CAG questions highway premium restructuring plan

September 18, 2013

(Menafn – Hindustan Times – McClatchy-Tribune Information Services via COMTEX)

The Comptroller and Auditor General (CAG) has raised doubts over the highways ministry’s proposed plan to allow restructuring of premium to be paid by private developers to bag the projects from National Highways Authority of India.

At present, 23 highway projects — awarded in the last 2-3 years — where developers had offered premium worth Rs. 99,000 crore over a 26-year-period are languishing as they are finding it difficult to pay owing to crunch of funds and lack of equity in the market. Some big ticket infrastructure majors including GMR and GVK, who had offered high premiums, have also threatened to pull out of the projects.

To avoid the risk of concessionaires walking out at a time when highway development has already hit a slump, the ministry had proposed to stagger the premium payment as a one time measure without impacting the net present value of the total premium to be paid over the entire contract period. The proposal is likely to come up in the cabinet shortly.

However, the CAG has observed that the proposal is not “consistent” with the concession agreement and can have implications for the bidding procedures used to determine the concessionaire.

India’s top auditor wants the highways ministry to look into the legality of the proposed plan before going ahead with it.

Even the finance ministry that had recently approved the road ministry’s rescheduling of premium proposal advised “extreme caution” because of an “element of moral hazard” in renegotiating concessions post award.

In view of the CAG’s observation, the ministry has recommended two options to the cabinet. The first is to allow rescheduling of premium as a one time measure after levying a penalty of up to 0.5% of the total project for renegotiating the norms of the contract between the developer and NHAI.

The second option is to terminate such contracts and re-bid the projects again. Officials, however, said that because of the ongoing slowdown, the re-bidding might not be able to attract high premiums like before and some of the projects might instead require viability gap funding from the government.

Source-http://www.menafn.com