New Delhi [India], May 28 : The government's decision to raise Additional Performance Security (APS) requirements for aggressively bid road projects is a constructive step, but it alone may not sufficiently address the irregularities in the responsible bidding, said CareEdge in a report.
The rating agency firm noted that the removal of the APS cap plugs a key loophole in concession agreements. CareEdge cautioned that tighter APS norms alone may not be sufficient to address intense competition in the sector.
"The increase in Additional Performance Security (APS) for aggressively bid projects is a constructive step towards promoting more responsible bidding. Removing the cap on the APS requirement addresses the existing loophole in concession terms. Nevertheless, CareEdge Ratings expects that stringent norms for APS on their own may not be sufficient to curb the intense competition in the road sector meaningfully," said Maulesh Desai, Director, CareEdge Ratings.
The report further adds that ample non-fund-based bank lines, backed by financially strong sponsors, and lower project awards are diluting APS's impact. The release of performance securities based on project progress instead of construction quality is also weakening deterrence, it added.
"Availability of substantial non-fund-based bank lines with moderate to strong sponsors amid lower project awarding activity, besides the release of performance security linked to project progress instead of quality of construction, are prominent factors negating the favourable impact of APS in curbing bidding aggression in NH-HAM projects," Desai added.
Earlier, the Ministry of Road Transport & Highways (MoRTH) tightened the bidding norms for central road projects by tightening the additional performance security (APS) norms, aimed at easing competitive pressure.
The report lauded the synchronisation of project approvals and appointed dates with land and statutory clearances as a strategic effort to reduce delays and cost overruns.
However, the report by the rating agency warned that the success of these reforms depends on timely coordination among stakeholders and strict on-ground implementation.
"The success of these measures will depend heavily on the timely and coordinated efforts of various stakeholders and effective enforcement of contractual terms on the ground," said Setu Gajjar, Assistant Director, CareEdge Ratings.
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