The Prime Minister?s Office and the Planning Commission have set in motion a plan to accelerate the ambitious national highway building programme, currently hamstrung by the bureaucracy. They have decided to make necessary changes in the law and bid documents to do away with various redundant controls on investor freedom and suitably empower the ministry of road transport & highways to achieve the goal of building 20 km of highways a day in the remaining tenure of the UPA government.
The lock-in clause that prevented investors from exiting a road project during its entire concession period would go. Also, developers of high-traffic stretches would now have the freedom to remain, as long as they agree to take up further expansion like six-laning. These changes, along with a slew of amendments to the bidding and qualification norms for road projects, would remove crucial deterrents to the highways programme, Planning Commission member BK Chaturvedi, who heads a panel to revamp investment norms for the road sector, told FE.
?The PM wants outcomes. The Planning Commission has suggested delegation of authority to the administrative ministry for implementing the projects,? Chaturvedi said. The ministry will soon have the flexibility it needs to ensure that projects get off the ground. ?Whatever changes we could recommend for the request for qualification and request for proposal, we already have. The ministry can now make the other changes required to make the sector investor friendly,? Chaturvedi said.
One of the interesting ideas on the table is extending a government guarantee for loans taken by developers for road projects–to the extent that proceeds from the road cess and the developer?s other sources don?t fulfil its loan repayment capacity. ?The approach is to look at the size of the cess fund and then estimate the funds required to build roads over the next four years based on a cash-flow analysis. The developer should be able raise this amount. The idea is to increase his fund-raising ability by providing government guarantee,? Chaturvedi said.
He said a clause, which specified when the government could ask a company to leave a project, has been modified. ?Suppose in a 15-year road concession agreement on a four-lane highway, after three years, the traffic grows very quickly and the whole project needs to be redone. The concessionaire was then asked to get out and the whole thing would have to be re-bid. In a way, investors were being punished for taking up good projects. We have decided to change this,? Chaturvedi said, adding, ?Now we have decided that the existing concessionaire would be given the right of refusal on the expansion project.?
Another concern was the exit clause. Apart from a five-year lock-in period, an investor was required to retain at least 26% stake in a project throughout the concession period. ?The investor?s money was blocked to that extent, preventing them from bidding for other projects. We have allowed them now to exit from a project two years after it is commissioned. But the new company to which he sells stakes must qualify under the norms.? So, smaller players will have an exit route and large players with financial muscle can enter projects at later stages.
?The problem was that these (earlier norms) were made in the context of best practices internationally. Now, we want a huge development plan and for that we need a large number of players,? Chaturvedi said. The roads ministry will notify the panel?s report after Cabinet clearance.
Among the most contentious issues between the ministry and the government think tank was the basis on which projects must be awarded: build-operate-transfer (BOT) or annuity, where a developer builds a road and payment is made over a period of time. ?Some believed that all projects should be BOT, which is not feasible. In Jammu Kashmir and the northeast, BOT projects won?t take off, as they are high-risk. We have said that these projects should either be engineering-procurement-construction or annuity-based. For the rest, we have come up with a norm on the basis of which it would be decided whether a project is to based on BOT or annuity. This was a major source of dispute,? the commission member pointed out.
Stringent qualification and conflict-of-interest norms have also been swept away. ?If one company holds 1% equity each in two players, there?s a conflict of interest. Now, a whole lot of mutual funds hold such stakes in different players. What happened was a lot of players started complaining against each other. We have said that this threshold should be 25%–if the concern is collusive bidding, then the common investor must be able to control the affairs of two bidders. Even without a common stakeholder, bidders who know each other personally can collude,? Chaturvedi said.
Similarly, qualification norms that worked against smaller players as well as foreign investors–by mandating that developers have experience of implementing twice the size of project being awarded–have been done away with.