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* India relies heavily on roads to move domestic freight
* Govt to help fund road projects to attract developers -official
* Govt also taking steps to reduce red tape
By Matthias Williams and Swati Pandey
NEW DELHI/MUMBAI, June 18 (Reuters) - K. Ramchand, managingdirector at one of India's biggest road builders, is doingsomething unusual to help dispel the gloom pervading much of thecountry's infrastructure sector today: bidding for new projects.
His company, IL&FS Transportation Networks Ltd,signed a $300 million contract in April to build a six-lanehighway. The project will link an eastern industrial zoneafflicted by some of India's worst traffic snarls to miningdistricts such as Dhanbad, the nation's coal capital.
The IL&FS deal marks a sharp turnaround from last year wheninvestor interest in public works plummeted. To rekindleinvestment in new, modern roads that India badly needs, thegovernment has been rolling out a slew of policy measures,including a strategic shift in how projects are financed.
"Last year, I think, has been a typically bad year,"Ramchand said in an interview at a hotel in the business hub ofGurgaon outside New Delhi. "There is definitely an upswing,there is no doubt about it, because I think the mood is muchbetter."
The most significant policy change is that the governmenthas moved away from its much-vaunted but troubled public-privatepartnership (PPP) model to fund projects.
Under the PPP model, developers finance construction out oftheir own pocket, often in exchange for the right to charge tollfares.
The government will revert to a form of contract where itfunds part of the road building, taking on more of the risk ofthe project itself, said a top government official, speaking oncondition of anonymity.
To give some idea of the scale of the change, the governmentwill fund 70 percent of the 9,600 kilometres (5,965 miles) ofroad projects that it aims to award this fiscal year.
That is a sharp departure from the goal set earlier byIndia's Planning Commission to build 60 percent of roads inpublic-private partnership.
The changes have even drawn the attention of foreign privateequity players, with the likes of Macquarie Group Ltd looking to acquire completed projects.
CHOKED AND CONSTRICTED
India relies heavily on roads to move freight due to itsarchaic railway network and under-developed river canal system.But its roads are often constricted, pot-holed and choked withtraffic, slowing deliveries and hitting competitiveness.
"Road costs in India are higher by about 30 percent,"McKinsey said in a report, comparing them with costs in theUnited States. "This not only results in higher prices and lowercompetitiveness, but also hampers economic growth."
The government plans to pour $1 trillion into infrastructureover five years. But its efforts to attract private investmenthave stumbled, partly because of red tape and cautious bankers.
India awarded less than 2,000 kilometres worth of new roadcontruction contracts in the last fiscal year, against a targetof 9,500 kilometres.
To get investment in the sector moving again, the governmenthas tweaked its policy so that developers no longer have to waitfor clearance from forest authorities to start construction - ahassle that had stalled projects in the past.
Another boon is the central bank's move to reclassify loansto road builders as secured loans rather than unsecured loans,which would give more comfort to banks to lend to projects.
Il&FS is hoping to add $880 million of new orders thisfiscal year, Ramchand said.
Rival Lanco Infratech Ltd said in an interview inMay that it aims to sign one or two road projects this year. Itlast won a contract in 2010.
Another developer, KMC Constructions Ltd, which has a tie-upwith the private equity firm 3i Group PLC, is alsoscouting for projects to add to its $580 million order book.
"We're looking at the projects, definitely, because this isthe time to bid for the projects," said Shashank Shekhar, vicepresident for business development at KMC.
