Govt to clear lenders road project blocks

Written by Timsy Jaipuria | New Delhi | Updated: Dec 5 2012, 05:55am hrs
In an attempt to revive lenders interest in highway projects, the government is planning to provide them the comfort of being able to change the concessionaire in the event of suspension. At a recent meeting attended by representatives from the ministry of finance, Planning Commission, the roads and highways ministry and NHAI, it was decided to include an explicit provision to this effect in the model concession agreement (MCA).

Currently, the relevant clause Article 5.2.4 of MCA does not clearly provide for the lender to step in and take over the project or propose a new buyer to recover loans, making it difficult for it to recover loans from the developer or NHAI in case of any failure in project execution/revenue mobilisation.

Sources said the meeting agreed on the need for NHAI to physically hand over 80% of the land (right of way) to the developer before he is appointed by the authority. In the case of new alignment including bypass, 100% of the road portion will be in NHAIs physical possession before the appointed date. This decision was taken in view of the failure of NHAI in making available all the requisite land for projects in time, due to which developers often fail to start operations as scheduled and meet toll targets.

Sources said secretary-financial services DK Mittal had stressed that NHAI should make 100% of required land available for road projects before inviting tenders. However, the authoritys chairman RP Singh contended that giving 100% right of way to the developer before the bidding would cause significant delays in a sector where investments have already slowed down. As a solution, Singh said the authority would accept partial COD (commercial operation date) where 100% land is not made available in time.

Sources said NHAI would now bring an inflation-indexed mechanism in consultation with the Planning Commission to appraise total project costs (TPC), a move that could reduce the divergence between its estimate and that of lenders.

Explaining the rationale behind the move to give lenders added safety over project failures, CII infrastructure committee head Vinayak Chatterjee said: With many developers having limited creditworthiness and little investor interest, there is a need to ease liquidity. The proposed changes will allow lenders to buy out stalled old projects, enabling them to try and prevent the assets from turning into an NPAs.

In the roads and highways sector, 18 projects are stuck due to delays in financial closure. While 39 projects await environment and forest clearance, six are on hold because of delay in wildlife clearances.

Besides, there are over 30 projects above Rs 1,000 crore which has already been awarded, but not executed so far.