Exit policy for road projects may be tweaked, may allow equity sale

November 16, 2013


Manu Balachandran  |   

Current policy bars equity transfer, only allows substitution of concessionaire after which a new SPV has to be formed to undertake the road project


The union road ministry is looking to tweak an exit policy announced for highway projects this year in a bid to provide a breather to concessionaires looking to exit road projects. The ministry is currently considering a proposal by NHAI which allows a developer to sell or transfer his stake in a Special Purpose Vehicle (SPV) formed to develop a road project.

Road projects in India are undertaken through an SPV which comprises the concessionaire, lenders and NHAI and the project is usually awarded for a period of 20-25 years. The construction is usually done in 3 years and the tolling period starts on completion of construction.

The current policy does not allow the transfer of equity and merely allows a substitution of a concessionaire following which a new SPV has to be then formed to undertake the road project. The exit policy announced by the government in July this year found no takers as the new SPV was not eligible for the perquisites offered to the original SPV including a tax holiday of 10 years.

“This was the original recommendation that NHAI had put forward. But the government formulated the new policy which required the creation of a new SPV once a concessionaire is substituted and thereby there were a host of concerns including the issue of Tax holiday”, a senior official at NHAI said.

Meanwhile, concessionaires looking to exit the project will continue to need approvals from the lenders of the project and from NHAI. In addition, the exiting concessionaire will also have to pay a penalty of 1 per cent of the entire project cost. “They should remove the penalty first and come out with a comprehensive policy. There are also concerns over Income tax and taxation concerns and the government should address them”, B.Murali, Director General at National Highway Builders federation said.

Road projects in India have been struggling since the past few years largely due to private developers staying away from road projects in the country. In addition, lenders have also been staying away from funding road projects over various concerns. In an interview with Business Standard, minister for Road Transport, Oscar Fernandes had acknowledged that the funding for projects remain the biggest constraint.

The ministry meanwhile has asked the finance ministry to look at rescheduling premium worth Rs 151000 crore that developers owe NHAI. The finance ministry has in turn set up a committee under C.Rangarajan to study the terms and conditions of rescheduling and the committee is expected to come out with their recommendation next month.

The government is also looking at the option of doing road shows in countries including China and Australia to attract investments in the road sector after domestic companies have stayed back from investing in road projects. The ministry is expected to make a presentation to the Prime Minister soon.


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