For the highways sector, 2011 could be defined as a year in which the National Highways Authority of India (NHAI) is all set to award 5,000 km projects, apart from implementation of some processes that increased transparency in the sector. But, this was also a year when many private developers cried hoarse over what they considered was turning out to be a “highly competitive sector” with the number of financial bidders touching 20-25 for some projects.

In terms of project awards, 2011 saw continuity of the momentum built in fiscal 2010-11, when 5,083 km of highway development projects were awarded.

PROCESS SIMPLIFICATION

In one of the key moves that increased transparency, the National Highways Authority of India (NHAI) implemented a process - the annual technical pre-qualification scheme - that had been a longstanding demand of bidders.

Many a legal dispute has been fought on companies getting disqualified for certain projects, while getting qualified for others. The perception was that this process was used by many in power to use discretion to regulate competition.

In fact, when the NHAI invited firms to apply for annual pre-qualification, a whopping 114 applicants queued up.

Under this process, each interested company or group of companies could be evaluated and awarded qualifying points for a year. Based on the qualifying points, the companies were free to submit financial bids for various projects. Prior to the implementation of this process in July, due diligence for technical qualification for bidders had to be carried out for each project. So, for each project, the bidders were required to submit documents for technical qualifications based on which NHAI had to do the calculations and verification.

BROADBASING SCHEME

Buoyed by the success of this scheme, NHAI is now implementing the same scheme for operations-maintenance and transfer (OMT) projects, for which 80 applicants have registered. Additionally, it has also moved to e-tendering for the financial bidding, which NHAI officials say, has also contributed to increasing transparency.

“When players are unaware of the level of competition, they tend to submit the best bid. For instance, there were times when a bidder would walk in with two sets of financial bid documents and would decide which document to submit based on the number of players,” Mr J.N. Singh, Member-Finance, NHAI explained.

INVESTOR CONCERNS

However, 2011 was also the year when the highways sector heated up and many bidders saw an extremely high level of competition. “Companies are going berserk while bidding. For some projects, where we participated in bidding, the internal rate of return is as low as one per cent,” says Mr Gurjeet Singh Johar, Chairman, C&C Constructions, which has an order book of Rs 2,630 crore in the roads and highways sector.

The CEO of another company in the highways bidding space, declining to be identified, said, “Different firms bid for different reasons. Many are playing to the galleries (stock markets, PE players). Some have equipment that they don't want to remain idle. So, an aggressive bid helps.” “Hyper-competition is resulting in more aggressive bids,” stated a recent IIFL sector report. And for some industry watchers — such as Mr Bhaskar Subramanian, Associate Director, Government Reforms and Infrastructure Development, PwC, – the year had “no defining moment per se”.

However, 2011 also saw early signs of highway users strongly demanding better quality of service for the tolls they paid – examples being projects in Kerala and Delhi. The other parameter which demands strong attention of many arms of Government is the road safety aspect as the country continues to be one of the worst performers in terms of road accidents. According to World Road Statistics 2010, the highest number of fatalities in road accidents in the world in 2008 was reported by India (1,19,860).

>mamuni@thehindu.co.in

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