AJR Infra & Tolling Ltd Management Discussions.

The infrastructure sector is highly responsible for propelling Indias overall development, and is a major focus point for initiating policies that ensure the time-bound creation of world class infrastructure in the country.

Indian Economic Overview

Indias GDP for FY2019 stood at 7%. The Index of Industrial Production (IIP) grew by 3.6% in FY2019 and was majorly driven by growth in the sectors of Infrastructure/Construction goods, which grew by 7.5%. Furthermore, the inflation has remained in control. The Wholesale Price Index (WPI) and Consumer Price Index (CPI) based inflation was at 3.18% and 3.41% respectively in FY2019. The Reserve Bank of India (RBI) announced multiple rate cuts to ease the liquidity tightening. As per the first Monetary Policy Committee for FY2020, held on 4th April, 2019, the repo rate was cut by 25 basis points to 6%.

The Indian economy grew steadily amidst significant reforms announced in FY2019. The Re-capitalisation of Public Sector Banks (PSB), amendments to the Goods and Service Tax (GST), clean-up of NonPerforming Loans (NPA) through National Company Law Tribunal (NCLT), and the Insolvency and Bankruptcy Code (IBC) played a pivotal role in strengthening the economy, the effects of which will be seen in the next few years. Amidst the economic reforms, there was also development in infrastructure and an increased thrust on financial inclusion.

With its growth accelerating, India has retained its position as the third largest start-up base in the world with over 4,750 technology start-ups. Its labour force is anticipated to touch 160-170 million by 2020, helped by the rate of population growth, increased labour force participation, and higher education enrolment, among other factors. (ASSOCHAM and Thought Arbitrage Research Institute).

Indias foreign exchange reserves were US$ 405.64 billion as of March 2019, according to data from the RBI. The Parliaments interim Union Budget for 2020 announced in February 2019 focused on supporting farmers, the economically less privileged population, workers in unorganised sectors, and salaried employees; while continuing to support the Indian Governments initiatives to better the Countrys physical and social infrastructure. 1

The Union Budget announced on 5th July, 2019 focuses on reducing red tape, making best use of technology, building social infrastructure, digital India, pollution free India, make in India, job creation in Micro, Small and Medium Enterprises (MSMEs) and investing heavily into infrastructure. 2

Indian Infrastructure Sector

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling Indias overall development and is a major focus point of the Government for initiating policies that aim to achieve the time-bound creation of world class infrastructure in the country. The infrastructure sector includes power, bridges, dams, roads and urban infrastructure development. In the year 2018, India ranked 44th out of 167 countries in World Banks Logistics Performance Index (LPI) 2018.

India has an investment requirement of ^50 trillion into the infrastructure sector by 2022 in order to encourage sustainable development in the country. The economy is witnessing significant interest from international investors in the infrastructure space. 3


1 https://www.ibef.org/economy/indian-economy-overview

2 https://www.ibef.org/economy/union-budget-2019-20

3 https://www.ibef.org/industry/infrastructure-sector-india.aspx

Key Issues in the Infrastructure Industry

Planning Oriented Issues

1. Inability to get land acquisition and environmental clearances

2. Lack of coordination between Government agencies

3. Inappropriate structuring of projects with no demarcation of risks between Government and private sector

4. Absence of proper dispute resolution mechanism between private players and Government agencies

5. Developing a technically sound and well-equipped regulator

Finance-related Issues

1. Time and cost over-runs

2. Burden on developers, due to execution delay

3. Cautious approach by banks in lending to infrastructure

4. Difficulties in fund raising with restricted exposure of banks to infrastructure

5. NPA issues with banks dues, delayed implementation and non-settlement of legitimate dues in time.

6. Developing finance mechanisms to suit sectors needs

Other Issues

1. Need for improved transparency

2. Reduction in regulatory uncertainties and delays

3. Creating a mechanism for single window clearance for approvals

4. Strict ensuring of enforcement of contracts in a time bound manner

5. Need to relook risk profiles of projects and a better share of private players

6. Providing sufficient safeguards for private players from extraneous circumstances

7. Debt burden of infrastructure developers, as a consequence of execution delays and irrational bidding

Sector Overview


In this sector, the governments policy to increase private sector participation has proved to be a positive step for the infrastructure industry, with a large number of private players entering into the market through the Public- Private Partnership (PPP) model. Along with planning to expand the national highway network to over 200,000 km, the Indian Government has launched the Bharatmala Pariyojana, which aims to build 66,100 km of economic corridors, border and coastal roads, and expressways. It is envisaged that the programme will provide 4-lane connectivity to 550 districts, increase the vehicular speed by 20-25%, and reduce supply chain costs by 5-6%. The first phase of the programme will bring in US$ 82 billion investments into the sector by 2022, for the development of 34,800 km of highways. 4

Hydro Power

Hydro power projects are crucial to stabilise the Indias power grid, as the country looks to add 175 GW of renewable capacity. However, given the issues regarding resettlement of the affected population and infrastructure development, many projects have faced delays, leading to a decreasing share of hydro power in the countrys energy mix. At present, India has an installed power-generation capacity of 357,875 MW. 5

To create more incentive for the completion of these projects, the government declared that large hydro power projects would have renewable energy status in March 2019. The government has also cleared the path for the controversial, large-scale Dibang hydropower project in Arunachal Pradesh. This project is estimated to cost approximately US$ 4 billion, and is expected to be highest dam in India. The government has also introduced a bill on dam safety, which aims to regulate more than 5,600 existing dams in India. 6

Thermal Power

Thermal power accounts for 62% of total electricity generated in India. Coal-based plants account for the bulk of thermal power capacities, followed by gas-based units. Indias need for importing huge volumes of coal, due to the fact that much of the coal produced is of a relatively inferior grade. This poses as a dilemma forcoal-fired thermal plants to either choose between using domestic sub-quality coal that leads to lower energy generation, or import a sizeable tonnage of coal at higher prices to mix and improve the overall output. As thermal plants are the mainstay of power generation in India, there is a need to raise efficiencies and energy output, while simultaneously bringing down harmful emissions within acceptable limits. To do so, it is imperative to accelerate a modernisation program for these thermal power plants as an expansion in industrial activity, increasing market penetration and higher per-capita usage are expected to bolster the demand for electricity going forward.


Approximately 95% of Indias trading by volume and 70% by value is carried out through maritime transport, according to the Ministry of Shipping.

India maritime transport infrastructure consists of 12 major ports, and 205 notified minor and intermediate ports. Under the National Perspective Plan for Sagarmala, six new mega ports are expected to be developed in the country. The Indian ports and shipping industry plays a vital role in sustaining growth in the countrys trade and commerce. India is the sixteenth largest maritime country in the world, with a coastline of around 7,517 km.

The Indian Government plays an important role in supporting the ports sector. It has allowed Foreign Direct Investment (FDI) of up to 100 % under the automatic route for port and harbour construction and maintenance projects. It has also facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports.

In FY2019, the cargo traffic increased by 2.9% YoY to 699.05 Million Tonnes (MT) against 679.36 MT in the previous financial year.

The Maritime Agenda 2010-20 has a 2020 target of 3,130 MT of port capacity. Ministry of Shipping has set a target capacity of over 3,130 MMT by 2020, which is expected to be driven by participation from the private sector. Non-major ports are expected to generate over 50% of this capacity. 7

Company Overview

Operational Projects

Rajahmundry Godavari Bridge Limited (RGBL)

RGBL is the SPV incorporated for design, construction, finance, operation and maintenance of a 4.15 kms long four-lane major bridge across river Godavari along with 1034 kms of total approach roads on either side of the bridge, which connects Kovvur and Rajahmundry in the State of Andhra Pradesh on BOT basis (the Project). The concession period for the project is 25 years, including a construction period of three years. RGBL commenced operations from November 1, 2015, which is the Provisional Commercial Operations Date (PCOD).

The responsibilities for tolling (Tolling Services) and maintenance (Maintenance Services) of the Project shall remain with the

Company. The Tolling and Maintenance Services have commenced from the PCOD and will continue until the expiry of the Concession period.

Special repairs of the RGBL project corridor have been carried out for the convenience of road users. 100% illumination on the RGBL project corridor is completed. On March 27, 2018 the Independent Engineer has made a recommendation to the Andhra Pradesh Road Development Corporation ("APRDC") to issue the final completion certificate for the RGBL Project.

On 9th July, 2018, RGBL had served a notice to APRDC communicating intent of termination of the Concession Agreement on account of several breaches of the said Concession Agreement by APRDC. The said Concession Agreement contemplated necessary safeguards and protections to the

Lenders by way of Termination Payments for credit mitigation. Upon service of Termination Notice in terms of the said Concession Agreement, Termination Payments to the extent of aggregate Rs. 1,123.37 Crores had become due and payable by APRDC within 15 days of the Termination Notice.

On the same day, Union Bank of India, one of the Lenders for the RGBL project had initiated and served Corporate Insolvency Resolution Process against the RGBL before the Honble National Company Law Tribunal, Mumbai Bench ("NCLT"). RGBL had requested Union Bank of India to reconsider moving the proceedings before NCLT and explore better options in the interest of the Project, Lenders and all Stakeholders.

On 31st October, 2018, Canara Bank, Lead Bank of the Consortium of Lenders to RGBL, had invoked pledge of10,40,19,039 equity shares of Rs. 10/- each constituting 51% of the paid up equity capital of RGBL held by the Company in RGBL, through Canara Bank Securities Limited ("Security T rustee"). Thereby, RGBL ceased to be a subsidiary as the shareholding of the Company in RGBL had reduced from 75.28% to 24.28%.

In this regard, RGBL had written to the Lead Bank / Security Trustee for assigning a value to the invoked pledged shares. In response to the same, the Lead Bank had informed the Company that the invoked pledged shares of RGBL were held by the Security Trustee as collateral and the Lenders had not appropriated the pledged shares against outstanding dues nor had the pledged shares been sold to any third party for realising the outstanding dues. Therefore, the beneficial ownership of the pledged shares vested with the Company only.

Accordingly, the beneficial shareholding of the Company in RGBL stood at 75.28% and RGBL continued to be a subsidiary of the Company.

Financial Performance of RGBL is as under:

Particulars FYE - March 2019 FYE - March 2018
Total Revenue 6,128.66 6,179.36
EBIDTA 4,278.51 4,375.46
Profit after Tax (12,619.99) (7,907.63)
Equity Share Capital 20,395.89 20,395.89
Reserves and Surplus (23,819.56) (11,201.85)

Vizag Seaport Private Limited (VSPL)

VSPL is the SPV formed by the Company to develop, construct, operate and manage two multipurpose berths in the northern arm of the inner harbour at Visakhapatnam Port on a Build, Operate and T ransfer (BOT) basis. Vizag Seaport Private Limited is the only BOT operator for handling multi bulk cargos in Indias largest major port at Visakhapatnam. VSPL has developed the berths and terminal as a fully mechanised handling system, incorporating state-of- the-art technologies capable of handling cargo up to 9 MTPA.

The commercial operations commenced in July 2004 and VSPL has handled 7.1 Million tons of cargo during April 2018 to March 2019. VSPL has assessed an Annual Cargo potential of 8.00 Million Tons to be achieved in the ensuing years. Further, to cater to the requirement of handling higher volume, VSPL has augmented its crane capacity from existing four cranes to six cranes by deploying two higher capacity Leibherr Harbour Mobile Crane, LHM 550. VSPL has implemented digital issue of challans for movement of cargo by Dumpers for both inside and outside the terminal by developing in-house software. This system is followed from 1.1.2019 and accordingly system of issuing manual challan by engaging contract workers is dispensed with. This system has been working smoothly and helping in reduction of turnaround time of cargo evacuation. VSPL had been given allotment letter for additional land of 1.84 acres just adjacent to the VSPL

Terminal based on e-auction and the said area has been occupied for use from June, 2018 onwards.

The concession period is 30 years, including the construction period. The project has been capitalised at Rs. 34,869.77 Lakhs.

With the completion of dredged depth to -16.10 meters in the Inner Harbour Area, VSPL is now equipped to handle fully laden Panamax Vessels arriving within a draft of 14.5 Meters. This will benefit the Trade by freight savings and also the Company by enhanced productivity and Cargo volume. This will also improve the EBIDTA and profitability of the VSPL project thereby benefiting all the stakeholders of VSPL.

Financial Performance of VSPL is as under:

Particulars FYE - March 2019 FYE - March 2018
Total Revenue 18,66632 17,636.28
EBIDTA 5,712.10 5,789.37
Profit after Tax 1,382.45 844.21
Equity Share Capital 8,719.13 8,719.13
Reserves and Surplus 2,675.64 1,300.52

Pravara Renewable Energy Limited (PREL)

PREL has set up 30 MW cogeneration power project on Built, Own, Operate and Transfer (BOOT) basis with Padmashri Dr. Vitthalrao Vikhe Patil Sahakari Karkhana Limited ("Karkhana") in Pravara Nagar, Tal. Rahata, Dist. Ahmednagar in Maharashtra for the concession period of 25 years. The Karkhana is a cooperative sugar factory registered under the provisions of the Maharashtra Co-operative Societies Act, 1960. The Project had commenced operations on 6th November 2015 and successfully operated over the four crushing seasons. During the Financial Year, PREL has exported 75.57 million units to Grid and 28.80 million units to Karkhana and generated total revenue of Rs. 63.18 Crores from operations. The total capitalisation of the project is Rs. 274 Crores as on 31st March, 2019.

PREL completed the testing of coal as additional fuel and the initial reports are encouraging for sustained operations with coal as supplementary fuel, in addition to the bagasse supplied by sugar factory. Your Company expects to operate the plant at an optimum level with sustainable fuel mix.

On 30th October 2018, PREL signed an operational arrangement by way of supplementary agreement with Karkhana for one year period with an option to extend it by mutual consent for improving the performance of the co-gen power plant and better arrangement of bagasse / fuel. The said arrangement is a win-win option for PREL and Karkhana to realise optimal operational efficiencies.

The Karkhana has agreed to ensure a minimum guaranteed payment of Rs. 48 Crores under the above arrangement, net of all operation & maintenance expenses.

The salient features of the arrangement are:

a. Arrangement for operation and maintenance of 30 MW Co-Generation plant by Karkhana for an initial period of 12 months starting from

1st October, 2018 , wherein Karkhana will oversee the operation & maintenance of the plant;

b. Renewal of the arrangement at mutually agreeable terms after 12 months;

c. No change in existing manpower. They will continue to operate as they have been operating so far;

d. Karkhana to arrange and oversee all activities relating to fuel supply, O & M, day to day administration, etc.;

e. Commercial consideration (guaranteed by Karkhana) will be Rs. 48 Crores for the initial 12 months; terms to be reviewed and modified in the event of renewal arrangement;

f. Approval of consortium lenders would be required to be obtained prior to commencement of arrangement;

g. Additional fund infusion of Rs. 10 Crores would be required to bring back the loan account back to "Standard" status with the Bank (currently NPA) and also for clearance of outstanding liabilities and annual maintenance expenses before handing over the plant to Karkhana.

Financial Performance of PREL is as under:

Particulars FYE - March 2019 FYE - March 2018
Total Revenue 6,318.36 5,838.12
EBIDTA 2,734.94 2,505.41
Profit after Tax 4,461.77 (2,821.98)
Equity Share Capital 4,792.00 4,792.00
Reserves and Surplus (5,765.78) (10,228.40)

Patna Highway Projects Limited (PHPL)

PHPL is the SPV incorporated by the Company for design, construction, finance and maintenance of a 63.17 kms long four-lane dual carriageway on NH 77. This includes new bypass of 16.87 kms connecting NH-28 in the State of Bihar on Build, Operate and Transfer (Annuity) basis. The Company has an equity stake of 100% in PHPL. The Concession period is 15 years, including a construction period of 30 months. PHPL will receive an annuity payment of Rs. 9,460 Lakhs from NHAI, semiannually, in the entire operations period. The total project cost is estimated to be Rs. 146,639 Lakhs.

PHPL project has been delayed on account of unavailability of right of way over certain portions of the Project highway. Provisional

Commercial Operation date was obtained on 1st September 2016 for the Project stretch from Km. 1.000 to Km. 41.500 excluding stretch from Km. 9.400 to Km 10.600. PHPL has received 4 annuity payments since PCOD amounting Rs. 378.40 Crores.

Financial Performance of PHPL is as under:

Particulars FYE - March 2019 FYE - March 2018
Total Revenue 13,922.89 16,357.21
EBIDTA 8,752.24 9,353.71
Profit after Tax (1,008.99) (15.10)
Equity Share Capital 5,000.00 5,000.00
Reserves and Surplus 17,512.32 18,520.16

Projects Under Construction

Sidhi Singrauli Road Project Limited (SSRPL)

SSRPL is the SPV incorporated for design, construction, finance and maintenance of a 102.6 kms long four-lane dual carriageway on NH-75E, which includes the construction of new bypasses of Kauchwahi, Behri, Karthua, Bargawa and Gorbi and realignment of certain stretches. The Project is located in Madhya Pradesh and is to be developed on BOT (Toll) basis. The Concession period is 30 years, including the construction period of 2 years. SSRPL will be entitled to collect toll in the entire operation period in lieu of its investment for development of the Project. The total project cost is estimated at Rs. 1,14,972 Lakhs. The construction activities on the project started in September 2013. The Project had achieved about 78.21% completion as on 31st March 2019.

The total capitalisation for the Project was done at Rs. 97,114.01 Lakhs as on 31st March, 2019.

The entire debt for the Project has been tied up and financing documents have been executed for the same. The Project is in its last phase of construction work to achieve PCOD. The extension of time has already been granted by MPRDC due to delay on their part. The achievement of PCOD is being attempted by June 2020. SSRPL is also working on getting the Change of Scope approved by MPRDC, which will translate to additional works aggregating to approximately Rs. 84 Crores.

The MPRDC has issued "Cure Period Notice" to which your company has strongly objected. During Joint Meeting with Ministry of Road Transport and Highways the Ministry has suggested to submit the proposal for revival of the project, which is under preparation.

SSRPL will be entitled to collect tolls in the entire operation period in lieu of its investment for the development of the Project.

Financial Performance of SSRPL is as under:

Particulars FYE - March 2019 FYE - March 2018
Total Revenue 2,870.45 14,293.51
EBIDTA (17.02) (4.25)
Profit after Tax (43.68) (27.83)
Equity Share Capital 17,041.00 17,041.00
Reserves and Surplus 7,204.13 7,426.17

Indira Container Terminal Private Limited (ICTPL)

ICTPL and The Board of Trustees of the Port of Mumbai (MbPT) entered into a License Agreement dated 3rd December 2007 for the construction of offshore berths and development of Offshore Container Terminal (OCT) on Build, Operate and Transfer (BOT) basis at Mumbai Harbour and the operations of Ballard Pier Station Container Terminal (BPS).

During the Financial Year, ICTPL has been allowed by MbPT to use the terminals for RORO (Roll-On- Roll-Off) as an alternative utilisation mode. During the Financial Year, ICTPL has handled 116 RORO Vessels, 2 steel vessels, 1 passenger vessel, 2,03,683 units and 22,359 MT steel and earned revenue of Rs. 89.10 Crores. The revenue share payable by ICTPL to MbPT is 55% of gross revenue for the year.

Progress in construction of the Project by ICTPL was delayed due to non-fulfillment of certain conditions by the MbPT. This had resulted in the Company incurring losses and default in repayment of debt obligation. The matter is under active discussions with the MbPT for resolving the outstanding issues and the Project is being re-organised with change in Cargo Mix (i.e. all Clean cargo including containers).

Pursuant to detailed negotiation with MbPT on the Concession Agreement for the OCT, the parties have finally agreed in principle to enter into a joint supplementary agreement between the Board of Trustees of MbPT, ICTPL and the Lenders. The draft supplementary agreement is subject to clearance from the Ministry of Shipping.

The proposal for re-bid and the draft supplementary agreement provides for a mix of cargo of containers, steel and RORO. As per terms of the re-bid, ICTPL has a Right of First Refusal (ROFR) to match the winning bid and is hopeful that it will successfully match the bid and win the concession and continue to operate the facility. The Company holds 74% of the total equity shares of ICTPL.

The following major developments took place in the ICTPL project:

(i) Canara Bank exercised their right to substitute ICTPL under the License Agreement (LA) and have failed to get any lead through market discovery process.

(ii) There was no development in the Dispute Notice dated 5th October 2018 issued by ICTPL to MbPT for the Licensors Event of Default and call upon the Licensor to refer the disputes for amicable settlement under the LA.

(iii) ICTPL is in the process of moving the High Court under Section 9 of the Arbitration and Conciliation Act against Termination Notice dated 5th October 2018 on account of Licensors Event of Default under the LA.

(iv) ICTPL had submitted a One-Time Settlement (OTS) proposal for Rs. 477 Crores to the consortium of Lenders, with payment of Rs. 177 Crores on approval of the proposal by the Lenders and balance Rs. 300 Crores to be paid to the Lenders over a period of 2 years from date of approval of the Lenders.

The proposal is under consideration of the lenders.

Financial Performance of ICTPL is as under:

Particulars FYE - March 2019 FYE - March 2018
Total Revenue 4,027.22 4,458.78
EBIDTA 3,136.57 3,750.00
Profit after Tax (10,309.21) (8,649.39)
Equity Share Capital 10,156.60 10,156.60
Reserves and Surplus (23,574.97) (13,268.85)

SHPVL has received all clearances and approvals including environmental clearances from the Ministry of Environment and Forest (MoEF).

Sikkim Hydro Power Ventures Limited (SHPVL)

SHPVL is the SPV incorporated for developing Rangit II Hydroelectric Power Project in Sikkim on BOOT basis. SHPVL involves the development of a 66 MW run- of-the-river Hydroelectric Power Project on Rimbi River, a tributary of River Rangit. The Concession period for the Project is 35 years from the Commercial Operations Date (COD), which was expired in December-2015. The SHPVL project execution has got delayed due to various issues beyond the control of SHPVL for which it has requested the Government of Sikkim for extension of time to achieve COD. The financial closure for the SHPVL

Project was achieved in January 2014 for the cost of SHPVL project is estimated to be Rs. 49,644 Lakhs.

The Project has received all clearances and approvals including environmental clearances from the Ministry of Environment and Forest ("MoEF"). Resettlement and Rehabilitation of the affected persons has been completed, except for those whose additional land was acquired by the Government of Sikkim later on. All major contracts for the Project have been awarded and the construction of various project components is underway. All the initial infrastructure works are completed including river diversion works damaged in flash flood and rains

are restored to required service conditions. Excavation of 65.5m deep Surge Shaft is completed, 624m Head Race Tunnel (HRT), 267m of Pressure Shaft (PS) is also completed and further excavation of HRT, PS and Dam is in progress.

Power Purchase Agreement (PPA) is yet to be signed for the Project due to which the construction activity of the Project is slowed down. SHPVL is exploring ways to sign PPA first and then to go for the draw down. SHPVL has offered to sale the entire power generated from the Project to Haryana State through Haryana Power Purchase Centre on long term basis. Once the above is achieved the construction activity at the project site will speed up.

Projects Under Development

Youngthang Power Ventures Limited (YPVL)

The Project involves the development of a 261 MW run- of-the-river hydro-electric power project on the River Spiti in Himachal Pradesh on a Build, Own, Operate and T ransfer (BOOT) basis at an estimated cost of Rs. 2500 Crores. The concession period of the Project is 40 years, post commencement of commercial operations.

The Company has not been able to proceed with the studies to prepare the Detailed Project Report (DPR) due to opposition from local farmers to the Project on environmental grounds. The Company has sought the State Government of Himachal Pradeshs (GoHP) intervention in the matter to take necessary actions, including seeking of necessary consents from the gram panchayat so as to enable YPVL to take up site investigation work and preparation of DPR. YPVL is in discussions with the GoHP for early resolution of the project issues. In the event there is no resolution of the open issues, your Company may consider taking appropriate steps in the matter.

Your company had invoked arbitration on 19th February 2018 and nominated an arbitrator on 16th March 2018 against the GoHP to protect its interest in YPVL. GoHP on 4th September 2018 has intimated that they are in the process of appointment of arbitrator and will intimate shortly.

Tidong Hydro Power Limited (THPL)

THPL, a Special Purpose Vehicle, has signed an agreement with the Government of Himachal Pradesh (GoHP) for developing a 60 MW Tidong - II hydroelectric project in Himachal Pradesh.

The pre-feasibility report for the project has been prepared and submitted to the GoHP, which has since been approved. GeoTechnical Studies, Detailed Project Report (DPR) and Environmental Impact Assessment Studies by the Company are under progress. The preparation of DPR is delayed due to local villagers dispute, inadequate access to site and road blockages, unfavourable weather conditions due to high altitude and issues beyond the control of THPL. THPL has sought resolutions to the issues pending with GoHP for expediting the DPR preparation for implementation of the project.

Cochin Bridge Infrastructure Company Limited (CBICL)

CBICL is an SPV promoted by the Company, which constructed the New Mattancherry Bridge at Cochin in Kerala on a Build, Operate and Transfer (Toll) basis. The 480-metre long bridge along with the 200-metre approach road on both ends connects Fort Kochi to Willingdon Island in Cochin Port Trust area. It was operational for 14 years from October 1999 to April 2014. The total capitalisation of the Project was done at Rs. 879.45 Lakhs.

The original concession period of CBICL was valid till 27th April, 2014, which was extended by the Government of Kerala (GOK) by six years till 27th April, 2020 by its Government Order dated 24th January 2005. The extension happened because CBICL has not revised the toll rates based on WPI as per the terms of the Concession and other compliance deficiencies on the part of GOK with reference to the Concession Agreement. However, instead of entering into a supplementary agreement to amend the original concession agreement, as agreed, GOK choose to unilaterally cancel its Government Order dated 24th January 2005 by passing the Government Order dated 26th December 2008. CBICL had referred the issue to arbitration and the Arbitral Tribunal had passed orders permitting CBICL to collect the toll fees till further notice. However, the Greater Cochin Development Authority (GCDA) has on 27th April 2014 (on the last day of the original concession period), without compensating CBICL and in disregard of the Arbitral Tribunal orders, chose to unilaterally seal the toll booths of CBICL at the Mattancherry Bridge at Kochi.

The GoK showed inclination / willingness to settle the matter through mutual negotiations. Hence, CBICL has put the arbitration proceedings on hold pending settlement discussions with the GoK. Further, CBICL has approached Honble High Court of Kerala for seeking directions to the GoK to conclude its decision on settlement discussions expeditiously. The Honble High Court of Kerala was pleased to direct the GoK to decide the matter within a period of 3 (three) months, which period was further extended till 23rd June 2017.

On the directions of Honble High Court of Kerala, the GoK decided to pay about Rs. 16.23 Crores to CBICL, however, the same is yet to be received due to some representation from local resident. Therefore, CBICL has recently moved Interim application before the Honble High Court of Kerala and has filed fresh writ in the matter before the Honble High Court of Kerala for necessary legal relief.

Duburi - Chandikhole

The Company, in consortium with GECPL as the lead member of the consortium, has made successful bid and received the Letter of Award dated 31st January, 2018 and entered in to Engineering Procurement and Construction Agreement dated 3rd January, 2019 from the National Highways Authority of India for "Rehabilitation and Up gradation of existing 2-lane to 4-lane standards from Duburi to Chandikhole Section of NH 200 (New NH 53) from km. 388.376 to km 428.074 in the State of Odisha under NHDP Phase - III on EPC Mode (Pkg- III)".


Under the Concession Agreements for various SPVs with the Clients / Authorities, substantial amount due to the Company/SPV is locked because the Clients / Authorities have not honored contractual stipulations on their part. The Company/SPV has lodged claims against the Clients / Authorities and taken necessary steps for recovery of the same, which are at different stages of litigation / arbitration. The Company expects to realise a sizeable amount from such claims over a period of time.

Your Company has retained rights and have secured necessary Power of Attorneys (PoA) for the past dues and claims in the SPVs, which have been divested and transferred to Brookfield. As such, amounts realised from past dues and claims of those SPVs will accrue to the Company. Further, upon resolution of certain contractual obligations on few of the delayed projects, release of resources stalled, thereof will bring back the Company into mainstream.

Risk Management

Your company is in the business of infrastructure development and it undertakes projects in multiple infrastructure segments. The nature of the business is complex and your Company is exposed to multiple sector specific and generic risks. PPP projects, which your company undertakes are capital intensive and have gestation periods ranging between 3 to 5 years; coupled with longer ownership periods of 15 to 35 years. Given the nature of the segments in which the Company operates, be it in the Road sector, Power sector, Ports or Urban development, it is critical to have a robust, effective and agile Risk Management Framework to ensure that your Companys operational objectives are met and continues to deliver sustainable business performance.

Over the years, several initiatives have been taken by your Company to strengthen its risk management process. An enterprise-wide comprehensive risk management policy including risk appetite, tolerance and risk limits for more effective, informed and measurable risk management has been developed and it continues to evolve. Your Company consciously engages with third party Engineering, Procurement & Construction (EPC) contractors apart from its parent company as a part of its risk diversification process.

Your Company has an established process to study the risk profiles of potential vendors and contractors and an internal vendor risk rating mechanism is in place. This is to ensure smooth construction of projects and to avoid risks due to any third party dependencies. The review mechanism of all the projects, which your Company undertakes at multiple stages from construction to implementation, is also being streamlined and strengthened.

Your Company understands the Risk environment encompassing its business and has an enterprise risk management framework in place for identification, assessment, mitigation and monitoring of various risks. These risks are classified broadly into three major categories, which are given below with some illustrations to describe the risks.

(I) Operational Risks:

Risks arising out of inefficiencies and / or internal failures in regular operations like:

1. Project Opportunity Risk through erroneous omission and inadequate or inappropriate assessment of a project opportunity available for development.

2. Bidding Risk on account of inadequate or erroneous assumptions made while arriving at the Financial Bid Variable.

3. Financing Risk on account of not achieving a financial closure or achieving a financial closure at a cost higher than assumptions.

4. Ownership and Maintenance Risk on account of several risks faced during the operations and maintenance phase of a project.

Over the years, several initiatives have been taken by your Company to strengthen its risk management process.

Mitigation Efforts

Careful selection and thorough evaluation of the Projects minimise the chances of getting into ‘Non-Bankable - Non-Prof itable projects. Your Company follows a robust ‘Two Tier approach of Project Feasibility (Technical Review) and Project Financial Viability (Financial Review).

Further, the Company follows a risk specific bid / project risk assessment framework to identify key risks associated with various opportunities and projects along with their mitigation planning and continuous monitoring.

Your Company has laid down standard operating procedures at sectoral, functional and departmental levels to ensure business process productivity, responsibility and accountability at various levels. The standard operating procedures are further being strengthened and supported by adequate checks and balances including risk based internal audit and document management systems on an integrated basis. This has helped in establishing a culture of proactive risk management, which is imbibed at all levels of the organisation with required support systems in place.

Your Company is constantly strengthening its internal checks and controls to identify and reduce / mitigate operational risks. It is also enhancing its system of reviews and reporting to ensure that risks are spotted early, and steps are taken to control losses, if any.

Being an infrastructure developer, cashflow management and treasury management are two areas towards which your Company has the highest level of focus from a seamless business continuity perspective. Considering this, risk review and reporting also focuses on cashflow and treasury-based risks on projects, sectors and at a company level through an integrated risk assessment technique.

(II) External Risks:

Risks arising out of changes in the external environment like:

1. Regulatory Risk on account of changes in the Regulatory Framework

2. Interest Risk on account of volatility experienced in the Interest Rates in Capital Markets on the outstanding project debts

3. Competition Risk on account of strategies applied by existing and new entrants in the infrastructure development business

4. Political Risk on account of lack of stable governance and frequent changes to the Development Plans and projects with a corresponding change in the Government.

5. Natural Calamities (Act of God), Civil Disturbance and others.

Mitigation Efforts

Your Company proactively identifies each significant ‘change and attempts to adapt to it with foresight. Your Company has a keen understanding of the regulatory environment enveloping its business. It continues to build strategies not only to sustain, but thrive owing to its ‘Early Warning Systems, and meticulous processes and Business Intelligence (BI) initiatives. Your Company understands its competition and keeps an update of its contemporaries to stay a notch above them. Your Company has a robust and focused strategy for client, partner, vendor and contract management to avoid various possible external risks. Though your Company cannot avoid a natural calamity, it is adequately geared up with appropriate insurance covers and its Disaster Management and Recovery Plans to minimise losses and restore normalcy within a short time.

(III) Strategic Risks:

Risks arising out of strategic decisions taken by the Company like:

1. Market Risk (Sector, Geography) inadequate assessment of a sector, geography.

2. Secondary Acquisition Risk on account of inappropriate acquisitions made in alignment with the Growth Plans of the Company.

3. Ventures and Alliances (Partnering) Risk on account of inappropriate selection of a joint ventures, offshore agents and others.

4. Capital risk on account of improper allocation or utilisation of capital.

Mitigation Efforts

Before attempting a secondary acquisition or entering into a new geographical market, infrastructure sector, your Company mandates a thorough research and analysis. These result in an in depth understanding of the business potential and the prevailing socio-political, regulatory and economic set up. These go through several rigorous layers of discussions, reviews and sensitivity analysis before decisions are taken for implementation.

The Risk Management Team reviews systems, processes and projects on a regular basis and provides an independent view to the management. Further, the Audit Committee provides separate internal audit reports on processes and SPVs to the Management. The Internal Audit function looks at each and every process within the organisation from two perspectives: one, from a Risk Based Internal Audit approach (RBIA) and secondly, from a transactional control adequacy approach. Thus, the Board, Management and SPVs are regularly updated on key risks and mitigation measures.

All decision making within the organisation, irrespective of the level of importance and significance, involves the explicit consideration of risks and the application of appropriate risk management techniques and tools. Further, Policies are regularly approved by the Board of Directors / Committees of the Board form the governing framework for each type of risk. The business activities are undertaken within this policy framework.

The Management is in constant pursuit of evolving the Risk Management framework.

In this regard, your Company is dedicated to review and strengthen its bid risk management framework, business continuity planning and disaster recovery planning framework, enterprise risk policy and other policies on an ongoing basis. Your company plans to strengthen the culture of risk awareness among its employees through Risk Newsletters, regular updates on risks, case studies and training programs. Your Company believes that these measures will prepare it to take on the challenges to be confronted at the ‘Next Level of Growth approved from time to time by the Board of Directors / Committees of the Board form the governing framework for each type of risk. The business activities are undertaken within this policy framework.

The Management is in constant pursuit of evolving the Risk Management framework.

In this regard, your Company is dedicated to review and strengthen its bid risk management framework, business continuity planning and disaster recovery planning framework, enterprise risk policy and other policies on an ongoing basis. Your Company plans to strengthen the culture of risk awareness among its employees through Risk Newsletters, regular updates on risks, case studies and training programs. Your Company believes that these measures will prepare your Company to take on the challenges to be confronted at the ‘Next Level of Growth.

Internal Control Systems

The Companys internal control system is commensurate to the nature and size of its business.

It is adequate to safeguard and protect from losses, unauthorised use or disposition of its assets. Internal Financial Controls, wherever applicable and as required by the relevant statutes and laws, be it at the SPV levels or otherwise, are already in place and the same is reviewed by the Audit Committee of the Board at regular intervals. All transactions are properly authorised, recorded and reported to the management. The Company is following all the Accounting Standards for proper maintenance of its books of accounts and reporting of financial statements. Your company has engaged external audit firms to conduct periodic audit of various areas of operations from time to time based on the annual audit plans, which are duly reviewed by the Management and the Audit Committee of the Board.

Safety Measures

Safety is a matter of continuous evaluation and utmost priority at GIPL. Assurance and management of safety is essentially aimed towards protecting our operating staff, general public and the environment. Our HR strives to provide a safe working environment not only to our corporate staff, but also the workers at each project site. We ensure that safety is maintained across all the stages of project development - design, construction, commissioning and operations & maintenance.

Cautionary Statement

Statements in this Management Discussion and Analysis may deem to be ‘forward looking statements within the meaning applicable securities laws and regulations.

As ‘forward looking statements are based on certain assumptions and expectations of future events over which the Company exercises no control, the Company cannot guarantee their accuracy, nor can it warrant that the same will be realised by the Company. Actual results could differ materially from those expressed or implied. Significant factors that could make a difference to the Companys operations including domestic and international economic conditions affecting demand, supply and price conditions, changes in government regulations, tax regimes and other statutes.