Second thoughts on highway rescue

December 13, 2013

Rangarajan panel reviews proposals on premium restructuring & penalties after PlanCom advisor’s objections

 Manu Balachandran  |  New Delhi  
C Rangarajan

Road developers hoping for early relief from the government will have to wait longer.

A committee set up under C Rangarajan, chairman, Prime Minister’s Economic Advisory Council, is reworking its report on providing such relief, after concerns were raised by  Gajendra Haldea, advisor, Planning Commission.

Last Friday, Haldea raised concerns on the proposed recommendations. The issues in question were the structure of premium rescheduling and the penalty norms, following which the committee sought more clarity from the roads ministry.

The key recommendations of the report include rescheduling the premium that companies owe to the National Highways Authority of India (NHAI) and fixing the interest payment on the deferred amount at 10.75 per cent. In addition, it felt no penalty should be charged on the developers.

Premium here is the amount NHAI concessionaires have to pay for a BoT (Build-Operate-Transfer) project, as the returns are expected to be high. It is usually decided on the basis of estimated future traffic flow at the time of bidding. The term for payment of the premium is usually 20 to 25 years and the amount payable ranges from Rs 3 crore to Rs 680 crore a year. The amount goes up yearly by five per cent, according to existing norms. NHAI is due to receive about Rs 151,000 crore over the next 20-25 years from private developers.

“The report was to be ready early this week. But, following a letter written by Haldea, Rangarajan has decided to study the concerns raised and we can expect final recommendations only in the next 10 days,” said a senior official in the roads ministry. Haldea confirmed he’d commented on the report but declined to disclose details.

The Rangarajan committee was set up this October. This was after a number of road developers threatened to walk out of projects due to the economy’s slowing. They’ve complained about inability to generate adequate revenue for repaying the premium. The committee had also proposed that the companies not be allowed to pay dividend to their parent companies until they cleared their dues to NHAI.

There was also a recommendation to allow private road developers to pay only 25 per cent of the premium they owed NHAI in the first three years. Companies were to raise this to half the amount due after three years. The sum carried forward was to attract an interest rate of 10.75 per cent.

“The trigger point for Haldea to raise the concern seems to be the absence of penalty. He does not want the companies to be given a breather and wants to overrule a cabinet decision which wanted projects to continue. If we do not allow this rescheduling, then we have to go in for re-bids. Given the current environment, we will not get any bidders,” the ministry official added.

The government has already cancelled a plan to award projects on public-private partnership during this financial year and is moving towards government-funded projects. The roads ministry plans to now award 5,000 kilometres this year under the engineering-procurement and construction mode this year, after the developers decided to stay away from bidding.


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