Large players will continue to opt for BOT model as it provides reasonable return over long gestation period, says Sudhir R Hoshing, CEO (Roads), Reliance Infrastructure, in an interview with Sumantra Das.Which are the areas that you feel NHAI should focus for better road infrastructure?The National Highways Authority of India (NHAI) has come a long way in the manner in which its roads are managed. From bringing transparency in bidding process through on-line bidding to taking steps to expedite approval and clearance process, NHAI has made a huge progress. In fact, there has been a jump in the average monthly awarding of projects post implementation of BK Chaturvedi Committee (BKC) recommendation by NHAI.But still there are some areas where NHAI needs to focus on improvement. The need of the hour considering the ambitious targets set by NHAI is to set up special land acquisition units to speed up the land acquisition process. If required, this could be decentralised by setting regional offices for this purpose. Also the number of layers for approvals could be reduced so that the process for approvals like toll notification could be expedited.With the filling of chairman’s position, we have high hopes going forward. We can already see results. The authority has appointed about 70 technical managers, whose recruitment had been scuttled for over three years. State PWDs are still way behind NHAI and they are required to catch up in terms of management of highways and policy framework.There can be a consolidation in the road sector as small contractors may be put out of business and sector may consolidate into a small number of large road operating companies. This may reduce competition and in the long term, could lead to an increase in costs. Please comment.In an open market theory, the sector which has good profitability attracts companies from related industry. This results in increased competition and reduced profitability, ultimately leading to consolidation. Later, again new entrants are attracted due to high profitability and the cycle continues.This is a natural economic phenomenon and Indian roads sector is witnessing the same. Large number of new players entering the sector resulted in aggressive bidding. These small EPC players have the capability to construct road but due to equity crunch, they would like to exit projects immediately post construction.We believe consolidation won’t result into increase in cost. This is because unlike fast moving consumer goods (FMCG) sector, where sales volumes are calculated on a daily basis, infrastructure projects have long contract period. Thus, the authority can wait for over a year if it does not get bid at right price.In long term, we can see big companies focusing on operation and maintenance (O&M). As a number of projects are getting operational, many companies will emerge as O&M specialist. So, if there is low profitability in new BOT project, players could shift focus on O&M contracts or secondary market transactions in projects where traffic is already established.Do you think the approved new EPC model is likely to attract more mid and small size regional players in the road sector? Will it be able to bring overall changes in the sector?There are many regional players who have expertise in EPC but they shy away from BOT projects as they are not in a position to block their investment for 20 to 30 years and face traffic risk. These regional players will look for EPC opportunity in the areas where they already have their resources mobilised. Thus, they could benefit from EPC projects of size less than Rs 500 crore, where they could earn good returns due to regional presence.Will large players opt for EPC model or BOT model?Large players will continue to opt for BOT model as BOT projects provide reasonable return over long gestation period. BOT projects also require risk management expertise and large players can manage it well. Large players have the capacity to undertake financing of projects that require huge investment for longer tenure. They are also in a position to undertake traffic risk and risk of delay. Due to these risks, returns expectation from BOT projects is more than EPC. Thus for higher returns, large players will prefer BOT projects.Can leveraged balance sheet, high competition, shrinking IRR, difficult macro economic conditions ensure that road players bid prudently for new road projects?It is true that two projects got terminated due to non-achievement of financial closure and there are currently about 40 projects which are facing difficulty in achieving financial closure. But we believe the major reason in not being able to achieve financial closure is not the leveraged balance sheet but the aggressive price at which these projects were won. Banks have become more stringent in assessing revenue projections and closely monitor availability of land for construction.After many players having burnt their fingers, we can see prudency has returned in bidding and aggression has cooled down. There are many recent instances of NHAI projects not attracting even a single bidder.Is the industry keen on adopting newer technology?Road developers are resorting to newer technologies in terms of materials like Carboncor, foam bitumen and machinery like advanced pavers, Geo Grid membranes etc. For instance, Foamed Bitumen Recycling involves mixing of foamed bitumen with either a new or existing pavement to produce a high quality, durable and flexible pavement. Nowadays, fly ash is being used in concrete and embankments which is environment-friendly.Some of the newer technologies are not acceptable to consultants monitoring execution works on behalf of the authority. Thus, resistance in the use of newer technologies has hampered evolution of the same. For instance, we still don’t use recycled aggregate material in India. Developed countries including China, have a practice of using recycled material to build roads and not quarrying for fresh material.How are international players coping with material availability, sustainability, etc?In roads sector, work is predominantly being done by Indian companies except in complex projects like tunnels where Australian, Malaysian or Korean contractors are showing interest. Thus, though there appears to be a lot of foreign players interested in the sector, many of these players are collaborating with local businesses/small players purely to qualify for bidding.Hence, there may not really be an actual knowledge transfer. Foreign players may not be keen to execute projects on their own as on-ground implementation challenges are difficult to surmount.What are the issues that road developers facing today? According to you, what policy measures the government should take?For me, the biggest problem is after-sales service. Once the toll project is assigned to concessionaire, authority forgets its role. There is no pain felt in case of non-compliance at toll, delayed land acquisition etc.It may not be deliberate but as an organisation, NHAI doesn’t have enough capable people at ground level to support concessionaire. So, in public-private partnership (PPP), the third ‘P’ of partnership is missing badly.Land acquisition is an important concern for the sector. There is a need to expedite the process to enable the concessionaire to complete the project in time without cost overrun.There are instances of projects where even after three years the entire land has not been made available. Then, there was an attractive port-based project in Maharashtra that was put up for bidding. The project witnessed a lot of interest among the players but post-qualification, the project went for re-qualification due to change of scope. Though we understand that government authorities work with many constraints, such events make investment into the sector difficult and uncertain.Another fact is that authorities get project reports done prior to bidding out the project. Often the reliability of such detailed project reports (DPRs) is questionable. The estimates of traffic and scope of work prior to bidding and once project is taken over can change and cause difficulty in project execution/project financing.Are you (RInfra) looking at distressed road assets?We were in no hurry to take up projects at unviable price and hence we kept away from aggression. We have a good portfolio of 11 projects and would not want to dilute our returns. We would rather conserve balance sheet strength for larger projects where bidding is likely to be less aggressive.In secondary market, we are looking at new proposals every day. Some of these are those projects that we have looked at earlier when NHAI had invited bids and we know they are not viable. So we will wait and watch for the right valuation.