Active Stocks
Tue Sep 26 2023 15:58:49
  1. Tata Steel share price
  2. 128.85 1.18%
  1. Tata Motors share price
  2. 619.75 0.19%
  1. HDFC Bank share price
  2. 1,537.65 0.39%
  1. State Bank Of India share price
  2. 594.3 0.03%
  1. ITC share price
  2. 442.4 -0.05%
Business News/ Industry / Infrastructure/  Finance ministry against blanket relief for road developers

New Delhi: The finance ministry has told the roads ministry that it is not in favour of providing blanket relief to road developers reeling under financial stress.

The roads ministry’s proposal to allow restructuring of the premium owed by developers to the government cannot be made into a policy allowing all developers such relief, said a finance ministry official, speaking on condition of anonymity. The finance ministry is open to looking at project-specific proposals, this person added.

Premium is the money that road developers agree to pay the National Highways Authority of India (NHAI) for building a highway and collecting toll from users.

NHAI signs a concession agreement with the winning bidder, usually the developer that offers the highest premium or asks for the lowest grant and satisfies the technical and financial considerations, after evaluation of bids. The typical agreement is for 20 years.

The finance ministry has shared its comments with the roads ministry and has also suggested a method to calculate the restructured premium payment, the official said.

“The roads ministry has not approached us with any specific project yet. We understand going for re-bidding may not be feasible, but because the developer had also taken a risk while bidding, it also has to take an haircut on its profit margin," the official added, implying that any financial relief will also involve a cost to the developer.

A senior official in the roads ministry, who requested anonymity, said, “We have received feelers from the finance ministry that it is not in favour of this policy. It looks difficult that this proposal will get cleared since it amounts to opening done deals and various watchdogs could have a problem with it."

A fortnight back, the roads ministry sent a revised proposal to the finance ministry for restructuring the amount owed to the government by road developers.

The restructuring, which was initially championed by the roads ministry, has been contentious from the beginning. It was first proposed in April by the roads ministry to the law ministry, which rejected it on legal grounds. A revised proposal was also returned by the law ministry without a consent and a directive asking the roads ministry to take up the issue with the finance ministry.

The roads ministry decided to revise the proposal before sending it the finance ministry and made the restructuring tighter by proposing that the restructured premium for any year should not be lower than the toll collected by the developer for that year. The revised proposal also said the developer would be prevented from pulling out from the project till all dues to the government are paid.

In principle, the roads ministry’s recommended restructuring involves back-ending the agreements with developers to reduce their payments to the government in the initial years of the contract—a move that could help them complete the projects. The ministry and its arm, NHAI, are worried that if projects are stuck on account of financing troubles, developers could start walking out of projects—resulting in a delay in building required infrastructure and losses on account of unpaid premiums. These projects will also have to be re-bid.

The roads ministry’s proposal was first made following an offer by GMR Infrastructure Ltd to resume work on the Kishangarh-Udaipur-Ahmedabad highway project. The company had walked out of the project in January citing delay on the government’s part to get the required clearances for the project in time.

GMR has since been negotiating the payment structure with NHAI. NHAI proposed lowering 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 subsequent years over a 26-year period of the premium payment.

An expert said restructuring the contracts makes sense.

“The entire NHAI portfolio cannot be up for renegotiation, so it should be done on a case-to-case basis. Renegotiation may be necessary where the project has been delayed due to reasons attributable to NHAI and has led to cost over-runs making the projects unviable. If NHAI was to re-bid these projects, it would get lower premiums," said Abhaya Agarwal, partner, infrastructure advisory, at the Indian arm of audit and consulting firm EY Llp.

“It is in the interest of both the developers and NHAI to pragmatically look at projects that can be saved especially where NHAI has commitments to fulfil."

"Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!" Click here!

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Updated: 07 Aug 2013, 12:50 AM IST
Next Story
Recommended For You
Switch to the Mint app for fast and personalized news - Get App