Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Industry / Roads ministry reworking exit policy for project developers
BackBack

Roads ministry reworking exit policy for project developers

The ministry is likely to put out a revised draft for comments from other ministries in a week

The roads ministry, in a cabinet note moved in August, had sought a change in the existing exit policy to allow concessionaires of ongoing or completed road projects to exit completely at any stage by selling their stakes. Photo: MintPremium
The roads ministry, in a cabinet note moved in August, had sought a change in the existing exit policy to allow concessionaires of ongoing or completed road projects to exit completely at any stage by selling their stakes. Photo: Mint

New Delhi: The roads ministry is reworking a proposal to provide an early exit to project developers after an earlier cabinet note was returned by the Prime Minister’s Office, citing reservations.

The ministry is likely to put out a revised draft for comments from other ministries in a week, said two government officials who did not want to be named.

The exit policy for road projects has assumed importance because the recent economic slowdown led to a fall in traffic numbers, affecting revenue projections from tolling road projects over the last two years. Most road developers had bid for projects based on these projections but the drop in traffic numbers affected the viability of the projects. The industry has since been demanding a bailout from the government, and easing the exit policy is one of the key measures being considered by the roads ministry to enable stressed developers to exit.

The Indian economy slowed to 4.7% in the fiscal year ended March after growing at over 9% for three fiscal years from 2006 to 2008.

The roads ministry, in a cabinet note moved in August, had sought a change in the existing exit policy to allow concessionaires of ongoing or completed road projects to exit completely at any stage by selling their stakes. Both the finance ministry and the Planning Commission opposed this change in policy.

The roads ministry then appointed Deloitte Touche Tohmatsu India Pvt. Ltd, an audit and consulting firm, to study exit policies for road projects followed elsewhere in the world, after the finance ministry resisted its new policy saying such a move was not permitted in other countries.

“The finance ministry’s basic reservation was that contract conditions should not be diluted to concede any unfair advantage to road developers," said one of the two officials cited above.

The roads ministry’s efforts to tweak the exit policy has seen a series of back and forths.

The government had approved a new exit policy for highway projects in June 2013 that relaxed the exit norms by allowing concessionaires to exit both ongoing and completed highway projects by forming a new special purpose vehicle. The policy was criticized and did not find takers as it threw up legal and tax complications.

After taking the industry’s feedback, the roads ministry began work on a fresh proposal in January to allow developers to exit road projects through a stake sale.

It was this proposal that was moved in a cabinet note in August and is currently being revised by the roads ministry.

The revised note is likely to reverse some of the changes suggested earlier to provide limited relief to road developers, said the second roads ministry official. “It is likely that the note will now permit developers to sell complete stake after two years of project completion which is the same as now but will extend this relief retrospectively to all old road projects too," he said.

The move is expected to free up capital and speed up execution of delayed projects.

Earlier, a concessionaire could exit only two years after the start of commercial operations for contracts awarded after 2009.

The ministry, however, is yet to receive the report from Deloitte and will incorporate that in finalizing the draft.

“Exit policy should be practical and at the same time should not encourage reckless behaviour from developers. Relaxing the exit policy for concessions awarded pre-2009 is the right thing to do as it removes the disparity with projects awarded after that. The move will free up capital for re-investment," said Abhaya Agarwal, a partner at EY who oversees the infrastructure practice at the consultancy.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 16 Oct 2014, 12:16 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App