We have projects worth more than Rs. 5,500 crore under execution, says Neeraj Vijay, Director, Chetak Enterprises Ltd
International players are keen to have partnership with Indian companies to capitalize on the sector’s growth, says Neeraj Vijay, Director, Chetak Enterprises Ltd (CEL) in an interaction with EPC World
Chetak Enterprises has carved out niche in the Roads and Highways segment by completing various projects. Kindly retrace your successful journey.
We started as a small construction company two decades ago and until recently, we were primarily a PPP player. Pragmatic bidding and timely execution being our strength has made us successfully survive the regime of irrational bidding. During this phase, we preferred not to bid at unworkable prices. In fact we diversified and went international by securing projects in Africa during this period. We are currently doing a road project in Zambia and we were the first Indian company to enter Zambia. Further execution is our prime strength and this has ensured that none of our 18 BoT projects which we have completed had a time or cost over run. We never exposed ourselves beyond our capacities to execute, owned maximum in-house machines/equipments & have ensured our minimum dependence on outside contractors. So risks attributable to third party failure were mitigated. When government came out with HAM model, we understood that this model offers a vast scope for CEL since our strength is execution, which HAM necessitates. We bagged the first project awarded on HAM in the country and as of now we have 4 major HAM projects in our kitty and have completed the financial closure of all four. Recently we have started our EPC division too and have bagged one project on EPC mode.You can say that the sector has witnessed changes and we have tried not to stick to one philosophy but have changed gears as per the need of time. This is primarily the reason for our success.
The Government has set an ambitious target of constructing 40km of roads per day. Do you think we have this much expertise, technologies and skilled workforce to make this happen? How is CEL prepared for this initiative?
Target is ambitious & tough but not impossible. Country witnessed a slow pace of roads & highways for couple of years; reasons can be many. No point digging the history but after a lull period, systems and stakeholders take time to gear up & speed up the things. Country is no short of expertise, technologies or skilled workforce and it’s just that the synergies have to come and unite to work in one direction. In BOT/HAM model, Financial Institutes have to converge and become more liberal, as Financial Closure is the biggest challenge the model is facing. Government also has to address the apprehensions of Financial Institutes as they have burnt their fingers in many tolling projects in the past. In times to come, we will see an outburst in capacities of small and medium sized companies. Present times offer right opportunity for such companies to advance as a major player in construction sector. I’m confident that few more reforms that the sector will witness in the years to come shall ensure progress without any hassles in achieving the target which prima-facie looks tough today.
As far as CEL’s preparation is concerned, we have moved our operations to the commercial capital of the country, gone international. Consolidation of finances is on cards. We are very optimistic on HAM model and have already bagged four major projects costing more than Rs. 5000 crores. Once these projects are well on execution track, we will target few more projects on this model. Start of the EPC division by us is another testimony of our preparedness. We have tied up with international reputed engineering design agencies, developed a strong in-house engineering advisors team and have acquired best talent in the company.
How the various national schemes launched in the segment are helping the sector to grow? Which are the key projects that are drawing interest and investment across the country?
With various policy changes and reforms keeping in mind the interests of the stakeholders, government is attracting significant level of investor’s interest. With easing up the norms for FDI in the road sector, international players are keen to have partnership with Indian companies to capitalize on the sector’s growth. I’ve witnessed interests of international players eyeing JV with Indian companies who have a successful track record of execution. Many have contacted us as well. This is a very good sign, as confidence building is not happening only in the government but more importantly in Indian companies and their capabilities. Country is witnessing international investors acquiring stakes in completed projects, which is helping execution companies to unlock their equity and further focus on acquiring and executing more projects. The trend is setting thick wide and clear and sector is slowly differentiating and outlining clear roles for executors and investors in a way that it’s becoming win-win situation for everyone. Investors are eyeing consistent returns, executors are getting equity unlocked and government is getting more executing companies with funds in their kitty.
With a spate of reforms in the Roads & Highways sector, which of the models – EPC, BOT & HAM – would be the best choice and why?
Almost 55% of total projects awarded in last fiscal year are on HAM model. This percentage is going to rise further. HAM model entails lower sponsor contribution during construction period, viz, 40% construction support from the Authority and hence mitigates the funding risk to an extent for the lender. Traffic risk stands transferred to the Authority and pre-decided annuity payments ensures consistent repayment to lenders. Project cost stands freezed on day one. Furthermore, provision of mobilization advances at bank rates from Authority also provides some support to concessionaire during initial stages of construction. The only risk left is the timely execution and that is the reason, I always say that HAM is the best model for companies with a good track record of execution. Though there are many reforms needed in the HAM model, which I feel we will be witnessing in the years to come, still it has clearly emerged as the most preferred mode for the three stakeholders, Concessionaire, Lender and the Authority. However, the role of EPC mode cannot be ruled out as its best suited for companies, which doesn’t have the capacity to raise funds. Also it helps in the cash flow of the companies so more and more companies are going for a mix of HAM and EPC. Tolling model has witnessed too many risks getting transferred to Lenders/Concessionaire and is surely not the cup of tea today but EPC and HAM are the future with HAM being the first choice.
Do you believe the Hybrid Annuity Model (HAM) would be able to rejuvenate PPP in the sector?
Yes. As stated earlier, but the model needs few reforms. For instance, if a concessionaire is qualified for securing a project, he should not face big challenge from lenders at fund raising stage which results in a project delay. For this, agreement between government and lending banks is a solution, by revisiting and summarizing the qualifying criterion for awarding the Project; the similar way the Model Concession Agreement was drafted taking Institutions into confidence. HAM model needs to address the over designing issues of pavement on account of overloading and issues related to extension of time and payments thereof, because the model provides for no upside like toll model where higher traffic, increased toll rates and higher charges for overloaded vehicles was provided. Lenders apprehension of termination payments in case of termination prior to completion needs to be addressed as well. With these reforms, I’m confident that HAM will be able to rejuvenate PPP to a large extent.
What is CEL’s core strength? Tell us about your orderbook and major projects in hand.
CEL core strength is planning and execution with robust in-house engineering advisory team & in-house P&M. We have projects worth more than Rs. 5,500 crore under execution. Majorly, these are projects of NHAI/MORTH and include Dasna-Hapur, Delhi UP Border to Dasna, both part of Delhi Meerut expressway, Shimla by pass and three highway projects on NH17 and Nashik in the state of Maharashtra. Shimla By pass is the most prestigious green field highway project located in the midst of difficult hilly terrain. The scope of work includes almost all types of long span bridges like cable stayed bridge (third longest in the country), balanced cantilever bridges, simply supported bridges and has 3 Tunnels apart from a number of minor bridges/culverts etc. It’s going to be a landmark and iconic engineering project. Our ongoing project on Delhi-Meerut Expressway has a unique 6 lane fly over of 5.5 kms length. The type of construction envisaged is 1st of its kind in the country and quite innovative where pier cap and PSC I girder are integrated with each other and thus eliminating installation of bearings. We have established a huge pre cast yard for this project in a 16 acre plot adjacent to our alignment with 36 casting beds equipped with 2 Goliath cranes, Concrete batching plants along with all the required paraphernalia. The other highway projects on NH17 also involve major bridges, six lane elevated flyover (1.6 kms length), ROBs, etc.
Technology plays a big role in executing sustainable projects. What’s your equipment bank strength and what are the advanced technologies CEL planning to induct in the near future?
We believe in owing maximum machines and that too of the best international brands. Company owns fleet of equipments like batching plants, crusher plants, transit mixers, soil compactors, excavators, tower cranes, pavers, loaders, rollers, DGs, etc. In the near future we are going to acquire many form travellers, tower cranes, and other equipments from International market for Shimla project as the pier height of bridges in the project is ranging from 25 to 130 meters. Innovative and hybrid designs are being planned for complex structures and renowned international names are being brought on board as experts. Since discussions are on with various experts, it will be unprofessional on my part to name them at this juncture.
Are we using the most effective road designs for our country? What are they and how they are uniquely designed for India?
The roads which we are designing and techniques being adopted in our country are effective and suitable to Indian terrain and environment. But, I feel country must allow adoption of foreign codes for designs with suitable modifications, if needed, and such liberty should be extended to developers/contractors. This will bring in more economies as developers will prefer optimum design standards.
How can the players and the government address road-safety concerns? Do we have risk analysis and assessment of safety impacts mechanisms? What are such mechanisms we should be using?
Since the advent of Model Concession Agreement, safety is drawing prime attention of policy makers and rightfully so. There are two types of safety concerns - safety at construction site and safety of traffic and commuters. First can be imposed easily and is being followed at most of the sites. Second is a challenge as has two facets. On the designing front, today Authority is designing more safe roads and identifying blind spots. Lots of positives are happening in this direction. For commuters and traffic movement, though funds are being allocated, traffic signs are being put but things are either not getting percolated or are very slow. Improvement of driving Quality Programme is the need of the hour. I would like to suggest that, traffic rules/regulations and driving quality should be introduced as a mandatory subject in the curriculum of schools from the primary level. There is a need to inculcate awareness in people about traffic rules & regulations from their childhood. Country, especially, each family will learn traffic rules from our children, because rash driving will be pointed out by kids and that can bring an attitudinal change. Today hardly few believe in India, that first right to cross a road is enjoyed by a walker. Honking is something considered good in the system. Road signs are treated as cosmetics and lane driving is like a rocket science. I feel only funds, safety norms at construction sites, or traffic signs will not bring the attitudinal change as far as drivability and commuting is concerned.
What are the policies and regulatory changes required for the growth of Roads & Highways sector in India?
Today, once the Concession Agreement is signed, most of the things are left on the Concessionaire/Contractor to manage. There is no institutional mechanism for addressing day-to-day problems faced during execution or operation. Everywhere we have monitoring groups and committees but Assistance Committee or Facilitation Groups are non-existent. I’ve been propagating this idea to have a three tier assistance group for every project besides a regulatory body to resolve disputes. Three tier Infrastructure Assistance Group (IAG) should be structured at district/commissioner level, state level and at the central level. At each level there should be members from various departments and monthly meeting of the group should be mandatory. All the issues raised by concessionaire/contractor should be tabled in the meeting and any issue remaining unresolved for a pre-decided period of 30/60 days should get automatically escalated to the higher group. Functioning of this body will help address issues/problems faced by concessionaire during construction period and delays in project completion will get drastically reduced. Apart from this, we need to have similar structure for dispute resolution all across the country. Today few states have tribunals, which have no time limit to dispose off the cases. In other states cases are getting resolved under Arbitration and Reconciliation Act, which provides for timely disposal as per the 2015 amendment. Looking to the targets set for construction of highways and capacity building of companies which we are expecting to increase manifold in the years to come, it’s high time that country should have a dedicated Regulatory body to resolve all disputes for Roads and Highways.
@EPC World Media