly going back to EPC model because most of them are predominantly EPC players.

Now, with the availability of large EPC contracts, it also definitely helps them in terms of the cash flows what they need on a day-to-day basis. As far as monetising of the assets are concerned, yes, we have seen in the last year a couple of big assets moving into the infra funds.

The infra and PE funds have been really active in the last two years and they have been acquiring the assets, which definitely helps growth in terms of freeing of cash flows and the capital for redeployment in the sector.

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