In a recent letter to the Prime Minister's Office, the ministry of road transport and highways has reiterated that the Infrastructure Development Finance Company (IDFC) doesn't qualify to be a lender to the Delhi-Gurgaon Expressway Project.
The clarification comes after the PMO sought the ministry's views on a communication from IDFC executive chairman Rajiv Lall, alleging that the ministry and NHAI's stance was “frustrating” and that the two have “inadequate knowledge of infrastructure financing”.
According to sources, secretary, highways, Vijay Chhibber, in a reply to the PMO, said IDFC lending to DS Constructions -- the developer of the expressway -- was “a clear case of violation of provisions of concession agreement", and the consortium led by IDFC does not qualify as a recognised lender.
Recognition of IDFC as a lender is a prerequisite for its getting substitution right to replace DS Construction as developer. DSC has defaulted several times under various clauses of the model concession agreement.
"It is not for IDFC or concessionaire to examine and satisfy whether the loan of R1,600 crore had the effect of increasing the financial liability or imposing any obligation on NHAI... Thus, it is incorrect to argue that the loan of R1,600 crore has not increased financial liability or obligation on NHAI," Chhibber said.
The road ministry has also said in the letter to the PMO that it favours the termination of the developer's contract. The NHAI, which is in a running battle with DS Construction over the poor management of the expressway, had served a termination notice to DS Construction last year. NHAI which had, in January last year, backed a proposal to allow IDFC to buy out 74% of the project’s equity — IDFC was to take on the project’s entire debt and buy 74% of DS Construction’s equity for a token Re 1 –— had since changed its stance and said it does not even recognise IDFC as a bona fide lender to the project.
The project has an interesting history, with an initial loan of R383 crore given by a Hudco-led consortium. In January 2009, however, DS Construction had approached NHAI to substitute this consortium with one led by SBI — the loan component was then raised to R1,275 crore. NHAI’s consent was required, since under such concessions, NHAI agrees to pay most of the debt in case a project is terminated. Later, DSC took a R1,600-crore loan from the IDFC-led consortium, without the NHAI's consent.
Chhibber stated: “Increasing or imposing financial liability and/or obligations on NHAI with respect to termination payments, insufficient operation and management funds, etc, in the case of this project has put it to jeopardy, leading to termination. Further inflated project/ cost/claims of EPC contractor, diversion of project funds to parent company in form of loan/ICD, and IDFC's questions of the limited financial liability of NHAI in the absence of its knowledge that the change of lenders is not the prerogative of NHAI is also answered in a detailed submission of views to the PMO by the road ministry.”
On the point raised by Lall on the risk to the exposure of PSU banks and the adverse impact on infrastructure financing by banks and financial institutions, the ministry has stated that though it does not want that to happen, after the failure of an MoU signed in 2011 and the backtracking of IDFC to buy out the project, the ministry is left with no other option.
Reaching out to PMO was IDFC's last-ditch effort to save the consortium from a loss of around R1,400 crore. IDFC contends that since NHAI and the road ministry have rejected all their applications for the negotiation on termination, it had no option but to go to the PMO.
The Delhi High Court is slated to hear the NHAI-DSC-IDFC case on Wednesday.