Govt fast-tracks payment cycle for stressed road developers1 min read . Updated: 30 Jul 2020, 11:56 AM IST
- The road ministry and NHAI have migrated from a milestone-based payments system to a monthly payments mode
- For hybrid annuity model (HAM) projects, NHAI released funds for working capital needs even before the milestones were completed
To help infrastructure developers reeling under covid-led challenges, the ministry of road transport and highways (MoRTH) and the National Highways Authority of India (NHAI) have adopted faster payment mechanisms and shortened the cash cycle for road developers contracted with them, to ensure project execution does not suffer during the lockdown.
According to MoRTH data, between April and May, it disbursed ₹18,700 crore to developers, up 46 times from the ₹400 crore released in the year-ago period. NHAI disbursed ₹10,295 crore between 22 and 31 March, and another ₹15,000 crore in April-June.
Both MoRTH and NHAI migrated from a milestone-based payments system to a monthly payments mode. In the earlier system, billing and payments under the engineering, procurement, construction (EPC ) model were linked to the completion of pre-determined physical milestones.
For hybrid annuity model (HAM) projects, NHAI released funds for working capital needs even before the milestones were completed. The funds were offered at 200 basis points above bank lending rates, and offered low-cost working capital to developers. The payments are later set off against settlements that the government owes the contractor under the HAM projects.
“Earlier, contractors had to reach physical construction milestones and then bill NHAI or MoRTH. This period varied between one to three months, depending on the complexity of the milestones. These bills were then certified by an independent engineer. Subsequently, it would take 30-40 days for the money to be disbursed," said Rajeshwar Burla, vice-president of corporate ratings at Icra. “Since NHAI and MoRTH moved to the monthly billing system, the cash conversion cycle has shrunk for developers, who can now get funds within 15-30 days after the monthly billing."
Developers, especially those who faced a cash crunch when toll collections fell sharply during the early lockdown period, welcomed the move.
“This was a very helpful and proactive step by NHAI," said Krishna Prakash Maheshwari, CEO of Adani Transport Ltd. “It demonstrates that NHAI is one of the few agencies which has shown maturity and promptness in payments. It has helped both contractors and concessionaires like us for HAM projects."
The move helped construction across national highways to pick up pace. Data from MoRTH shows project execution in the June quarter rose to 1,823km, from 637km in April, but lower than the 2,155km in the year-ago period.