DIRECTORS.' REPORT The Shareholders. of Gammon Infrastructure Projects Limited Your Directors. have pleasure in submitting their fourteenth Annual Report together with the Audited Accounts of the Company, for the period 1st January, 2014 to 30th September, 2014 (the "Period"). This report has been prepared in accordance with the Company law prevailing prior to April 01, 2014. DIVIDEND The Board regrets its inability to recommend any dividend for the Period in view of the tight cash position of the Company. COMPANY'S BUSINESS ROADS SECTOR: Following the termination of the concession agreement for four laning of the Patna to Buxar stretch of National Highway 30 in the State of Bihar of Patna Buxar Highways Ltd. and unilateral sealing of the toll booths of Cochin Bridge Infrastructure Company Ltd. at the new Mattancherry Bridge at Kochi by the Greater Cochin Development Authority, the Company now has nine active road projects of which five are in operation. The active projects in the Road Sector are: (a) Toll based projects: (1) Concession for four laning and operating the Vadape - Gonde stretch of the National Highway 3 between Mumbai and Nashik in the State of Maharashtra. The Company's subsidiary, Mumbai Nasik Expressway Ltd. has completed construction of the project and has been operating the same since May, 2010; (2) Concession for constructing and operating a four lane bridge across the Godavari River together with its approach roads on either side, linking Rajahmundry to Kovvur in the State of Andhra Pradesh. The Company's subsidiary, Rajahmundry Godavari Bridge Ltd. is the concessionaire for the project. (3) Concession for six laning and operating the Vijayawada to Gundugolanu stretch of National Highway 5, including a four lane bypass to Vijayawada town, in the State of Andhra Pradesh. The Company's subsidiary, Vijayawada Gundugolanu Road Project Pvt. Ltd., is the concessionaire for the project. (4) Concession for four laning and operating the Sidhi to Singrauli section of the National Highway 75E in the State of Madhya Pradesh. The Company's subsidiary, Sidhi Singrauli Road Project Ltd., is the concessionaire for the project. (b) Annuity based projects: (1) Concession for four laning and operating the Rajahmundry - Dharmavaram stretch of National Highway 5 in the State of Andhra Pradesh. The Company's subsidiary, Rajahmundry Expressway Ltd., has completed construction of the project and has been operating the same since September, 2004. (2) Concession for four laning and operating the Dharmavaram to Tuni stretch of National Highway 5 in the State of Andhra Pradesh. The Company's subsidiary, Andhra Expressway Ltd., has completed construction of the project and has been operating the same since October, 2004. (3) Concession for constructing and operating a four lane bridge across the Kosi River on National Highway 57 in the State of Bihar. The Company's subsidiary, Kosi Bridge Infrastructure Company Ltd., has completed construction of the project and has been operating the same since February, 2012. (4) Concession for constructing and operating a four lane bypass to Gorakhpur Town on National Highway 28 in the State of Uttar Pradesh. The Company's subsidiary, Gorakhpur Infrastructure Company Ltd., has completed construction of the project and has been operating the same since 31st March, 2012. (5) Concession for four laning and operating the Patna to Muzafarpur stretch of the National Highway 77 including a bypass to the Muzafarpur town in the State of Bihar. The Company's subsidiary, Patna Highway Projects Ltd., is the concessionaire for the project. Developments in the Road Sector during the Period Patna Buxar Highways Ltd., the Company's subsidiary, applied to the National Highways Authority of India ("NHAI") for mutual termination of the concession agreement on account of NHAI's inability to provide right of way over a substantial portion of the project stretch. However, NHAI choose to terminate the concession unilaterally and forfeited the Company's bid security to the extent of 1% of the total project cost. The Company is taking legal recouRs.e to recover the losses suffered by it from NHAI. Cochin Bridge Infrastructure Company Ltd. ("CBICL"), the Company's subsidiary, which constructed the New Mattancherry Bridge connecting Fort Kochi with Willingdon Island in the Cochin Port Trust area in the State of Kerala was operating the same since September, 2001. However, the Greater Cochin Development Authority has on April 27, 2014 (on the last day of the original concession period), without compensating CBICL for freezing the toll rates and in disregard of the Arbitral Tribunal ordeRs., chosen to unilaterally seal the toll booths of CBICL at the Bridge. CBICL has put the arbitral proceedings on hold pending settlement talks with the Government of Kerala. The Sidhi Singrauli Road Projects Ltd. has achieved financial closure and upon attaining 'appointed date' has started construction activities. The project has achieved about 19% completion as of 1st January, 2015. However, the progress has slowed down due to delay in disbuRs.ement of debt from the lendeRs.. The Vijayawada Gundugolanu Road Project Pvt. Ltd. has started tolling operations on the project stretch with effect from 1st September, 2014. The revalidation of financial closure, required on account of delay in'appointed date', is under process. Rajahmundry Godavari Bridge Ltd., has not been able to complete the Godavari bridge project on account of litigation involving land required for the approach. The project is expected to be completed by 7th April, 2015, within the time extended by the state government authorities. Patna Highway Projects Ltd. has not been able to complete the entire project stretch due to non-availability of land. However, we have applied to NHAI for a provisional completion certificate based on the progress of work on land made available to us, which under active consideration of NHAI. PORTS SECTOR: The Company has two active projects in the Port Sector of which one is in operation: (1) Concession for constructing and operating two multipurpose berths in the inner harbor of the Visakhapatnam Port, capable of handling upto 9 MTPA. The Company's subsidiary, Vizag Seaport Pvt. Ltd., has completed construction of both the berths, of which one became operational in July, 2004 and the other in September, 2005. (2) Concession for constructing and operating two offshore container berths at the Mumbai harbor. The project is under construction by Indira Container Terminal Pvt. Ltd., the special purpose vehicle promoted by the Company for the project. Developments in the Port Sector during the Period The company is pleased to inform that the long awaited deepening of the inner harbor of Visakhapatnam Port Trust is expected to be achieved soon. The port trust has already completed dredging up to -12.5 m and the balance dredging up to -14 m is expected to be completed shortly. This will come as a significant booster to the VSPL's business since the fully loaded panamax size vessels can directly enter the inner harbor thereafter, without being partially discharged in the outer harbor. The terminal business is expected to turn around with a sizable increase in the profit margins. Development of the additional land of 30 acres in the EXIM park area is already on, upon completion of which the terminal capacity is expected to go up to 9 MMTPA. Indira Container Terminal Private Ltd. has been unable to complete the offshore container berth projects as the Mumbai Port Trust has not completed dredging of the berth front and its approach. The Port Trust has also not filled up and handed over the areas earmarked for stockyard purposes. Besides, the approval of Central Government for equipment supplieRs. is pending. The company and the port trust authorities are jointly exploring the possibility of gainfully putting to use the already constructed infrastructure pending the completion of the project. The Company's subsidiary, Mormugao Terminal Ltd., has instituted appropriate legal proceedings challenging the unilateral termination of the concession for providing mechanized handling facilities for handling coal at one of the berths in the Mormugao Port by the Mormugao Port Trust. ENERGY SECTOR: The Company has five projects in the energy sector of which one project is expected to become operational in February, 2015. (1) Concession for setting up and operating a 30 MW co-generation power project at Pravaranagar in Ahmednagar District of Maharashtra. The Company's subsidiary, Pravara Renewable Energy Ltd., is the concessionaire for the project. The project is set to be commissioned in February, 2015. (2) Concession for setting up and operating a 66 MW hydro-electric power project in West Sikkim on the river Rimbhi. The Company's subsidiary, Sikkim Hydro Power Ventures Ltd., is the concessionaire for the project. (3) Concession for setting up and operating a 261 MW power project on the river Spiti in the State of Himachal Pradesh. The Company's subsidiary, Youngthang Power Ventures Ltd., is the concessionaire for the project. (4) Concession for setting up and operating a 60 MW hydro-electric project on the Tidong River (tributary of Satluj) in the Kinnaird district of Himachal Pradesh. Tidong Hydro Power Ltd., a special purpose vehicle promoted by the Company, is the concessionaire for the project. (5) A project for setting up and operating a 250 MW thermal power project in Chandrapur district of Maharashtra for which the Company's subsidiary, Aparna Infraenergy India Pvt. Ltd., has the coal linkage. Developments in the Energy Sector during the Period During the Period, the Company decided not to puRs.ue the amalgamation of Pravara Renewable Energy Ltd., the concessionaire for the 30 MW co-generation project at Pravara Nagar at Ahmednagar, with the Company. The Pravara project is set to be commissioned in February, 2015. Youngthang Power Ventures Ltd. has not been able to proceed with the studies to prepare the Detailed Project Report (DPR) for its project due to opposition of local farmeRs.. The Company has served a notice on the state government for refund of the upfront premium of Rs.. 52 Cr with interest and costs. The state government is seeking the opinion of the local administration on action to be taken in the matter. Tidong Hydro Power Ltd is conducting geological studies for preparation of DPR, which has been delayed due to adveRs.e environment conditions and poor condition of roads at site. A request has been made to the state government to extend the due date till December end, 2015. Aparna Infraenergy India Pvt. Ltd., has the requisite land and coal / water linkages as well as all statutory clearances to proceed with its thermal power project. However, the Company had to petition the Bombay High Court against cancellation of the coal linkage on the issue of alleged management change. The Honorable High court has directed Western Coalfields Ltd. not to take any coercive action against the company till further Other Business In addition to undertaking infrastructure development any undertakes operation & maintenance of the five road projects in operation. The Company has also ventured into construction work at the Sidhi-Singrauli road project through subcontractors.. The Company also plans to undertake construction work at the Vijayawada-Gundugolanu road project through subcontractors.. THE FUTURE The Company and its 100% subsidiary Gammon Road Infrastructure Ltd. ("GRIL"), have qualified to bid for all NHAI projects of an estimated cost not exceeding Rs..3820 crores approx. The Company has applied for an enhancement of the limit up to Rs..4800 crores. The Company has also been qualified to bid for one project in the Port sector with an estimated total aggregate cost Rs..4000 crores. The Company, as indeed most players. in the infrastructure industry, has been facing a resource crunch in the last few years.. There is a sizable gap between the Company's internal accruals and the requirement of funds for capital investment in existing and new projects and revenue expenditure. The ability of the Company to raise external funds has also been affected due to adveRs.e market conditions. To ease the present situation, the Company is actively pushing for realization of its receivables from NHAI and monetization of its matured assets at the appropriate valuation. Going forward, the Company will focus on selective opportunities which have lower risk and lower investment, which will supplement our existing portfolio. Our focus will be to get our "almost ready" projects commissioned at the earliest and run the operating projects successfully. We are confident that these projects, once completed, will contribute positively to our bottom line and improve our cash position. EMPLOYEE STOCK OPTION SCHEME The 'employee stock options' issued by the Company prior to the initial public offer of equity shares have either lapsed or have been exercised. However, the Company has, with the members.' approval, issued a fresh tranch of 'employee stock options' to its executive directors. and senior employees during previous financial year. Details of the 'employee stock options' allotted, as required to be stated in this Report in terms of the SEBI Guidelines is annexed as Annexure 1. A certificate from the Auditors. that the Employee Stock Options Scheme has been implemented by the Company in accordance with the SEBI Guidelines is annexed to this Report as Annexure 2. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO. The requirements of Section 217 (1) (e) of the Companies Act, 1956, read with Rule 2(A) & 2(B) of the Companies (Disclosure of Particulars. in the Report of Board of Directors.) Rules, 1988 are not applicable to the Company. The Company did not earn any foreign exchange during the Period. The Company expended foreign exchange equivalent to Rs.. 23.45 lacs towards professional services during the period. SUBSIDIARIES During the Period, Company has obtained the dissolution of Dohan Renewable Energy Pvt. Ltd., Indori Renewable Energy Pvt. Ltd., Kasavati Renewable Energy Pvt. Ltd., Markanda Renewable Energy Pvt. Ltd., and Sirs. a Renewable Energy Pvt. Ltd., subsidiaries of the Company promoted to implement some renewable energy projects in Haryana, which were later cancelled. No other changes in the list of subsidiaries of the Company during the Period. A statement u/s 212 of the Companies Act, 1956 relating to the subsidiaries is attached to the Balance Sheet of the Company. The Company has not attached the audited accounts of the subsidiaries to the Audited Accounts of the Company. However, the effect of the same has been brought out in the consolidated Audited Accounts of the Company. The annual accounts of the subsidiaries and the related information will be made available to the Company's and subsidiaries' investors. as and when required by them. These have also been kept for inspection of the investors. at the Registered Office of the Company and of the concerned subsidiaries. PARTICULARS. OF EMPLOYEES Particulars. of employees required under Section 217(2A) of the Companies Act, 1956 is annexed to this Report as Annexure 3. DIRECTORS.' RESPONSIBILITY STATEMENT Pursuant to the requirements of Section 217 (2AA) of the Companies Act, 1956, the Directors. hereby confirm that: a. the applicable accounting Standards along with proper explanation relating to material departures have been followed by the Company in preparation of the Annual Accounts for the Period; b. the Directors. have selected accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs. of the Company at the end of the Period and of the loss of the Company for the Period; c. the Directors. have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and d. the annual accounts are prepared on a going concern basis. BOARD OF DIRECTORS. During the Period, Mr. Naresh Chandra, Chairman, had informed the Company that due to his increased involvement with the Company as Chairman he should no longer be treated as an Independent Director of the Company. Mr. Chandra was appointed as an Independent Director as per Section 149 of the Companies Act, 2013 at the 13th Annual General Meeting of the Company held on June 30, 2014. The Company has since then treated him as a director liable to retire by rotation. Mr. Himanshu Parikh, Vice Chairman, who is liable to retire by rotation, has intimated his desire not to be reappointed as a director at the ensuing 14th Annual General Meeting. Accordingly, it is proposed to seek the approval of members. at the ensuing 14th Annual General Meeting for changing the designation / appointment of Mr. Naresh Chandra from independent director to a director liable to retire by rotation and for not filling up the vacancy caused by the retirement by rotation of Mr. Himanshu Parikh. BOARD COMMITTEES The Board has presently the following committees to assist it in its work: (i) Audit Committee to, inter-alia, oveRs.ee and review the financial reporting system and disclosures made in its financial results; (ii) Stakeholders.' Relationship Committee to, inter-alia, redress investor complaints; (iii) Nomination and Remuneration Committee to, inter-alia, approve appointments and remuneration of executive directors. and lay down nomination and remuneration policies of the Company; (iv) Compensation Committee to administer 'employee stock option schemes'; (v) Project Committee to, inter-alia, advice the Company on the business opportunities that arise from time to time; (vi) Projects Review Committee to review implementation and working of projects under development and operation; (vii) QIP Committee to oveRs.ee raising of financial resources from QIBs in terms of the resolution approved by the members. at the Extra Ordinary General Meeting held on July 15, 2014; (viii) Corporate Social Responsibility Committee to formulate and implement a 'corporate social responsibility policy' for the Company; and (ix) Risk Management Committee to monitor and review the risk management plan for the Company. The constitution of the various committees, its powers. and duties have been elaborated in greater detail in the 'Corporate Governance Report', which is annexed to the Annual Accounts. REPORT ON CORPORATE GOVERNANCE Attention of the members. is invited to a separate section titled 'Report on Corporate Governance' which is annexed to the Annual Accounts. A certificate of compliance issued by Mr. N. Veeraraghavan, a 'practicing company secretary' on compliance with corporate governance requirements of the Listing Agreement is annexed to this Report as Annexure 4. MANAGEMENT DISCUSSION AND ANALYSIS REPORT Attention of the members. is also invited to a separate section titled 'Management Discussion and Analysis Report' which is annexed to the Annual Accounts. AUDITORS. The Company has received the requisite consent and certificate from M/s. Natvarlal Vepari & Co. under Chapter X of the Companies Act, 2013 for their appointment as Company's auditors . The Board recommends their reappointment. AUDITORS.' REPORT The Auditors. have qualified their report to the members. on the issues relating to the uncertainty over the outcome of the legal proceedings initiated by Patna Buxar Highways Ltd. and Mormugao Terminal Ltd. against unilateral termination of their respective concession agreements. The Company's exposure to these projects is Rs..8745.75 lacs, which has not been provided for. Further, without qualifying their opinion, the Auditors. have emphasized the following matters.: (i) Existence of uncertainty on timing and realization of cash flows as the Company has incurred a net loss after tax of Rs.. 6933.71 lacs and its current liabilities exceeded the current assets by Rs..4077.27 lacs.; (ii) 'going concern assumption' as regards Indira Container Terminal Pvt. Ltd. due to its net loss during the year and default in payment of debt obligations to lenders.; (iii) not making a provision for exposure towards Cochin Bridge Infrastructure Company Ltd. including investments and loans and advances of Rs.. 1,326.05 lacs and Corporate guarantee of Rs.. 974.17 lacs in view of the uncertainty over the outcome of legal proceedings initiated by Cochin Bridge against unilateral termination and closure of concession; and (iv) not making a provision for exposure towards Youngthang Power Ventures Ltd. including investments and loans of Rs.. 7,080.37 lacs which has initiated correspondence for closure of the project for reasons beyond its control. (v) excess remuneration to the extent of Rs.. 208.55 lacs paid to managerial peRs.ons beyond the limits specified under respective regulations. The Board is confident of a favorable outcome on the legal proceedings initiated by Patna Buxar Highways Ltd. and Mormugao Terminal Ltd. The Board is also confident of the steps being taken by the management to ease the cash position and narrow the mismatch between current liabilities and current assets. The Board is aware of and confident about a positive outcome on the talks and correspondence with the Kerala Government on the Cochin bridge project, and with the Mumbai Port Trust and Ministry of Shipping and project bankers. on the Indira Container Terminal project; and with the Himachal Government authorities on the Youngthang Power project. The Company is in the process of making an application to the Central Govenrment for the approval of excess managerial remuneration. ACKNOWLEDGEMENTS The Board wishes to place on record their appreciation of the support received by the Company from its shareholders. and employees. The Directors. also wish to acknowledge the co-operation and assistance received by the Company from its business partners., bankers., financial institutions and various Government, Semi Government and Local Authorities. For and on behalf of the Board of, Gammon Infrastructure Projects Limited Naresh Chandra Chairman C.C.Dayal Audit Committee Chairman K.K.Mohanty Managing Director Place: Mumbai Date: February, 14, 2015 |