Home / Industry / Infrastructure /  Govt may foreclose stuck road projects

NEW DELHI : The government has decided to foreclose nearly a dozen road projects where bank money has got stuck as contracts became unviable or had to be terminated due to defaults by the contractors.

Two government officials aware of the development said that after prolonged discussions between the finance and road transport ministries, it has been decided that the National Highways Authority of India (NHAI) will foreclose several terminated, languishing or stuck projects. Banks will get back up to 90% of their exposure in projects where contracts got terminated due to default by contractors.

The agreement will release private developers of their responsibilities while giving an option to the NHAI to rebid such projects on revised costs and other parameters.

The officials said that foreclosures would also allow 100% debt repayment to banks in case of default by the NHAI. In these contracts, the contractors will also get back 100% of their equity.

“Stalled or terminated projects can be put on the bidding route again and restructured only after foreclosure of concession agreement. The decision now is to look at this option with limited penalty both for the developers and contractors and banks getting back their money in full or with limited haircut," said one of the officials.

Queries sent to ministry of finance, department of financial services and ministry of road transport and highways remained unanswered at the time of going to press.

The Indian Banks’ Association (IBA) also did not respond to questions on possible settlement for stock or terminated projects.

The foreclosure will be adopted for both Build Own Toll (BoT) projects and those highways awarded by NHAI under the engineering procurement and construction (EPC) mode where contracts were terminated by the NHAI due to fraud or non-performance by contractors.

The foreclosure agreement for stuck and terminated road projects is expected to address one of the main irritants between banks and financial institutions to lend to infrastructure players for highway development.

With broad agreement in place the NHAI would facilitate repayment to banks on such projects and put these to rebid afresh is expected to provide more confidence to banks to continue lending to the sector and promote faster development of infrastructure projects.

Officials said the ministry of road transport and highways has cleared all past termination charges on projects to banks and just about a dozen projects have remained that are still facing the issue and foreclosure of such projects would address all the concerns.

Officials quoted earlier also said as the banks have accepted termination payment to them would be based on the total project cost (TPC) decided at the time of award of the contract and not revised project cost by concessionaires, the issue would get resolved to the interest of all stakeholders.

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