Highway developers set to get relief

November 29, 2013

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Dipak Kumar Dash,TNN

NEW DELHI: Many highway developers, including GMR and GVK, are set to get major relief in next one week as the PM-appointed C Rangarajan committee is likely to recommend reduction and deferment of premium to be paid to NHAI.

The panel is likely to suggest that for six-laning of highway projects, at least 25% reduction in annual premium payment to NHAI during construction period and about 50% during subsequent years. The panel was constituted to come out with a formula to defer the premium payment towards later part of the concession period to make projects viable for developers.

In case of four-laning of projects, the developers don’t have to pay premium during the construction period. During operation and maintenance period, they have to pay minimum 50% of the committed annual premium.

Premium is the annual upfront revenue that the developers have promised to pay to NHAI, while bagging the projects. The promised premium of around Rs 1 lakh crore will come to NHAI in the next 20-30 years, according to the road ministry. While the developers will pay lower amount in the initial years, they have to pay higher amount in the later part of the period to fulfill the commitment.

For both six-laning and four-laning of highway projects, during operation and maintenance period, annual cash flow surplus subsequent to fulfilling debt servicing and other obligations, will have to be used mostly towards premium payment. The objective is to ensure that NHAI gets the entire premium at least three years before the contract period ends, said a source.

Developers were complaining about difficulties in premium payment due to slowdown in traffic amid a weak economy. Many projects, which were awarded could not take off, while many on-going projects were getting stuck. The committee felt that a reduction and deferment of premium payment in the initial period and increasing the amount in the later, when both traffic growth and collection of toll are expected to go up, will help the developers.

Source-http://timesofindia.indiatimes.com