MasterofInfrastructurePlanning

2011

ConstraintstoFinancialClosureinRoadProjectsIssuesandStrategies
Student:RahulR.Agrawal Guide:GautamP.Patel Infrastructuredevelopmentplaysacrucialroleintheeconomicdevelopmentofanycountry, especially for a developing country like India, which averaged 89% growth over the last 45 years.Tolendfurtherpushtothiseconomicgrowthtrajectory,theEleventhFiveYearPlanhas chalked up an outlay of US $500bn for the Infrastructure Sector of which the Road Sector accountsforalmost1415%.Suchasubstantialoutlaycoupledwithrenewedstressbeinglaid on the country's Road infrastructure development. Moreover, the government intends to expedite development of the country's Road infrastructure via the publicprivate partnership (PPP) route. There are various factors that necessitate increase in the total length of the country's NH including increase in the number of vehicles plying on the roads, rapid urbanization,retailrevolution,etc. Financial closure is the process of completing all projectrelated financial transactions, finalizingaclosingtheprojectfinancialaccounts,disposingofprojectassetsandreleasingthe worksite. The government has set up an ambitious target of building 20 km of roads every day. But funding remains a key bottleneck. It is estimated that building 7000 km of roads every year would require a capital expenditure of Rs.420 billion. A larger proportion of road project is likelytobeawardedonPPPmodels. NHAI plans to award project aggregating 33000km during FY10FY12, a compound annual growth rate of 53% in the highway construction Industry. To achieve the government's ambitious target, Avendus estimates that the share of private sector investment in the road sectorwillbeincreasefrom5%inthe10thFiveYearplanto34%inthe11thFiveYearPlan,an increaseof29%points.Privateplayerswouldhavetoraiseadditionalequityfromthemarkets and would also require a much higher level of funding from Banks. Availability of domestic financeisperhapsthemostseriousconstraintonRoadInfrastructureFinancing.Domesticdebt financingislikelytoposeaspecialproblembecausewedonothavewelldevelopeddomestic debtmarketandlongtermdebtisespeciallyscarce.Closeto40%ofNHAIprojectsworthRs. 25000 cores have been affected due to delay in financial closure. Thus there is need to investigatethereasonsforsuchdelaythroughascientificstudy TheaimofthestudyistoidentifytheconstraintstofinancialclosureinPPPbasedroadprojects andtoformulatepossiblesolution.Theoverallobjectiveofthestudyistoidentifywhatare

MasterofInfrastructurePlanning

2011

factorswhichdirectlyorindirectlyaffectthefinancialviabilityofprojectsandwhatarethe problemswhichdevelopersfacedduringthefinancialclosure. Thespecificobjectivesofthestudywouldbe: ToreviewthevariousmethodsemployedtofinancethehighwayprojectsbasedonPPP withinthecountry. TostudydifferenttypesofrisksinvolvedinRoadProject. Toidentifyvariousconstraintsinfinancialclosure. Toformulatepossiblesolution.