India's infrastructure barons: Part 4

DS Constructions builds transportation infrastructure in Africa and the Middle East, and has recently been awarded some large build-operate-transfer projects in India. We talk to MS Narula, managing director.
What is the background of DS Constructions in infrastructure in India?
We are a pioneer in build-operate-transfer (BOT) projects in India. We were the first company to be awarded an expressway project on a negative grant, the Delhi-Gurgaon Expressway worth over $200 million and also the first to be awarded a BOT railway project, (Viramgam-Mahesana). Currently, we probably have the largest number of road projects on BOT tolling basis in the country.

What are the changes which have facilitated the entry of private sector players such as yourself into road projects?
The government has permitted foreign direct investment (FDI) up to 100% in the road sector, duty free import of high capacity and modern road construction equipment, higher concession period up to 30 years and provision of subsidy up to 40% of project cost to make projects viable. The government has demonstrated its interest in revamping the sector and providing a competitive business environment.

What are the pressing issues facing developers?
The most pressing issue affecting roads and highways projects are delays in land acquisition and the removal of utilities. This results in delays in execution and increases the cost of building a road network. The project developerÆs resources lie idle resulting in huge losses and more often than not, give a bad name to the developers even though land acquisition is not their responsibility. For projects that are time bound, this needs immediate attention. Ideally, the body awarding the project should procure 100% of the land before the project is commenced to facilitate developers delivering on time.

Secondly, obtaining clearances on model and design of certain roads and highways from multiple authorities often results in delays in implementation of projects. There should be single window clearance for all licenses and permissions.

On the financial front, since a large portion of construction machinery deployed in projects is imported, import duties levied on construction equipment are increasing costs. Exemptions are available to some projects funded by agencies such as the ADB and World Bank. Similar exemptions should be extended to other projects. The government also needs to work towards lowering the cost of interest on infrastructure projects to both reduce the cost of creating infrastructure but also to make more projects economically viable.

Some of the highways which have come up in the country are finding it difficult to recover costs. How are you ensuring your projects break even and generate returns?
Planning the construction is key to the success. We have a number of projects in the roads sector thus can ensure optimal utilization of machinery, equipment and manpower by deploying these across our projects. Despite an investment of over $25 million our cost of construction is one of the lowest in the country.

Timely/early completion of the projects is critical as that gives the concessionaire a longer toll collection period thus more revenue.

Lastly, the income collected from the investment made to build the road plays a significant role. For BOT projects, tolling is critical as it is the direct means by which the concessionaire recovers its investments. Automated tolling systems ensure that the investment is secure and prevent leakages. (as opposed to a manual system based on cashier collection where the investors and the authorities can never be sure how much revenue is actually being collected). We have installed sophisticated toll collection systems to accurately collect toll. The system is fully auditable and comprises multiple checks per transaction to ensure that the correct revenue is collected from the motorist and reliable MIS reports are readily available to management.

What are your plans in the airport sector?
The DSC-Munich Consortium along with GMR-Fraport and Reliance-Mexico was one of the three consortiums that were finally technically qualified for both the Delhi and the Mumbai Airports. However, in the financial bid we were not successful. Our consortium, under the name of æIndian Gateway AirportsÆ, will bid for further projects. We are the lead consortium member with an 80% stake while Munich Airport International will have a 20% stake.

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