Highway-Projects

Photo: Illustration only/www.nhai.org

In an attempt to provide thrust to the highway sector, the Cabinet Committee on Economic Affairs chaired by Prime Minister Narendra Modi recently approved two major policy initiatives that will not only improve availability of equity in the market for new highway projects but also allow the National Highways Authority of India to intervene in cases of languishing BOT projects that are stuck due to lack of funds.

In the last few years, a significant number of national highway projects could not be awarded in the public-private partnership mode due to lack of availability of equity in the market among qualified bidders. The CCEA has now approved a comprehensive exit policy framework allowing concessionaires and developers to divest 100 per cent equity two years after completion of construction in all BOT projects. The CCEA decision concerning equity divestment is expected to help unlock equity from completed projects and make it available for new projects. The decision will also harmonise conditions uniformly across all concession agreements signed prior to 2009 with the policy framework for post 2009 contracts which permits divestment of equity up to 100 percent two years after completion of construction.

There are 80 such BOT projects awarded prior to 2009 that have been completed and the locked in equity in these projects totals approximately Rs.4,500 crore. This equity, once unlocked and re-invested in new projects, can support 1,500 km of new highways in the PPP mode.

Languishing projects
The other policy initiative approved by the CCEA aims to salvage languishing BOT projects through fund infusion by the NHAI. At present, out of the ongoing 240 PPP projects, many are languishing due to delays in land acquisition and grant of statutory clearances as well as local issues and shortage of construction materials. With the CCEA approving special intervention in case of projects that are in advanced stage of completion but stuck due to either lack of additional equity or lender’s inability to disburse further, the NHAI is authorised to provide funds for such projects from within its overall budget/corpus on loan basis at a predetermined rate of return. The loan has to be recovered along with interest as the first charge from toll receipts immediately after completion of construction. The NHAI will develop a robust mechanism to determine the eligibility of a project for special intervention and also the extent of funds required to complete these projects in time-bound manner. About 16 such projects are languishing in various part of the country.

“These are very positive developments for the highway sector. These initiatives could have been taken earlier. It took almost two years to decide on these initiatives. With regard to the exit policy, the National Highways Builders Federation had suggested to the government that developers should be allowed to divest 100 percent equity immediately after completion of construction. Developers are generally keen to divest immediately after completion of construction and move to other projects. The exit policy approved by the CCEA allows concessionaires and developers to divest 100 per cent equity two years after completion of construction, but even then, it is a positive measure for the highway sector. The second decision of the CCEA which authorises NHAI to infuse funds into projects that are in advanced stage of completion but stuck due to lack of additional equity or lender’s inability to disburse further will also provide momentum to the sector. Many of such projects were facing difficulties because of the economic slowdown as well as escalating project costs and high interest rates. Banks were also reluctant to lend further to these projects. Fund infusion from NHAI will now help developers complete the projects,” M. Murali, Director General, NHBF, told Projectmonitor.


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