Highway builders get cabinet approval to defer premium

October 10, 2013

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By YASHODHARA DASGUPTA, ET Bureau

(Under this proposal, the National Highways Authority of India (NHAI) will identify projects that are under stress and deserve leeway in terms of payment of dues.)

NEW DELHI: The cabinet has in-principle approved the proposal allowing highway developers to defer premium payments in stalled projects, according to persons familiar with the development, a move aimed at easing financial stress in the highways sector.Under this proposal, the National Highways Authority of India (NHAI) will identify projects that are under stress and deserve leeway in terms of payment of dues. The Cabinet Committee on Economic Affairs ( CCEA) has also cleared the revised tolling policy, which limits the toll a developer can collect till they complete construction in the approved time-line.

The highway ministry’s proposal on premium payments suggested giving the NHAI board liberty to develop parameters to select stressed projects that would benefit from restructuring the premium payments quoted when they had bid for the project. The move is expected to benefit lenders as they can now recover their dues first instead of competing with NHAI.

Persons familiar with the issue said the modalities of the policy still need to be worked out. It is likely that about 40 premiumbased projects awarded after April 2010 will be reviewed. However, these also include projects with premium as low as a few crores where rescheduling would not be of significance, as well as those where developers may no longer be willing to continue due to cost escalations.

“The decision will help build sentiment among investors and in the market. However, specific parameters need to be ascertained, based on which the appropriate projects can be determined,” said M Murali, director general, the National Highway Builders’ Federation. “It is possible that not all developers will opt for it. It all depends on how the policy shapes up.”

Under the revised tolling policy, for highway projects involving expansion from four lanes to six, developers can collect only 75% of the current toll amount during the construction period without the yearly escalation applied on toll rates. Only after the construction is complete can developers start collecting the full toll and at the escalated value.

Also, if a developer fails to complete the project on time, they will no longer be allowed to collect toll. This has been done with a view to compensate commuters during a time when highway quality is poor because of construction work, as well as to disincentivise developers from squatting on projects.

The proposal on tolling policy had also included suggestions like shifting from financial model to one based on physical features to decide if a highway stretch should be tolled, and barring overloaded vehicles from plying on national highways till they have off-loaded and a penalty ten times higher than the current penalty.

Source-http://economictimes.indiatimes.com