The Akhilesh Yadav government is agonising over signing state support agreements (SSAs) for highway projects in Uttar Pradesh, driving as many as seven ongoing projects to a funding crisis and pushing another 16 to the back burner. The state feels that a certain clause in the SSAs — that no competing roads be allowed to come up near NHAI highways —takes away its right to plan and execute its own projects. In the absence of SSAs, banks have refused to finance the projects further, commissioned between 2009 and 2011 and currently in various stages of execution.SSAs bind the state government to providing land, environment and mining-related clearances, help in providing utility services and enforcing law and order, besides agreeing to the no-competing roads clause.

In the absence of SSAs, the NHAI is also going slow on as many as 16 new projects in UP. A senior NHAI official said the agency was trying to persuade UP to sign the agreement in its talks with state government officials.

“The matter is being tracked at the highest level. Next week, we are meeting UP chief secretary Jawed Usmani and hope for a positive outcome,” the official said.

NHAI has also informed the government that without the SSA in place, 16 new projects in the state currently in the detailed project report and bidding stages, will not be launched.

“The state has expressed its reservation on the clause barring any competing roads in the vicinity. We are trying to resolve the issue,” the NHA official said.

“The delay on part of the state has led to delays in the completion of the projects and cost overruns. Our concessionaires are being unduly hit. We need to ensure their interests are not harmed,” the official added.

The seven projects include the Moradabad-Bareilly road (IL&FS, 121 km, Rs 1,267 crore,) Etawah-Chakeri section of NH-2 (Oriental Structural Engineers, 160 km, Rs 1,698.50 crore) Bareilly-Sitapur road (Era Infra, 151 km, Rs 1,951.50 crore), Muzafarnagar-Haridwar stretch (Era Sibmost Infra, 80 km, Rs 1,007 crore), Delhi-Agra road (Reliance Infrastructure, 180 km, Rs 2,960 crore), Lucknow-Rae Bareli (Essel Group, 70 km, Rs 800 crore) and Bareli-Allahabad Road (119 km, Rs 290 crore).

An official with the state PWD department which oversees road projects said signing the SSA means giving up the right to plan and build roads. “The NHAI is pushing an umbrella SSA agreement for all of its projects in the state, which, we think, is an infringement on the rights of the state government. We are trying to work out a way where we can sign project-based agreements, as was done earlier, instead on a blanket agreement,” said an official of the PWD department.

Earlier, the state used to give project-specific approvals, but in the last three years, no NHAI project has been approved. The Mayawati government had, in fact, refused to approve even specific projects. While the Akhilesh Yadav government is reviewing the decision, it is yet to come on board regarding the SSA.

Source-http://www.financialexpress.com

 NEW DELHI: The government’s recent efforts to revive the highways sector will turn out to be a non-starter because the new rules have inherent gaps, road developers have told Prime Minister Manmohan Singh and Finance Minister P Chidambaram.A long-awaited policy notified last fortnight to unlock equity funding for new projects by letting concessionaires exit ongoing and completed highway projects will not help bring any new investments or FDI into the sector since it’s mired in legal, taxation and commercial mess, developers have said.

In June, the government had approved a policy that would allow substitution of concessionaires in highway projects at any stage as long as financial closure had been achieved. This was done to revive the sector – marked by dramatic fall in investments — by freeing up equity and using it in new projects that are not taking off for want of buyers.

“The current circular has failed to address the issue of unlocking of equity in healthy, operational projects that will release about Rs 6,000 crore of equity in older concessions. This would have also brought serious, long-term FDI to road sector,” National Highway Builders’ Federation (NHBF) has said in a missive to the prime minister and finance minister.

“The policy has a large number of legal, commercial and taxation challenges that investors and sellers would not be willing or prepared to deal with,” they added.

Industry members have pointed out that the policy does not include projects where financial closure is not achieved despite the fact that there are several such projects because the authority has not fulfilled its obligation.

However, road ministry officials said allowing substitution where financial closure has not been achieved would mean giving complete leeway to developers which would be detrimental to the PPP framework and that an NHAI default is already covered in the existing model concession agreement (MCA).

The letter also points out that it is not clear whether completed projects include partially completed ones and projects that have received provisional COD. It is also unclear whether the incoming entity can get the tax benefits available for infra projects.

According to M Murali, director general at NHBF, the government’s intention will not succeed with this route since the substitution mode will not be acceptable. “The process is also long, confusing and would involve more expenditure. Also, what’s the point of imposing a penalty on exiting developers when they are already stressed in the first place,” he said. The penalty clause however, said government officials, was opposed by the road ministry but it was included at the insistence of the finance ministry.

Meanwhile, NHAI officials said that international players, including sovereign funds, have expressed interest in taking over existing projects where developers are interested in selling their stake.

Source-http://economictimes.indiatimes.com

In February this year, while presenting the Union Budget for the year 2013-14, Finance Minister P. Chidambaram had announced the Centre’s decision of constituting an independent regulatory authority for the road sector.

“The road construction sector has reached a certain level of maturity. But it faces challenges not envisaged earlier, including financial stress, enhanced construction risk and contract management issues that are best addressed by an independent authority. Hence, government has decided to constitute a regulatory authority for the road sector,” Chidambaram said in the Budget speech.

At present, the National Highways Authority of India, responsible for development, management and maintenance of national highways, functions as an executing agency as well as regulator. The dual role is perceived by many as contradictory.

The Ministry of Road Transport and Highways created a task force in April to expedite the setting up of the regulatory authority for the road sector. The task force released its draft report on the constitution and structuring of the proposed regulator last month.

The draft report suggests setting up the proposed regulator through an ordinance/executive order and then subsequently converting the same into an Act of Parliament for adequate enforceability and acceptance.

The regulatory authority, in addition to facilitating the expeditious implementation of the National Highways Development Project, would address the concerns of all stakeholders including road users.

A source associated with the road sector told Projectmonitor that in the current scenario, with general elections due in less than a year, setting up the regulatory authority could be an uphill task.

“The process of setting up the regulatory authority, which includes seeking the Parliament’s nod and selection of members, would take more than a year after the Cabinet’s approval. The question is whether the government has enough time in its hand,” the source said.

Interestingly, the Planning Commission is opposed to the proposal for setting up an independent regulatory authority for the road sector.

“An independent regulatory authority would dilute the powers of the Planning Commission. Currently, the Model Concession Agreement as well as rules and regulations concerning the sector are drafted by the Planning Commission. Once a regulator is in place, these could very well get challenged,” the source said, adding that the proposal for setting up an independent regulatory authority might not find favor with the NHAI for the same reason.

Source-http://www.projectsmonitor.com