Why infra firms in Andhra are staring at a bleak future

Bhogapuram international airport, Ramayapatnam and Bandar ports, the Muktyala lift irrigation scheme and a bridge across the Krishna river are some of the projects likely to be hit.

The new Andhra Pradesh government’s move to cancel projects awarded before April and where work is yet to start is likely to impact orders worth Rs 30,000 crore.

South-based infrastructure developer NCC, GMR Infrastructure and engineering conglomerate Larsen & Toubro (L&T) are among those with exposure to projects in the state.

“This is not the first time a change in state government has led to cancellation of orders. As far as projects where no work has started are cancelled, it will not impact much,” says Shubham Jain, senior vice-president at ratings agency ICRA.

“The value of these projects we have estimated is around Rs 30,000 crore and they include projects related to water supply, irrigation and others,” said L V Subrahmanyam, chief secretary to the state government.

He did not share details of the projects in question.

According to a PTI report, Bhogapuram international airport, Ramayapatnam and Bandar ports, the Muktyala lift irrigation scheme and a bridge across the Krishna river are some of the projects likely to be hit.

L&T is implementing the 3.2 km, six-lane  bridge project, a much-reported one, for Rs 1,387 crore.

It was awarded in June 2018. The company’s water and effluent treatment and transportation infra business also won orders worth Rs 1,281 crore in the state in December.

In March this year, L&T’s power transmission and distribution business also won orders in the range of Rs 1,000 to 2,500 crore from  state agencies.

An e-mail query to L&T remained unanswered.

The JSW group has a memorandum of understanding for building a jetty and a slurry pipeline at the Ramayapatnam port, at a cost of Rs 4,500 crore.

An e-mail query to the group remained unanswered.

GMR is the highest bidder for the Bhogapuram international airport project.

“Post the successful bidding, the Letter of Award to the highest bidder is under process and we are awaiting the same.

"We have not received any information from the government on cancellation of the bidding,” said a spokesperson for GMR.

“Bhogapuram is a public-private partnership project, on a build operate and transfer (BOT) model. We understand that the present AP government is cancelling only engineering, procurement and construction (EPC) projects, not BOT projects.”

NCC pegs the hit on the order book at  Rs 6,100 crore, for mostly water-related projects.

“We have not received any official information,” said Y D Murthy, its executive vice-president, finance.

At the start of this financial year, the company had an order book of Rs 41,000 crore.

Murthy says he does not expect the cancellation to have any impact on the company’s financial performance.

NCC is also executing a significant number of affordable housing projects in the state where investments have been made.

“These projects are under the Pradhan Mantri Awaas Yojana and run on central government funding,” he clarified.

Most are hopeful that the move would be a temporary blip for the sector.

“Generally, the infrastructure sector has seen continuity across political changes and I think that will be the case in Andhra Pradesh, too.

"Some process rework will cause delays. It is important that the rule of law is adhered to, to ensure contractor and investor confidence is not eroded,” said Manish Agarwal, leader for capital projects and infrastructure at PwC India.

Photograph: Reuters