Praveen Sood, Group CFO, Hindustan Construction Company Ltd, was in conversation with Shriyal Sethumadhavan, Sr Assistant Editor. Sood speaks on the stalled infrastructure projects in India.
Sood avers, ¨First, we need to start behaving like a contractor. Aggressively bidding to bag a contract, putting its own money to complete the contract as client don¨t pay on time, this needs to come to an end. The Government must follow the contract, and everything including land as per the contract should be provided. Also, whenever debt is due, pursue it hard contractually and legally.¨
On the other hand, Sood maintains that the construction industry does not require working capital as long as it behaves like contractors. ¨Contractors do not put money into the project but work around the client´s money,¨ he reasons. ¨On bagging a contract, we would get at least 5 per cent to 10 per cent advance money by giving guarantees. All payments are received normally on a monthly basis to us. So, if one works in a proper manner, working capital is not required.¨
However Sood says, ¨As long as a project is happening in time, an interest of 10-12 per cent can be serviced. But when the project gets stalled, 10 per cent becomes a big deal.¨ He suggests interest rates should come down by a straight 2 per cent. ¨In big economies like China, the US and Europe, funding is made available to infrastructure projects at a rate of not more than 2 per cent and that too for more than 15 to 20 years. In India, we still apply commercial rate, commercial norms, etc, and get funding at 10-12 per cent for not more than 10 to 12 years.¨
¨In take off funding, after five years, you approach a new banker to take over,¨ explains Sood. ¨You also have the 5/25 scheme, according to which the loan for an infrastructure project can be refinanced and can be extended for typically 20-25 years.¨ Sood weighs in here, saying, ¨Any advisory body will not serve the purpose unless it is given complete authority.¨