GMR Infrastructure Ltd has reached a dead-end in its bid to restructure the payments it needs to make to the National Highway Authority of India (NHAI) for the 6,000 crore Kishangarh-Udaipur-Ahmedabad highway, shutting one of the options for its return to the project.

The ministry of law has turned down a proposal by the ministry of road transport and highways for restructuring so-called premium payments—the money developers pay NHAI for building a highway and collecting toll from users.

According to the original project bid, GMR 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.

“In a communication last evening, the ministry of law declined that proposal on legal grounds," said a senior government official familiar with the matter, requesting anonymity.

Distressed infrastructure developers, hit by a funding crunch and high borrowing costs in the face of slowing economic growth, and delays in securing mandatory government approvals have sought easier payment terms. The denial will be a setback for other developers such as GVK Group that were waiting for the outcome of the GMR proposal before seeking a similar restructuring of payment terms.

“We are unable to comment on the subject," a GMR spokesperson said in an email response. A GVK spokesperson said, “We do not wish to comment."

The highway ministry had approached the cabinet last month with a proposal for tweaking the concession agreements of developers to allow restructuring of their premium payment commitments.

The move would have provided relief to developers such as GMR, which has been negotiating the payment structure with NHAI for the Kishangarh-Udaipur-Ahmedabad highway project.

GMR had offered to return to the project, which the company had sought to exit in January citing delays in mandatory project approvals, if the payment structure was backloaded. The company also offered a corporate guarantee of 4,256 crore in lieu of such a restructuring.

GMR had issued a notice to NHAI in January, seeking to terminate the agreement to widen the highway stretch in Gujarat because the authority had failed to get land and environment clearances for the project in time. Following the move, the highway authority engaged in talks with GMR to try and get it back on board.

The plan would have required the developer to pay a small part of the actual premium payment in the first 12 years after which the premium payment would increase substantially for the next 14 years in order to enable GMR to resume work on the project.

With the proposal having been declined, the board of NHAI will call a meeting to discuss the matter. The official cited above said GMR is most likely be told to either execute the project in line with the current concession agreement or else NHAI will have to cancel the contract.

A senior official at NHAI confirmed the law ministry’s rejection of the proposal. “The law ministry felt it would amount to renegotiation of the entire agreement and that was not tenable." He also declined to be named.

GVK Power and Infrastructure Ltd also terminated a concession agreement with NHAI for four-laning of the Shivpuri-Dewas section of National Highway No.3 in Madhya Pradesh, following GMR’s exit.

Any contract should only be renegotiated in exceptional circumstances and should not be made the norm, said Pranavant, a director at Deloitte Touche Tohmatsu India Pvt. Ltd.

“If you are changing terms for any contract that has been inked for a period of 25-30 years, the other bidders would feel that they could have also altered their bids had these changes been known to them," said Pranavant, who uses only one name.

“Whenever such a renegotiation is done its rationale should be properly explained and documented. The government must have taken the call after due diligence and may not have found it wise to go ahead with this proposal."