With fewer than ten hybrid annuity model (HAM) road projects having achieved financial closure so far, banks have proposed several changes to the model concession agreement (MCA).
Lenders that FE spoke to said the interest payable by National Highways Authority of India (NHAI) on loans taken by the developers, is too low. The rules stipulate the interest be fixed based on the bank rate plus a spread of 3%. Bankers have suggested to MoRTH, the interest be bench-marked to the the base rate of State Bank of India (SBI) or the average base rate of five banks plus a 3% spread.
Moreover, banks also believe the compensation or termination charges, in the event of the concessionaire’s inability to complete a project, should be 100% of the debt due, since, on CoD, the entire debt would have been drawn, except the operations and maintenance (O&M) payment. Currently, the rules for hydrid annuity projects stipulate a far lower level of compensation to the lenders which is worrying them.
Lenders also want NHAI to not insist on a guarantee for extending an advance in the early stages of construction. Also, NHAI have given themselves a time-line of 240 days for fulfilling the conditions precedent (land acquisition, right of way, etc), while developers get just 150 days to achieve financial closure. Since this is a public, private, partnership (PPP) project, there should be equality in everything, one of the lenders present at the meeting with MoRTH, told FE. A group of bankers had met and made a representation to the minister of road transport and highways (MoRTH), Nitin Gadkari, on October 21.
Some of the HAM projects were awarded as far back as December 2015 and March and April 2016. As per the rules, developers need to achieve financial closure for projects awarded to them, within 150 days (five months) of signing the agreement. Among the projects that were bid out in March and April, MEP has achieved financial closure for two projects while four more are under evaluation.
Two projects awarded to MBL are also being evaluated as is the the Delhi-Meerut Expressway, Package III, awarded in December 2015. Sadbhav has achieved financial closure for two projects while Eagle Infra confirmed to FE that financial closure for its sole HAM project (awarded in April) is taking longer than expected. Gawar Infra is understood to have returned the project it had been awarded, to NHAI, i.e. Samarala Chowk to Ludhiana.