The Highway Ministry, while favouring a proposal to restructure premium paid by developers to the National Highways Authority of India (NHAI), has put in a few caveats.

In the tweaked proposal, the Ministry has suggested that the premium paid by a developer during the initial years cannot be lower than the toll revenue collected from that highway stretch. “The developer cannot use toll revenues to widen the highway,” said a source.

Premium is the amount offered by a developer to NHAI for the right to invest in widening a highway and collecting tolls from users of that stretch over a 20-30 year period. The annual premium offered was the bidding parameter for these developers.

Now, with changed economic conditions, many developers want to postpone the premium payment, which is termed as rescheduling of premium. The developers want to pay a lower amount in the initial years and a higher amount thereafter, while keeping the net present value of the premium constant.

So, as per the tweaked proposal, in the Kishangarh-Udaipur-Ahmedabad (KUA) case, where GMR is the highway developer, the annual premium cannot be lower than about Rs 400 crore, which is the level of annual toll revenue to be collected by the infrastructure major. In four-to-six-lane development projects, the developer collects toll from the time it starts widening the project. While no official confirmation was available, sources indicated that there had been discussions with developers, including GMR, on the issue, and the proposal was acceptable.

In the original premium rescheduling proposal, which was approved by the NHAI board, GMR had suggested that it would pay a very low level of premium in the first year of operations.

Another point is that the interest rate at which the net present value of premium is calculated will be linked to the Reserve Bank of India’s bank rate over the 20-30 year period. At present, the fate of this proposal – which will be sent to the Committee of Secretaries – is not clear. The Law Ministry has been opposed to any rescheduling of premium.

However, after this, NHAI Chairman R. P Singh sought “high level” intervention and an “informed decision” on the issue. He noted that not permitting rescheduling may jeopardise Rs 98,000 crore of potential premium committed by highway developers to the Government over the next 20-30 years, apart from leading to disputes.

NEW DELHI, MAY 22:

In a bid to ramp up investor sentiment, Prime Minister Manmohan Singh today set an investment target of Rs 1.15 lakh crore in PPP (public private partnership) projects across infrastructure sectors in rail, port and power in the next six months.

The proposals include Mumbai elevated rail corridor (Rs 30,000 crore), two international airports in Bhubneshwar and Imphal (Rs 20,000 crore) and power and Transmission projects (Rs 40,000 crore).

The decisions were taken at a meeting Prime Minister held here to finalise infrastructure projects for 2013—14 which was attended by Finance Minister P Chidambaram, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Ministers of Power, Coal, Railways, Roads, Shipping and Civil Aviation.

The meeting decided that the proposal for creating a rail tariff authority will be accelerated and brought before the Cabinet soon.

The Prime Minister highlighted the need for ramping up investment in infrastructure to revive investor sentiment.

“For this purpose, a target of rolling out PPP projects of at least Rs 1 lakh crore in the next six months was set. A steering group is being formed to monitor the award and implementation of projects on priority basis,” said a PMO release.

The Cabinet Committee on Economic Affairs (CCEA) has delegated powers to the Highways Ministry to approve all road projects of up to Rs 500 crore irrespective of the mode of implementation.

At present, there is dichotomy in the approval process followed for award of projects of up to Rs 500 crore.

For those projects which were implemented on an engineering procurement contract (EPC) basis, which are entirely funded by the Government, the Highways Ministry had power to approve projects of up to Rs 500 crore.

But for projects implemented on public-private partnership basis, which involved investments from the private sector, the Highways Ministry did not have similar powers.

According to an official release, “At present, projects of Rs 500 crore or above require investment approval of the Cabinet Committee on Economic Affairs (CCEA) but projects below Rs 500 crore have varying appraisal and approval levels, depending on the source of funding and mode of implementation of projects.”

The CCEA approved the proposal for a change in the delegation of powers for appraisal and approval of National Highways projects. This will simplify the appraisal and approval of the National Highway projects, it added.

Source -http://www.thehindubusinessline.com

A long pending proposal from highway developers seeking a relaxation of the exit clause – which allows an investor with deeper pockets to replace a promoter facing financial stress – may finally move forward.

A committee comprising Union Finance Minister P. Chidambaram, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Highway Minister C.P. Joshi has agreed to a proposal to permit developers to fully exit any time after the financial closure for a project is achieved i.e. when a bank has given its funding commitment for a project. This will overrule the current time-based requirements that determine when a lead project developer can exit a project.

Earlier, the National Highways Authority of India (NHAI) had pointed out that banks should be allowed to replace a cash-strapped developer with a financially healthier substitute rather than declare the project a non-performing asset on its balance sheet.

This proposal had won the support of the Highway Ministry as well, which had felt that any developer unable to work on a highway development project should be allowed to exit as long as another firm is willing to take its place. The only condition fo this change will be that the replacement must meet the same technical qualifications.

To enable this change, the concession agreement between NHAI and developers will have to be altered, something which requires a Cabinet nod.

Meanwhile, another proposal to permit premium rescheduling is likely to be moved to a Committee of Secretaries. However, the final decision will be the Minister’s.

At present, Joshi is both the Railway and the Highways Minister. With a Cabinet reshuffle slated to be held soon, it is not yet clear which portfolio he will continue to hold.

Companies doing sizeable business in the infrastructure space have welcomed the Government’s move to bring in flexibility in the roads sector, including revised norms that permit stake sale in projects right after commissioning.

The move is expected to accelerate the rate of churn of projects, increase the size of disinvestment, bring about liquidity, aid in debt swap and infuse fresh equity into new projects.

R. Balarami Reddy, Executive Director, Finance, IVRCL, told Business Line that the decision will help accelerate the process of exits and give more flexibility to the developer.

EASING DEBT BURDEN

Until now, a developer of road projects under the National Highways Authority programme could divest up to 74 per cent stake in the project two years after the date of commissioning. The developer had to retain the rest during the concessional phase.

Now, the Cabinet Committee of Economic Affairs has permitted infrastructure companies to sell their stakes soon after the date of commissioning. This could be in tranches or for the entire project value , Reddy explained.

Sridhar Cherukuri, Chairman and Managing Director of Transstroy (India) Ltd , said, “These changes bring in flexibility to developers to divest stake and redeploy funds into new projects. We are at an advanced stake of concluding deals.”

T. Adibabu, Chief Operating Officer, Finance, Lanco Infratech Ltd, said the infrastructure sector has been waiting anxiously for regulatory changes as it would help infuse liquidity for developers.

“By disinvestment of stake in mature projects, companies can pass on debt to the buyer. It releases the promoter’s equity, which can be redeployed into new projects. The developer can strike new loan contracts, freeing up high-cost debt,” Adibabu said.

Several pension funds and overseas investors are keen to invest in completed road projects. The Government move will pave way for such investment. Internal rate of return on investments too will go up, he said.

‘A SETBACK’

M. Gautham Reddy, Executive Director of Ramky Infrastructure, said, “While the norms help in infusing liquidity, other critical elements relating to premium has been deferred. This is a setback. But for the buyer, it helps in gaining management control by taking up to 51 per cent stake.”

IVRCL had to re-negotiate and tweak a stake sale deal with TRIL, a Tata Group entity, for divesting stake in three road projects for Rs 2,200 crore, in keeping with existing divestment norms.

Companies such as Madhucon Projects, IVRCL, Transstroy, Lanco and NCC Ltd are all in the process of divesting stakes in completed projects.

Source-http://www.thehindubusinessline.com

A long-pending proposal from highway developers seeking a relaxation of the exit clause — which allows an investor with deeper pockets to replace a promoter facing financial stress — has now been approved.

The move is likely to increase the M&A activity in the road sector.

The Cabinet Committee on Economic Affairs (CCEA) has approved this proposal. The substitution of developers can be done with the approval of NHAI, lender and private developer. At present, there are limits on the extent to which a developer can exit.

“We hope, with this, a number of stalled (road) projects, can now move forward,” Union Finance Minister P. Chidambaram said.

Earlier, the National Highways Authority of India (NHAI) Chairman R.P. Singh had said that banks should be allowed to replace a cash-strapped developer with a financially healthier substitute rather than declare the project a non-performing asset on its balance sheet.

This proposal had been supported by the Highways Ministry as well, which had felt that any developer unable to work on a highway development project should be allowed to exit as long as another firm is willing to take its place. The only condition for this change will be that the replacement must meet the same technical qualifications.

Also, in case the original project developer had defaulted in earlier obligations, then the NHAI can put a penalty on the original developer.