NHAI will no longer get Rs.9,000 cr from GMR, knocking the bottom out of its financing plan
The GMR Group has walked out of the 555-km long Kishangarh-Udaipur-Ahmedabad National Highway, 16 months after it won this in a bid in which it promised to pay the National Highways Authority of India (NHAI) over R9,000 crore on a net present value (NPV) basis. The company issued a Notice of Intention to terminate the agreement to NHAI under clause 37.2 of the concession agreement last Friday.
An NHAI official confirmed getting the notice and said NHAI had been asking the environment ministry for clearances for a long time. Even the PMO has issued instructions on the matter. The GMR spokesperson refused to comment on the matter.
Sources said the GMR Group has said NHAI has not done what it had promised to do under the contract and so this was a “material default” on its part. Not only had NHAI failed to get the necessary environment clearance for one of the tunnels along the highway — under the contract, this was NHAI’s obligation — it had not even asked the GMR Group for more time to do this. “Therefore the Authority”, the GMR letter says, “has been in continuous default in complying with the provisions of the Agreement. The Authority has thus clearly repudiated the Agreement.”
NHAI has up to January 4 to reply to the notice, after which GMR is likely to issue a termination notice as per clause 37.2.2.
According to sources, while the GMR Group brought in R800-850 crore as its share of equity in order to achieve financial close in May this year, it also mobilised around 300 workers for six-laning of the four-lane highway.
Apart from the environment clearance, NHAI has also not notified toll rates for the highway. Last year, in order to make road projects more viable, the government had decided to allow concessionaires to collect toll on the basis of a six-lane expressway even while the highway was being expanded from four lanes to six.
While this was opposed by sections of NHAI, they were overruled as not doing this would only increase the amount of viability gap financing (VGF) that wannabe concessionaires would demand from NHAI. So, while the GMR Group was paying interest on the funds it had raised, its ability to raise higher revenues had been compromised.
For 33 projects bid out in 2011, NHAI officials had estimated that they would have to pay out VGFs of Rs 3,400 crore on an NPV basis, they actually got bids that would pay NHAI Rs 19,000 crore on an NPV basis – around half of this was from the GMR Group’s Kishangarh-Udaipur-Ahmedabad highway.
Since most of NHAI’s projects involve NHAI paying out VGFs, its ability to award more projects depends on the funds (“negative grants”, in NHAI jargon) it gets from concessionaires like GMR. It was due to this funds constraint that, a couple of years ago, Planning Commission official Gajendra Haldea had written a paper on NHAI called “Sub-prime highways”.
* NHAI says it has been trying to get clearances
* Securing green nods was NHAI’s job, as per contract
* Authority yet to notify toll rates for the highway
* GMR reportedly brought R800-850 cr for project
* NHAI has time up to Jan 4 to reply to the notice