Decision on post-contract sops for highway developers by December

November 5, 2013

By Vikas Dhoot & YASHODHARA DASGUPTA, ET Bureau |

The highways ministry and National Highways Authority of India believe the post-contract concession will benefit 40 stalled projects.
The highways ministry and National Highways Authority of India believe the post-contract concession will benefit 40 stalled projects.


NEW DELHI: Financially stressed highway developers seeking a bailout from the Centre will get to know by next month whether their demands are going to be accepted.An expert panel set up by the Cabinet under the Prime Minister’s Economic Advisory Council chairman C Rangarajan will examine whether any concession should be given to developers in the form of deferral of the premium payment they had committed to while bidding for the highway contracts.

The panel, expected to be formally constituted this week, will also consider the moral hazard of allowing such post-contract concessions that the highways ministry and National Highways Authority of India (NHAI) believe will benefit 40 stalled projects in this case.

“I am now studying the problem in terms of whether a) if any concession should be given at all, and b) if given, what form should it take and how should it work,” Rangarajan told ET. “Because it’s a post-contract concession, we will have to work that (moral hazard) out. We will have one month to submit our report from the time it is formally set up,” he added.

The government had decided to set up the committee under Rangarajan in October to work out the modalities of the highlycontentious bailout policy which has been discussed for much of the past year.

The Planning Commission and finance ministry had initially objected to the policy due to concerns over maintaining the sanctity of public private partnerships (PPP) and the potential moral hazard in renegotiating existing contracts.

Opinions between the highway ministry and NHAI are still divided. The highways authority has told the panel that the discount rate should be kept at 10%, no penalty should be imposed and no corporate guarantee should be taken from developers, a person familiar with the matter said.

The ministry, on the other hand, is in favour of a 12% discount rate as well as imposition of penalty, which was suggested by the finance ministry to avoid any undue advantage to a handful of developers.

Industry experts have, however, cautioned of the adverse impact the delay in decision-making would have on the already stagnant investment flows in the highways sector. “The more there is delay in taking a decision, the more it is unlikely to come about before elections.

At this stage, the committee should work on the modalities of the policy instead of going back to the basic question if this should be done at all.

A decision needs to be taken by December because once the results of the state elections are out, there will be political turmoil and a reluctance to take decisions,” said Vishwas Udgirkar, senior director at Deloitte, adding that the industry was unlikely to bid for new projects until the resolution of the issue since such a renegotiation could set a precedent for shaping future contracts.

According to a person familiar with the matter, Rangarajan has asked for inclusion of Planning Commission secretary Sindhushree Khullar, road ministry secretary Vijay Chhibber and PMEAC secretary Alok Sheel in the group, besides NHAI chairman RP Singh and expenditure secretary RS Gujral, whose names were included at the time the Cabinet Committee on Economic Affairs was deliberating on the matter.


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