Amid growing interference of the Planning Commission and Department of Economic Affairs, Ministry of Finance, in policy issues relating to the road sector, highway builders have written to the Chairman of the Economic Advisory Council to the Prime Minister Dr. C. Rangarajan insisting that the decision of the Cabinet Committee on Economic Affairs to allow rescheduling of premium quoted by concessionaires in respect of highway projects be followed.

Following the CCEA’s decision with regard to rescheduling of premium payment, the Ministry of Finance set up a committee headed by Dr. Rangarajan to formulate guidelines for restructuring the premium in case of stressed highway projects. A source associated with the road sector told Projectmonitor that the measures suggested in the report finalized by the committee favored highway developers and if implemented, would provide a significant boost to the languishing projects.

Highway_ProjectsMonitorIn a recent letter addressed to Dr. Rangarajan, the National Highways Builders Federation said that the road sector was facing a major crisis due to the economic downturn. Most of the projects awarded in the BOT mode during the last one year, according to the representative body of highway developers, had failed to achieve financial closure and even those with appointed date were unlikely to be completed within a reasonable period of time.

The NHBF in the letter pointed out that highway developers quoted high premium for bagging projects from the National Highways Authority of India taking into consideration the economic growth earlier projected by the Planning Commission. A GDP growth of 9 to 10 percent would have led to a traffic growth of 13 to 15 percent over the concession period making the high premium quoted by highway developers affordable, it said.

Focusing on the present economic scenario, the NHBF said that the low GDP growth had resulted in lowering of the projected traffic growth though the amount of premium payable by the highway developers remained the same with an annual increase of 5 percent. Taking into account the equity crunch, high interest rates and rising construction costs, the projects bagged through quoting high premium had become unviable, it said.

Stressing that rescheduling of the premium quoted by concessionaires would not only help revive the road sector but also the economy, the NHBF said that similar relief had been provided to the telecom sector.

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