FE Editorial : Road to financing
The Financial Express: Dec 07 2012, 02:07 IST
With nearly 20 highway projects on hold due to delays in financing, the government has done well to find new ways to add to the comfort of lenders. Under the current scheme of things, there is a tripartite agreement between the project developer/concessionaire, the financier and the National Highways Authority of India (NHAI) which is the concession authority. So, should NHAI choose to terminate the concession for instance, 90-100% of debt payment is guaranteed by NHAI. Similarly, under certain conditions, NHAI can appoint another concessionaire to run a project if the original concessionaire is not doing a good enough job—this is one of the possibilities being discussed in the context of the Delhi Gurgaon expressway where traffic pileups are legion. While some believe that the lender also has a similar power to replace recalcitrant concessionaires with new ones to safeguard their investments, this is not explicitly provided for in the model concession agreement (MCA).
This is what the government is now planning to introduce in an explicit manner in the MCA. This is important because even when the MCA talks of refund of debt, more often than not, banks lend far in excess of the termination value of most projects. So, if NHAI values a road at R1,000 crore at the time it is being bid out, banks may lend the project R2,000 crore based on traffic projections. In which case, the promise of a R750 crore refund (assuming at 3:1 debt-equity ratio) doesn't really provide any manner of comfort for
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