Most banks that have exposure to stranded highway projects have objected to the government’s proposal to accord the National Highways Authority of India (NHAI) first charge on the receivables from projects where it would infuse funds under a policy cleared by the Cabinet recently.
Though over 3,500 km of under-construction highway projects, hit by time and cost overruns, are at risk, the government hopes that at least 16 stretches with combined length of 2,000 km could be revived with the help of the NHAI’s one-time funds infusion.
According to official sources, lenders including State Bank of India (SBI), IDFC, Yes Bank and Bank of India are of the view that since they had invested in these projects long back, they should get to recover the amounts first. Since NHAI’s funds would come in towards the end of the construction phase, it could wait and recover the money later, they argued. While many of the lenders have written to the ministry of road transport and highways (MoRTH) expressing this view, the issue was also flagged by the CMDs of some of the PSU banks during their recent meeting at North Block with the finance minister Arun Jaitley.
So far, developers of at least six projects — including five BOT-toll ones and one based on the BOT-annuity model — have applied to the NHAI for the bridge-funds. The NHAI loan, under the plan approved by the Cabinet in October, will carry an interest of 9.75% (bank rate plus 2%).
Sources said the MoRTH is unwilling to accept the demand of the bankers for first charge once NHAI infuses the funds. “Since NHAI is not a regular lender and it is stepping in just for public interest with a one-time fund infusion, the authority should get its money back first,” a ministry official told FE. However, seeking to downplay the apparent rift between the ministry and the lenders, the official said, “Banks are coming on board. They have realised that if they don’t, their entire investment will be gone for ever. There is a certainty that after completion of the project, they would get their money.”
The sources said that six projects that have already sought NHAI funds have a total length of 350 Km. Banks have around Rs 4,400 crore exposure to these projects. “In at least three cases —Cuddapa-Kurnool, Farakka-Raiganj and Behrampur-Farakka — where physical progress has been to the tune of 73-88%, lenders including IDFC and Yes Bank have not agreed with the Centre’s proposal,” a source said.
A fourth project at Indore on the Gujarat-Madhya Pradesh border, the promoter IVRCL is no longer interested to complete the project even as 87% of the construction has been completed. Bank of India had financed the project. The Raiganj-Dalkhola project, being developed by HCC and financed by Yes Bank, has been completed just 9% so far and thus, not eligible for one-time funding as the physical progress has been less than 10%.
The government has also recently authorised NHAI to extend the “tolling period” of under-construction projects facing time overruns based on independent assessment of delays not attributable to the developer, but without changing the operations period as in the original concession agreement. In the case of annuity projects, the developer, on completion of the project, would get concessional extra annuity corresponding to the period of delay not caused by him. The period of delay that can be attributed to the developer will be assessed by an independent engineer. In both cases, the projects will need to achieve physical completion in the next three years.
“We came out with the proposition that if it is clearly established that the delay happened because government did not fulfill its commitment, regarding land acquisition, regarding regulatory clearances, then it will determine the amount of delay and compensate the concessionaire by the same amount by increasing the concession period,” an official said.