The Ministry of Road Transport and Highways earlier this month finally gave its go-ahead to the recommendations of the Expert Group constituted as per directions of the Cabinet Committee on Economic Affairs for framing guidelines so as to enable rescheduling of premium payment in case of stressed highway projects. The Ministry of Finance had already given its go ahead for the proposal.
The MoRTH had proposed a policy for rationalization of premium quoted by concessionaires in respect of highway projects before the CCEA in September last year. The policy was proposed on the basis of recommendations made by the board of National Highways Authority of India with the primary objective of reviving those projects that currently face financial stress due to the economic downturn. Prior to that, several representations were received, both by the MoRTH and the NHAI, from concessionaires of projects awarded in the Public Private Partnership (PPP) mode for restructuring of premium committed during the bid stage.
In October last year, the CCEA after considering various options related to the policy proposed by the MoRTH, approved rescheduling of premium as a onetime measure for all stressed projects provided the NHAI board identified such projects on the basis of a transparent framework and subject to the approval of MoRTH. It further directed the constitution of an Expert Group headed by the Chairman of the Economic Advisory Council to the Prime Minister for developing a framework in order to determine whether a project was stressed or not, the discount rate to be used and the conditions to be imposed. Subsequently, an eight-member Expert Group under Dr. C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister, was constituted.
The original proposal of the MoRTH before the CCEA envisaged that the stressed projects could be salvaged by giving certain concessions in the form of deferment of premium payable in the initial years to later years keeping the Net Present Value of the overall premium payable same by using a suitable discount rate to be determined by the Expert Group. However, the Expert Group during deliberations felt that the same relief could be provided by invoking the provisions contained in Article 28 of the Model Concession Agreement, modifying it to include economic stress as one of the criteria for the Article to be applicable. It opined that the subsistence revenue shortfall that arose by invoking Article 28, modified in the case of premium projects, might be treated as deferment of premium and repaid subsequently. The Expert Group thought that it was rational to adhere, as far as possible, to the existing concession framework with minimum deviations rather than adopt the approach of separately defining stressed projects.
The Expert Group submitted its report on January 22nd this year.
In a letter dated March 4th, 2014, addressed to the Chairman of NHAI, the MoRTH said that the recommendations made in the report of the Expert Group had been examined in consultation with the Ministry of Finance and accepted. It, however, pointed out that financial stress as per Article 28 of the MCA would be limited to premium payment and not linked to any cash shortfall on account of operation and maintenance or debt servicing. Also, concessionaires of only those stressed projects awarded till March 4th, 2014, could seek rescheduling of premium payment. The NHAI board would decide each case on merit imposing conditions as deemed appropriate to protect the interests of the government.
As per the report of the Expert Group, a stressed project is one having subsistence revenue shortfall as stated in Article 28 of the MCA.
The report said that though the provisions of Article 28 of the MCA only applied in case of an indirect political event, a political event or an Authority default, considering the economic slowdown and the fact that the sector was experiencing unprecedented difficulties, economic stress could be treated as one of the factors for invoking the provisions of Article 28 of the MCA.
With the acceptance of the recommendations of the Expert Group, concessionaires of stressed projects can now approach the NHAI for deferring the premium due to the extent of the subsistence revenue shortfall, including during the construction phase in case of six-lane projects, in accordance with the conditions laid down.
According to the National Highways Builders Federation, the NHAI has already started accepting applications for rescheduling of premium payment from concessionaires of stressed projects.