Raising funds to pay contractors

By Mahesh Vijapurkar

MUMBAI, APRIL 19.If large outstandings pile up for work done on irrigation projects and funds are scarce, what does one do to pay up the contractors?

The Maharashtra Government has found a way out : ask the contractors to help its Maharashtra Krishna Valley Irrigation Development Corporation to raise funds through bonds in private placement, and then stake a claim to 70 per cent of the funds thus raised. The residual 30 per cent is retained by the KVIDC for administrative expenses.

This, knowledgeable sources say, is ``quite innovative'' but add that ``it is also quite scandalous.'' The Government has in fact worked out a clearly laid down guideline on using this as a means of raising resources and paying off contractors who, during the BJP-Shiv Sena regime, had even stopped all work protesting non- payment or much-delayed payments.

Apart from the funds provided through the State budget as contribution to KVIDC's equity and the commitment to provide for the interest payments, the work of this special purpose vehicle is carried out with funds raised through publicly subscribed bonds. Four years ago when it started out, the interest rate was 17 per cent per annum; it is now whittled down to between 13% - 13.5 %, depending on the tenure.

As of March 31, 2001, the outstanding liabilities to contractors, was a whopping Rs. 11,500 cr. Wincing under delayed payments and the need to ``oblige'' before bills are paid,the contractors have had no option but to fall in line if they have to retrieve as much as they can.

Quite a few have raised loans from banks, which, as one banker said, are ``against the receivables'' from the KVIDC and in many cases, ``this liability has become overdue and if not cleared before March 31, 2001'' becomes the banks' non-performing asset; this NPA is what bankers, these days, abhor. Some banks have written to the KVIDC to in fact ``release the funds direct to their banks'' into the credit of the contractors to wipe out the NPA.

KVIDC, designed specially to carry out works in Krishna valley to beat the deadline of the Bachchawat Award to impound Krishna waters, failing which a claim over it would be forfeited, has raised Rs. 4,973 cr by way of bonds, both publicly raised and privately placed and of late, as an official said, ``exposure limits imposed on banks has been a roadblock'' apart from general decline in enthusiasm for the instruments now rated A.

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