L&T says not investing in BOT projects anymore

Larsen & Toubro (L&T), India’s largest engineering and construction firm said it will not be investing anymore on build, operate and transfer (BOT) projects citing delayed return on investment (ROI), lack of flexibility in concessionaire agreements, and legal disputes with government.

L&T said it will confine itself to less risky engineering, procurement and construction (EPC) contracts that do not require capital investments, unlike BOT projects.

“We are not investing anymore in BOT projects,” said SM Subrahmanyan, Chief Executive Officer and Managing Director of L&T, speaking to Moneycontrol on the sidelines of the company’s recent third quarter results.

“It’s a lot of money invested and returns are taking too long and then you are operating within the confines of concessionaire agreement, which has got clauses which are not positively reactive at times,” Subrahmanyan said.

Subrahmanyan also expressed concern over increasing difficulties faced by infrastructure developers due to rise in government litigation.

“In government system today to go settle something across the table is becoming near impossible. It goes through dispute adjudication board, arbitration, sometimes court cases. You can’t run a balance sheet of profit and loss account sitting in the courts,” Subrahmanyan said.

“If I have lost money, if I have won it (the litigation) I have to get the money back, I can’t keep fighting court cases to win the money back,” he said.

L&T’s own experience with BOT projects hasn’t been great.

The company’s BOT division called as Development Projects segment has assets in power, Hyderabad Metro, Kattupalli Port in Chennai and some road projects.

L&T’s single largest BOT project is the Rs 16,375 crore Hyderabad Metro Rail where it is investing its own money worth Rs 3,439 crore, in addition to debt funding of Rs 11,478 crore.

L&T will get Rs 1,458 as viability gap funding (VGF).

The project is running two years behind the schedule due to issues of getting right of way, and Telangana government’s proposal for certain alignment changes in middle of execution on grounds that metro may cause damage to heritage structures.

Telangana government later fell silent on the proposal and is now said to be on same page with L&T on executing the project.

Subrahmanyan said his company may knock on the doors of the Centre and state government to seek compensation for the two years delay.

On Kattupalli Port – one analyst who tracks port sector said on condition of anonymity that L&T was reluctant investor in the port to begin with, as its heart was always with the shipyard.

The port is part of a shipyard-cum-port complex that L&T Shipbuilding has constructed at Kattupalli with an investment of Rs.3,989 crore.

L&T divested its stake to Adani Ports and Special Economic Zone (APSEZ), India’s biggest port operator at the value of the asset and not for a premium.

“Kattupalli Port is Adani’s gain – more than L&T’s loss,” the analyst said.

L&T also in principle agreed to sell the residuary ownership of the port to APSEZ.

L&T journey hasn’t been any smooth even with power projects.

The company’s largest Rs 10,000 crore Nabha coal-fired power plant at Rajpura in Punjab with 1400 MW capacity has been embroiled in a lengthy litigation with Punjab government over the payment of coal washing and transportation charges from the latter.

L&T got a relief in Supreme Court with the apex court directing Punjab government to refund Rs 1100 crores, but the company said the state government is taking its own time to honor the Supreme Court order.

According to a report by credit rating firm CRISIL – India needs to spend at least Rs 50 lakh crore in next five years through the year 2022 to develop infrastructure. The country will see close to Rs 3,000 crore investment per day.

To be sure all that investment can’t be borne out by the government given its other priorities.

If companies like L&T with strong balance sheet and execution capabilities keep away from asset development – it doesn’t augur well for the Indian economy at time when the private investment is at lowest ebb.

CRISIL calls for “comprehensive retooling of public-private partnership frameworks” to ensure involvement of more private investments.moneycontrol