NHAI likely to compensate PPP projects awaiting govt approval

Feb 19 2013, 08:55 IST
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This is the first time the government is discussing ways to compensate PPP projects for delays. (Reuters) This is the first time the government is discussing ways to compensate PPP projects for delays. (Reuters)
SummaryThis is the first time the government is discussing ways to compensate PPP projects for delays.

In a first, road projects under public-private partnership (PPP), which are lagging due to delay in approvals from the government, may soon get compensation from the National Highways Authority of India (NHAI).

The compensation was one of the issues discussed during a meeting at the Prime Minister’s Office (PMO) on Monday. However, a final decision is yet to be taken on the issue.

This is the first time the government is discussing ways to compensate PPP projects for delays.

Till now, increase in project cost of engineering procurement contract (EPC) projects due to delay have been compensated. “Compensating the concessionaires for delays in getting environmental and other mandatory clearances was discussed. Any kind of compensation would not be for a particular project but all road projects in general,” said a government source in the know.

Delay in approvals and increase in input cost have led to two large road developers — GMR Infrastructure and GVK Infrastructure — terminating contracts with NHAI.

GMR Infrastructure terminated 555-km Kishangarh-Udaipur-Ahmedabad project and GVK Infrastructure terminated the contract for 220-km Shivpuri-Dewas project.

NHAI chairman RP Singh had said that GMR terminated the contract because the project became unviable for them.

The company had won the contract in July 2011 but the project did not receive environment clearance till December 2012, thus increasing the project cost.

The other issues that were discussed were allowing an early exit option for a developer and recognising the total project cost (TPC) made by a concessionaire.

The exit option clause will be relaxed for the developer and allow a company to exit a special purpose vehicle, formed for a particular road project, anytime the company wants to.

Currently, a developer can exit the project two years after the project starts commercial operations.

Recognising the developers total project cost will allow the banks to give the developer money according to their TPC.

The total project cost of any projects given by NHAI differs from the TPC of the developer almost all the time and the differences at times are as high as 20 per cent.

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