Bailout package should not be like flawed exit policy: National Highway Builders’ Federation

October 16, 2013


(The road developers sought…)


NEW DELHI: A week after the government approved a bailout of the highways sector and set up a committee that will draft its details, developers told Prime Minister Manmohan Singh that the rescue plan shouldn’t end up being similar to what they described as the “flawed exit policy” that has failed to attract takers.

The committee headed by C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, is expected to give its recommendations on the premium restructuring in a month. The final decision will be implemented by the highways ministry after it is approved by finance minister P Chidambaram.


“The guidelines for the rescheduling of the premium for the highway projects are required to address the concerns raised by the sector as a whole, otherwise it will not only defeat the purpose of the policy but also not help in the revival of the road sector,” the National Highway Builders’ Federation (NHBF) said in its letter to Singh. “In the past it is a known fact that because of the flawed exit policy for the road sector announced by the government, it has not been able to attract even a single investment.”


The road developers sought a reduction in costs they have to pay for deferring the premium. According to the Cabinet note sent by the highways ministry, which included suggestions of the finance ministry and the Planning Commission, developers need to pay 12 per cent on the premium as well as a penalty of up to 0.5 per cent of the total project cost in case the default was attributed to them. The concessionaires would also have to give a bank/corporate guarantee to the extent of the maximum difference between the premium promised at the time of bidding and that under the revised payment schedule, according to the cabinet note.


The NHBF letter, also sent to Chidambaram, Rangarajan and roads minister Oscar Fernandes, argued that deferral of premium payments should be allowed at a 9.75 per cent discount rate, the rate at which Cabinet last year allowed telecom operators to stagger spectrum fee payments. NHBF explained that “the proposal of highway sector’s deferment of premium is similar to telecom sector on contract terms and conditions on period of contract and cost involved…”

“A case for some form of relief can be made and the 12 per cent rate needs a relook in the current context.The situation in some sense is similar to the telecom sector relief because they too were going through stress at the time,” said Arvind Mahajan, partner at KPMG, who added that both sides needed to make some sort of concessions. “Many companies involved in projects are highly leveraged. They are also facing execution challenges because of delays on part of NHAI and escalation in project cost,” Mahajan said.


NHBF has argued against the penalty clause saying the viability of most of these projects were eroded because of delays in environmental clearance, land acquisitions, a ban on the procurement of aggregates and so on. NHBF has also opposed the corporate or bank guarantee clause saying most concessionaires are either undergoing corporate debt restructuring and are over-leveraged or bankers are not willing to lend to them.