Government revisiting policy that allows infrastructure developers to exit highway projects

October 10, 2013

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By ET Bureau |

(The exit policy approved by the government in July under the belief that it would help release much-needed equity and get stalled projects off the ground has not achieved its objective because of its complicated structure.)

NEW DELHI: The government is revisiting the policy that allows infrastructure developers to exit highway projects by divesting their entire stake, a decision prompted by complaints about confusion over taxation issues that could arise in such transactions.The exit policy approved by the government in July under the belief that it would help release much-needed equity and get stalled projects off the ground has not achieved its objective because of its complicated structure.

“The policy has not found many takers and we are currently revisiting the framework to resolve issues over taxation in the Special Purpose Vehicles ( SPV) executing the projects,” said Rohit Kumar Singh, joint secretary with the ministry of road transport and highways. There is confusion over whether tax holidays and other aspects of the policy would apply when the new developer comes in, he said.

Highway developers had written to the government after the policy was formalised, saying it was unclear whether tax benefits could migrate to the new entity and that capital gains tax implications could also be substantial. They had also stated that clarity was needed on whether legal consents and permits could migrate to the new entity.

The ministry also wants more flexibility in the model concession agreement (MCA) to allow the National Highways Authority of India (NHAI) board to make changes, if required.

“Currently, the MCA is a very rigid framework. Even for small changes we need to go the Cabinet which takes time and it needs to be justified on several levels. The MCA should be left to the NHAI board to decide and this includes the framework of how Public Private Partnerships (PPP) will be required to be addressed in the road sector,” Singh said while addressing a PHD chamber conference on infrastructure.

“Under the framework designed by the committee headed by Planning Commission member BK Chaturvedi, any road project will have to be tried first on the Build-Operate-Transfer (BOT) – toll model. If it does not succeed, go BOT (annuity), and if still does not succeed go to the Engineering Procurement and Construction ( EPC) model. This leaves no flexibility for new, innovative models which might be appropriate considering the field conditions,” Singh added.

Source-http://economictimes.indiatimes.com