Notwithstanding the present coronavirus lockdown, IRB Infrastructure Developers has bagged the Rs 8,262 crore Mumbai Pune Expressway project under the Toll-Operate-Transfer (TOT) model. The company last week paid the first tranche of Rs 6,500 crore as up front sub concession fee to Maharashtra State Road Development Corporation (MSRDC). In an exclusive interview with FPJ, CMD Virendra Mhaiskar explains company’s strategy.
What is single most important distinguishing feature of this project?
The road doesn’t have a competing road given the topography. It’s an expressway which caters the twin city concept and hence given the high percentage of passenger vehicle has the potential of very high traffic growth.
With this contract, the Toll contract for Mumbai-Pune Expressway will be with you for almost 30 years (as you started it in 2000). How have you managed to win the contract consecutively for a second time?
It was definitely not a walkover. The bid had attracted a lot of interest and many foreign funds had evinced interest alongside large Indian companies. However, for such large commitment one needs to have a sector focus and expertise which to my mind was an area where we certainly excel. That to my mind would have been the prime reason for success. Secondly, having followed strict financial discipline we had a strong balance sheet where we had the ability to raise the required financing for such large project commitment.
How do you justify your quote below reserve price?
The bid date was changed two-three times and with every postponement the concession period kept reducing as the end date for concession period remained same - April 30. Hence the potential collection also kept reducing. MSRDC did not reduce the upset price proportionately to my mind and hence the price offered looks very marginally lower than their estimate.
How do you compare this TOT concession as against TOT bundles put to bid in last three years in India?
A: This is the largest TOT concession in the country to date from a time value concept. The first TOT project awarded to Macquaire where they paid Rs 9,600 crore to NHAI was for a 30-year period whereas in this project MSRDC is getting Rs 8,262 crore for giving a 10-year concession period. The reason for the same is that this project has significantly higher revenue potential. Also this is a single asset whereas the other TOT was a bundle of 7 projects.
Post COVID-19 what is IRB strategy to expand?
With the total asset size of over Rs 45000 crore our strategy and focus continues to remain as a lead player in upcoming Build Operate Transfer (BOT) projects. With the COVID-19 increasing the fiscal constraints my guess is that going forward the Government would want to bring back private investment interest in road sector.
We see a big opportunity here. With a strong partner like GIC who have agreed to consider participating with us in all upcoming BOT projects on a 51:49 basis as a part of our private Infrastructure Investment Trust (InvIT) strategy we think we can look at a strong growth possible going forward.
The Hybrid Annuity Model (HAM) projects are unlikely to do well as the bank rate comes down rendering negative return on the same given the fact that NHAI pays the annuity linked with bank rate whereas lenders are unlikely to reduce interest rate proportionately for the HAM project developer. Hence we still believe BOT as the best bid form where we will continue to focus.
We may also experience a strong rise in the use of passenger vehicles given the concern around Covid-19 and public transport will take a beating. This is a time to carefully but confidently step forward and focus on growth opportunities.
