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Business News/ Industry / Infrastructure/  Road ministry for stricter norms on premium payments
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Road ministry for stricter norms on premium payments

The ministry and NHAI are keen to push the proposal as they are concerned about a possible loss of payments if projects are stuck because of financial reasons

The proposal being sent to the finance ministry imposes stricter norms for restructuring of premium payments, or the money that road developers agree to pay the National Highways Authority of India (NHAI) for building a highway. Photo: Mint (Mint)Premium
The proposal being sent to the finance ministry imposes stricter norms for restructuring of premium payments, or the money that road developers agree to pay the National Highways Authority of India (NHAI) for building a highway. Photo: Mint
(Mint)

New Delhi: The ministry of road transport and highways plans to send a revised proposal on restructuring the financial burden of road developers to the finance ministry within a week.

The plan had been sent back by the law ministry earlier this month saying the issue needed to be resolved between the finance and road ministries. The road ministry had sought the law ministry’s opinion on the matter after making changes to its first draft proposal that was rejected because it was not legally feasible.

The proposal being sent to the finance ministry imposes stricter norms for restructuring of premium payments, or the money that road developers agree to pay the National Highways Authority of India (NHAI) for building a highway. The road ministry has also proposed that the restructured premium for any year cannot be lower than the money collected from the toll.

“We have proposed that restructuring be allowed but the premium payment will have to be above the current level of tolling. For instance in the GMR (Infrastructure Ltd) project case, their original annual premium owed is 636 crore but around 400 crore is collected annually through tolling of the existing four lanes. So they will have to pay at least 400 crore; it cannot go down to 70 crore, as proposed by NHAI," said a senior road ministry official who did not want to be named.

The proposal also prevents the developer from pulling out equity until dues to the government have been cleared, said the official cited above. “We should be in a position to send this proposal to the finance ministry in a day or two," he said.

The proposal aims to provide financial relief to road developers amid a slowdown. GMR had offered to resume work on a road project that the company had sought to exit in January on the condition that it will be allowed to delay premium payments. The company has also offered a corporate guarantee of 4,256 crore in lieu of such a restructuring.

GMR has been negotiating the payment structure with NHAI for the Kishangarh-Udaipur-Ahmedabad highway project. NHAI, in its version of the proposal, had offered to lower the annual premium liability to 70 crore in the first year. This will increase 5% annually for the first 12 years of the contract. In the remaining 14 years, GMR will have to pay a substantially higher premium.

GMR had initially agreed to pay a premium of 636 crore in the first year. The payout would have increased 5% for the subsequent years over a 26-year period of the premium payment.

The roads ministry and NHAI are keen to push the proposal as they are concerned about a possible loss of premium payments if projects are stuck because of financial reasons.

“If we terminate the projects and go for fresh bidding, we may not get similar premium and interest in the projects as the sector is seeing a slowdown. We will take up the issue with the finance ministry," said another official, confirming the development. He also did not want to be named.

The latest plans are more realistic, said Parvesh Minocha, group managing director at infrastructure services firm Feedback Infrastructure Services Pvt. Ltd.

“However, the questions remain about the legal angle, if it can be challenged by the bidders who lost out and if the developers will still accept this formula. But this proposal is closer to what will fly," he said. “But experience says that the roads regulator be put in place simultaneously to take care of basic structural issues like the model concession agreement, risk structure and lending by banks."

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Published: 18 Jul 2013, 11:32 PM IST
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