New formula for stressed road projects gets nod
Dec 13, 2013
Source : The Economic Times

 

DELHI: The highways ministry on Thursday accepted the formula proposed by a high-level panel for restructuring the annual premium owed to the government by developers of stressed road projects. The panel, headed by Prime Minister's Economic Advisory Council chairman C Rangarajan, had circulated its draft report earlier in the day. After receiving comments from the National Highways Authority of India, the Planning Commission and Department of Economic Affairs, the final report would be sent to finance minister P Chidambaram, sources said.

According to officials, who did not wish to be named, the report has suggested that developers of stressed highway projects be asked to pay only 25% of the annual premium committed upfront for the first three years of the project. Developers would have to pay 50% thereafter, but if there is any cash surplus after debt servicing and meeting O&M expenses, this too, would have to be paid. Developers must fulfill all their premium obligations three years before the contract expires.

In case of four-laning projects, developers can avail the policy after construction is complete and commercial operations have begun. In case of six-laning projects, developers can avail the policy during construction, when commercial operations are considered to have begun, but would have to provide a construction milestone-linked bank guarantee for the premium deficit of 75% during this period. The discount rate for calculating the net present value would be 10.75%.

The Rangarajan committee was set up in November after the Cabinet directed that a body decide the modalities of the premium rescheduling policy, whose final decision could be implemented by the highways ministry after the finance minister's approval.

The proposal has been put through by the panel even as the Planning Commission last week, questioned the justification and impact of this on the infrastructure sector.

The Planning Commission has also argued that in the case of 23 projects where construction has not commenced, seven have been foreclosed with mutual consent while in two cases the termination notices issued by concessionaires have become final. The rest have no evidence to show that bankers have become cautious.

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