Rescheduling of premium: L&T, IDFC may also see their highway projects qualify

September 26, 2013

CCEA would soon be considering proposal to reschedule premium payment worth Rs 98,000 cr to be paid by private concessionaries to NHAI for 23 road projects


The union ministry for road transport and Highways may yield to a request by the National Highways Authority of India to consider 16 more projects for premium rescheduling if the Cabinet Committee on Economic Affairs decides to provide a one-time relief to 23 projects for rescheduling their premium.

The Cabinet Committee on Economic Affairs would soon be considering a proposal to reschedule premium payment worth Rs 98,000 crore to be paid by private concessionaires to NHAI for 23 road projects. If 16 more projects are approved for rescheduling then another Rs 53,000 crore premium payment due to be paid to NHAI would need to be rescheduled.

Companies including Larsen & Toubro, IDFC, Ashoka Buildcon and Oriental Structural Engineers are among the 16 companies looking to be considered for premium rescheduling for various projects, said an official. NHAI has been repeatedly holding meetings with officials in the ministry to take up the case of 16 projects as they fear a backlash from the project concessionaires.


“We can look at providing relief to the projects if CCEA agrees to reschedule premium in the first place. This is a one-time relief and not a policy, so we are hoping that they agree to it”, a senior official at ministry of Roads told Business Standard.


The issue of rescheduling for 16 projects emerged since these project developers had achieved the appointed date. It is the date on which the contract period begins. According to the norms, once a project is awarded to a concessionaire, it has to complete land acquisition and take clearances from the environment and forest ministry. The developer has to tie up funds besides meeting other norms. Once these norms are achieved, an appointed date for start of construction is said to have been achieved.


Meanwhile the official also added that the Finance Ministry has recommended that a stress test be conducted to find out the number of projects that are seriously affected due to various reasons before rescheduling their premium.“The finance ministry has recommended that we conduct a stress test to find out who are in real trouble and they have a valid point. With regards to the 16 projects, we feel that they need some help and we will see what we can do from our side”, the official added.


Premium is an amount that concessionaires pay to NHAI for a BoT (Build-Operate-Transfer) project as they feel that the returns from the project are expected to be very high and is usually decided on the basis of future traffic flow at the time of bidding.


The ministry is considering a premium rescheduling in a bid to give a breather to companies for a few years considering a slowdown in the economy. According to the premium rescheduling plan, concessionaires are expected to pay lesser premium for a few years and then subsequently increase their premium without affecting the total payment.


“Basically, it’s a breather so that we can kick start the projects and once traffic picks up, they can pay back higher amount in the future. At this point, we need these measures to encourage private sector investments”, an NHAI official said.


NHAI had in their board meeting proposed that 23 projects be considered for premium rescheduling and forwarded the request to the ministry of roads. Following concerns raised by the remaining project concessionaires, NHAI then requested that the remaining companies be added to the list.


The move to restructure premiums were proposed against the backdrop of some private infrastructure firms pulling out of road projects due to delays in regulatory clearances like land acquisition and environment clearances.


“Except a few cases, there is actually no need for premium restructuring. The government has actually taken a number of steps to ensure that the private sector is not affected and it is the companies who are at fault as they anticipated that the economy will continue to grow at the same pace as it did. There are some genuine cases where for reason such as a ban on mining, the traffic flow has fallen, But otherwise there is no genuine.






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