Govt mulls tweaking policy to let developers sell equity on exiting road projects

November 18, 2013

Manu Balachandran  | 

Road projects have been struggling in the past few years largely as private developers have stayed away

  The Ministry of Road Transport and Highways is looking to tweak an exit policy announced for highway projects this year. The policy falied to excite developers as it did not transfer the perks to the new operator. The Union ministry is considering a proposal by the National Highways Authortity of India that allows a developer to sell or transfer their stake in a special purpose vehicle (SPV) formed for a project.

Road projects in India are undertaken through such vehicles, made up of the concessionaire (operator), lenders and the highways authority, and the project is usually awarded for 20-25 years. The construction is usually done in three years and the tolling period starts once the project is bulit. The current policy does not allow transfer of equity but only substitution of a concessionaire, following which a new vehicle has to be then formed. The exit policy announced in July this year found no takers, as the new vehicle did not get the perquisites offered to the original vehcile, including a tax holiday of 10 years.

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

Meanwhile, developers looking to exit a project will continue to need approvals from the lenders of the project and the highways authority. More, the developer will also have to pay a penalty of one per cent of the 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,” said B Murali, Director General, National Highway Builders Federation.

Road projects in India have been struggling in the past few years largely as private developers have stayed away. Lenders have also been reluctant to fund road projects over various concerns. In an interview with Business Standard, Minister for Road Transport Oscar Fernandes had acknowledged funding for projects was the biggest constraint.

The ministry has suggested the finance ministry to reschedule premium worth Rs 1,51,000 crore that developers owe the highways authority. The finance ministry has in turn set up a committee under Prime Minister’s Economic Advisory Council Chairman C Rangarajan to study the terms and conditions of rescheduling. The committee is expected to come out with recommendations 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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