A long wait ahead

A couple of weeks ago, a volunteer agency held a mock earthquake drill on the Gurgaon-NH8 expressway. It ended in under five minutes — the service lanes got choked as traffic was diverted there, the emergency machinery didn’t work and a hapless student who’d volunteered to be one of the “injured” was left stranded at the hospital. There are many bitter commuters who will tell you that such an outcome is not unusual when it comes to the Gurgaon expressway — gridlock is a regular occurrence and delays of a couple of hours commonplace. 

Certainly, the expressway seems to have been mired in controversy since it became operational on January 25, 2008. Within minutes of the toll booths opening up at 9 pm, there were kilometres-long traffic jams on both sides. Five years on, the jams still continue, although now there’s a flicker of hope that matters will improve. In January this year, the National Highway Authority of India (NHAI) gave the green signal to infrastructure finance company IDFC to acquire a 74% stake in the project. The concessionaire Delhi-Gurgaon Super Connectivity (DGSCL), which is owned by DSC, will transfer bulk of its stake to IDFC, which incidentally was the lead banker to the project. It’s an unusual move — banks rarely take over projects. But, then, the events leading up to this have been out of the ordinary as well.

Hidden truths

It started with the opening night and the ensuing traffic snarls. Reprimands from NHAI on traffic conditions became commonplace and now officials openly say the project was under-designed — some estimates say around 140,000 vehicles were crossing the booths daily right from the start, a number projected for 2013. Even as commuters grappled with delays and inefficient handling at the tollbooths, the concessionaire was facing troubles of its own. A year after tolling started, in 2009, it took two significant steps to ease its situation. One, it appealed to the Punjab and Haryana high court asking for local police assistance to ensure smooth tolling. Two, DGSCL asked NHAI permission for a refinancing plan since the actual spending on the project was ₹1,170 crore against the initial project cost of ₹555 crore. 

Initially, the developers had taken a ₹383 crore loan from a consortium of lenders led by Hudco. Under the refinance plan, DGSCL sought approval for raising ₹1,275 crore from a consortium led by State Bank of India. In July 2009, NHAI gave conditional acceptance. A few months later, when DGSCL furnished the draft financing documents, the authority asked for certain amendments. But the real drama unfolded two years later.

In June 2011, when DGSCL furnished escrow account details, it came to light that it had already taken a loan from IDFC in September 2010, even before it shared with NHAI the finance documents that showed SBI as lead banker. On its part, NHAI claims that DGSCL did take the SBI loan in July-August 2009, part of which was used to repay its earlier debtors. Thereafter, in September 2010, the concessionaire went to the IDFC-led consortium for a ₹1,600 crore loan to replace the SBI-led group. After repaying the SBI-led loan, about ₹327 crore was “diverted” to DGSCL’s parent, that is DSC.

This last bit of information came to light in court in January 2012, after NHAI issued a preliminary termination notice against DGSCL the previous month and the concessionaire and its lenders moved the Delhi high court against the decision. When the ₹1,600 crore figure came to light, NHAI issued a termination notice. But when the court asked the two sides to work out an amicable settlement, NHAI drafted an MoU whose conditions included that DGSCL bring down the debt to ₹1,200 crore and ensure that the funds given to DSC be returned to the new bankers.

As this story was unfolding, in September 2012, the Punjab and Haryana high court ordered DGSCL to stop collecting toll for 15 days until it could work out ways to decongest traffic. It was time to work out a new plan. 

Speedbreakers ahead

The new bankers obviously had plenty to lose if the project were terminated — IDFC alone had an exposure of ₹550 crore in DGSCL. In December 2012, DSC and IDFC agreed upon the stake transfer deal, which NHAI accepted in January. Under the current policy, the original promoters — DSC and Jaypee DGSCL, in this case — cannot exit a project during the concession period. Which is why both will collectively retain 26% in DGSCL, although they will no longer run the show. 

Many loose ends remain to be tied, before it’s known how the project will now be managed and by whom. “We are still to come to an understanding on the shareholders’ agreement,” says Rajiv Lall, vice-chairman and MD, IDFC. “If this agreement doesn’t work out to our liking, we are very happy to remain
as lenders.” 

By taking over the project, IDFC’s interest chanFges from rate of interest to return on equity. And, if the deal goes through, it has the option of bringing in another investor at a later stage by divesting stake. An executive close to the development says IDFC is in the best position to take over the project — not only is the asset already operational, the company also has a tie-up with Feedback Ventures for operating toll roads. “All it needs to do is collect toll and enforce the ground-level changes decided in the MoU.”

But the MoU also mentions returning the “diverted”  funds. Nobody’s too certain that will happen, although it would be contempt of court if the MoU is not followed. “NHAI is not going to wait forever for IDFC and the concessionaire to come to an understanding,” declares RP Singh, chairman of NHAI. “We have not closed the option of termination.”

On paper, the Delhi-Gurgaon expressway is a goldmine, given assured mounting traffic and inflation-indexed tolls. But there’s a lot at stake here for IDFC — not only does it have to ensure a smooth takeover, it then has to figure out a way to quickly resolve the traffic problems that plague the expressway. And that is easier said than done.