Delays in land acquisition and not reduced lenders’ interest are holding up highway projects in the country, finance minister P Chidambaram said in a recent letter to the minister for roads, CP Joshi.
In his letter, Chidambaram said the National Highways Authority of India (NHAI) should ensure that 80% of the land required for a project is physically handed over to the developer before he is appointed by the authority and should work towards a system where 100% of the land is with it before inviting bids for projects.
The finance minister made these comments in response to a letter from Joshi who blamed delays in financial closure for the logjam in road projects worth over R23,000. Joshi had proposed a slew of measures to “revive” investor interest in the road sector.
These included giving developers the option to exit from a project immediately after the commercial operations date (COD) to unlock the equity stuck in projects and providing lenders explicit freedom to step in and take over the project or propose a new buyer to recover loans in case of any failure in project execution/revenue mobilisation.
Separately, the NHAI is putting pressure on the ministry of environment by threatening to move the Supreme Court against the latter's apparent refusal to de-link environmental approvals and forest clearances. The NHAI pointed out that in many big highway projects, forest clearances are relevant for only small stretches but the whole project gets stuck as forest clearances precede final environmental approvals.
According to sources, the finance minister has noted that about two dozen projects are awaiting financial closure because of non-availability of the required land and not because banks have liquidity issues or are reluctant to lend to road developers. Recently, banks had put the condition of 100% availability of land with NHAI as a prerequisite for funding any highway project.
With road developers putting in aggressive bids to bag projects last year promising premium to the government rather than taking financial support in the form of viability gap funding (VGF), certain banks have reportedly questioned the ability of developers to service long-term loans. Questions have also been raised about the ability of project developers to take additional debt at a time when repayment for previous projects have started.
The NHAI is required to hand over 80% of land to the developer before a project starts but has often