The C Rangarajan panel recommended the guidelines prescribing bailout packages for developers of highway projects and the task of implementation lie with the National Highway Authority of India (NHAI.

The panel recommended that 75% of the premium amount payable to the government will be restricted in the first three years of the contract.
Further it recommended that the road developers should submit the entire premium amount three years before the completion of full contract. At present companies pay some amount of premium to the government in the first year of the project which keeps increasing in the subsequent years.

The panel’s recommendations, if accepted, will lead to huge reduction in the premium payment in the first years. As a result, it will provide relief to the developers like GMR Infrastructure Ltd and GVK Power and Infrastructure Ltd and 23 other road developers.

Background

The panel was appointed by the Government in October 2013 o fine-tune and decide all terms and conditions of the bailout policy for the road developer who were pulling out of road projects due to the premium burdens.

The six-member panel is headed by the Prime Minister’s Economic Advisory Council Chairman C Rangarajan. The other members of the panel include Secretary Planning Commission Sindhushree Khullar, Expenditure Secretary R.S. Gujral, Secretary, Economic Advisory Council Alok Sheel, Roads Secretary Vijay Chhibber, Joint Secretary Road Transport and Highways Rohit Kumar Singh and Chairman National Highways Authority of India (NHAI) R.P. Singh.

Earlier in October 2013, the Cabinet note, which included suggestions of the finance ministry, planning commission and law ministry, had suggested that developers pay a discount rate of 12% on the premium payment and also pay a penalty of up to 0.5% of the total project cost in case default was on their part.

The proposal says if toll revenues turn out to be more than projected, the money left after servicing debt and other necessary costs would go to NHAI as advance payment.

Further the concessionaire cannot claim return to equity till premium equals or exceeds what was originally quoted for that particular year.

The highways sector has seen a drastic reversal of fortune since 2012-13 with developers and financiers steering clear of the sector even while multiple projects have failed to take-off.

The National Highways Authority of India (NHAI) managed to award only 479-km till now as against target of 3000 kms by September 2013. In the previous financial year, only 1,116-km was awarded against the target of 9,500-km.