- Rohit Chandak, CFO, Uniquest Infra Ventures Pvt Ltd

Uniquest Infra Ventures Pvt Ltd (Uniquest) envisions long-term investment in viable infrastructure projects in India. Currently prequalified to bid for several road projects, the company is exploring more acquisition opportunities. Rohit Chandak, CFO, Uniquest Infra Ventures Pvt Ltd, shares the company´s regard for operational excellence, risk management and corporate governance along with suggestions to the government for a smooh process, in conversation with RAHUL KAMAT...

What according to you are the two biggest positive steps taken by the government to bring the road sector back on track?
As compared to other sectors in India, the Road and Highways Ministry, has taken far more positive steps in the last one year. Consider this: Earlier, around two-to-three years back, we have seen more road projects under the built, operate and transfer (BOT) mode, but due to the asset-base poor performance of the earlier BOT projects, the next round of road projects failed to attract developers.

Meanwhile, taking a cue from past government mistakes, and to up the confidence level, the present government has started rolling out projects on an engineering, procurement and construction (EPC) basis. Importantly, the contractors, which have shown lack of interests earlier, even in EPC projects, have now started bidding. So, this government has managed to change the negative atmosphere into a positive one.

In a quest to attract road developers, to start with, the ministry has made the right move by focusing on EPC, as they (government) have realised that there is no real appetite in the market, at present, for public-private partnership (PPP) and BOT toll projects. However, these steps are for a short-term.

On the BOT front, the ministry has been taking certain steps, which are right, given the tribulations that the industry is facing. Solutions, including 100 per cent exit route, one-time funding and one-time extension if the project gets delayed due to government authorities, are welcome steps, but this only solves a part of the problem. There is a lot more to be addressed.

Importantly, the present government is ready to experiment things, which are within the framework of the concession agreement, and without being called a renegotiation.

So, what´s your company´s perspective on the above?
From the company´s point of view, there is still a lot more we are expecting from the government. Mainly, because we are not in the EPC segment, that doesn´t help our business at all.

We are primarily foreign investors, who want to invest funds in the Indian road sector, but for that we need financially viable opportunities. Secondly, the present government needs to understand the asset-based issues of the developers. So, unless the government resolves portfolio (assets) concerns, it will be difficult for us to invest more in the road sector.

Meanwhile, the schemes that the government has announced, have capabilities to bring only short-term relief. For the long-term, it should focus on BOT mode, for which, they need to build the confidence of not only bigwigs in the sector but also mid-level players.

What solutions would you suggest to the government?
The government needs to distinguish between the serious and non-serious players. This is mainly due to two reasons: Firstly, genuine players like us have suffered higher project cost, operational losses and delays because of issues beyond our control, such as low traffic growth or delay in getting the right of way, which has increased the project cost and delayed it too. Secondly, there are a set of developers, indulged in crony capitalism, who need to be stopped from the bidding process. These developers, on the book, have shown inflated project costs, incorrect traffic numbers and have taken advantage of corporate debt restructuring.

The government, to avoid past mistakes, can come up with a project-to-project base solution, which can help overcome funding and land acquisition challenges.

Don´t you think project-to-project solutions, in the current circumstances, where fast-pace project execution is the need of the hour, will lengthen the overall procedure?
Initially, it may appear lengthy, but if the government resolves five such projects, and gradually standardises the process, it can be well replicated across the spectrum, as most projects are fighting their own battles with the same set of challenges.

Since the operational projects are bifurcated in three-to-four categories, the government agencies can assess the asset-base challenges, and then solve it accordingly, which can then be replicated in other assets too.

In the road sector, besides the developers and equity players, the onus should be on the government and the funding agencies too.

But, in this case, the government and banks have already burnt their hands. And you still want the government to share the burden?
Players like us, who are serious investors, demand fast-pace project solutions. As a developer, we are suffering due to government mistakes. To cite an example, we are developing a 120 km road project in Gujarat, and the irony is, we have constructed 100 km of stretch and awaiting the right of way (ROW) for just 20 km, in the middle of the project, for the last five years.

For this project, we have received a partial COD (commercial operation date) and are collecting partial toll, which is not helpful, as this 20 km falls in the middle of the project, which impacts traffic severely. We have already suffered 20 per cent cost escalation because of delays on the part of the government; we have invested Rs 1,000 crore in constructing 100 km. How are we going to recover our investments? To make the matters worse, there are massive toll violations and there is no support from the state administration at all. We have represented at various levels for help, but there is no support from the Gujarat Government. If this is the situation in a progressive state like Gujarat, we are afraid to think of doing business in any other state.

So, the government must take ownership of the project, considering its national importance and must help in making it viable.

Have you raised the flag regarding the same?
We recently met Arun Goyal, who heads the project monitoring group, and has raised our concerns about this grim situation that we are facing, which is about despite a developer having substantial funds to invest in the country, is not receiving any support. If this is the status of our assets, my investors will not have the courage to invest more in India.

Would you call the present initiatives of the road ministry better than the previous regime?
Certainly! The half decade in the previous government was discouraging, as no one in the government was even listening to us developers. From this perspective, a lot of improvement has happened on the ground. I compliment the present government in terms of its approach; at least the National Highways Authority of India (NHAI), which was mere a spectator in the previous regime, have started performing, and have now started solving developers´ issues. This has resulted in regular communication with the government.

However, the current approach of the government can resolve only 10 per cent of the overall problems. If the experts and leaders in this sector are refusing to bid for the toll road projects at all, considering their past experience, how can smaller players even think of bidding. There is something seriously wrong, which must be resolved.

But the project awarding pace has certainly increased. One bonanza the government has is because of declining crude oil prices, due to which the government has a substantial amount of funds that can be invested in infrastructure. And, the government has realised that the road sector perhaps, is the easiest one to fix while doling out EPC projects.

So, if banks are shying away from BOT toll projects, in this case, where is the opportunity?
Yes, to some extent, the opportunities are in the EPC cash contract projects. One should understand what is driving EPC projects in India these days. It´s not that all the recent projects awarded to EPC contractors can give huge profit margins, but the fact is that most EPC contractors in the country are on the verge of closing their business and sitting on serious cash crunch. That said, considering the banks have stopped giving loans and substantial amounts of receivables in the market, EPC projects have worked as a ray of hope for these contractors.

The advantage in EPC contracts is that the contractor receives a 10-15 per cent payment of the total project cost as a mobilasation advance. Therefore, at present, EPC seems to be a blessing in disguise for the road sector.

However, there has to be some cap on the amount of EPC projects on the floor per year, considering future investment in the road sector, which can come only through BOT projects. So, the government must think about revisiting PPP contracts for the benefit of the road sector, and have a more balanced risk sharing. Pushing all risks to private sector is not a PPP.

At present, the developers are not in a mood to take a 20-year risk for traffic projection; instead, are eying for annuity and hybrid mode. Earlier, the mindset of the developer was to eye for higher IRR on the basis of traffic projection; but now, we have to look at a model where our downside is protected.