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Business News/ Industry / Government may unveil bailout package for road developers

New Delhi: The government is close to finalizing a bailout package for road developers, according to a senior government official who declined to be named.

A committee headed by C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, is likely to recommend the restructuring of a portion of the premium commitment of a developer and order traffic studies of projects to determine their eligibility for availing of the relaxation under this policy.

For six-laning of highway projects, the Rangarajan committee is likely to allow restructuring of 75% of the road developer’s premium commitment for the first three years during construction and 50% of the premium for the remaining years, said the official.

The developers will be required to provide a bank guarantee in lieu of the relaxation. “The restructuring would be spread over three years short of the concession period," the official said.

The panel is also likely to propose that annual cash flow that is in surplus to the debt servicing and operation and maintenance (O&M) obligations will be adjusted against the accumulated deficit in premium payment obligations.

For four-laning of highway projects, the restructuring of premium payments will begin after the completion of construction. The developer will be required to pay 75% of the premium commitment for the first three years after the completion of the project, and 50% for the remaining years.

In order to determine the eligibility of road projects, the committee has asked the National Highways Authority of India (NHAI) to conduct a traffic study for the project to determine if the current traffic trends help meet the revenue projected in the financial statement. If the fresh traffic study establishes a shortfall in projected revenue, the project will be considered “stressed" and eligible for the relaxation.

“The issue of discount rate will be addressed though an existing provision in the model concession agreement that allows the developer to take loans from the government to meet shortfall in premium. The discount rate could work out to 10.75% and an additional 2% if bank guarantee is required," the official said.

Promoters of 48 road projects have been in talks with NHAI for restructuring of premium payments.

The issue of levying a penalty has been dismissed.

The Rangarajan committee is expected to come out with the recommendations by the end of this month.

If accepted, NHAI will be empowered to decide which projects can avail premium restructuring.

The government had given an in-principle approval on 17 October to the proposal to restructure premium commitments of stressed road developers with riders.

The road ministry, which awarded just 1,322km of road projects in 2012-13 against a target of 9,500km, hopes to revive activity in the sector. The sector has faced a slowdown because of the overall economic downturn, cautious lending by banks and the highly leveraged balance sheets of developers.

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Updated: 29 Nov 2013, 01:17 AM IST
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