Road premium: Panel set up to resolve tussle

Oct 09 2013, 03:31 IST
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SummaryThe government on Tuesday decided to set up a committee to resolve inter-ministerial differences on a proposal to reschedule premium payments for over three-dozen road projects.

The government on Tuesday decided to set up a committee to resolve inter-ministerial differences on a proposal to reschedule premium payments for over three-dozen road projects.

According to sources, the Cabinet Committee on Economic Affairs (CCEA) wants the panel to be anchored by the cabinet secretariat to finetune the proposals sent by the ministry of road transport and highways in this regard.

Earlier, the finance ministry and the Planning Commission had disagreed with the road ministry's package for these projects, which entailed rescheduling of premium in excess of Rs 1 lakh crore. The finance ministry called the rescheduling a moral hazard as it involves “uncalled-for change in contract norms” and insisted that any such succour would also come with the developers taking a haircut.

The road ministry has proposed that either these projects of developers — that have run into problems due to the slowdown and delayed clearances — be scrapped or the rescheduling be allowed in an optimal manner. The premium recast formula includes no change in net present value (with discount rate of 12%) and a penalty of 0.5% of the total project cost.

"Some parts of the proposal — like the NPV should not change and only once in the life of the concession, the relief be allowed — have been accepted by the CCEA. However, further finetuning is needed for a prudent approach. A a committee will look into that. The proposal has not been accepted in the entirety, but has not been rejected either," a senior government official told FE.

Commenting on Tuesday’s development, national highway builder federation (NHBF) director general M Murali said: “Selective approach in allowing rescheduling of premium is what we do not want. If the Cabinet has accepted the proposal to allow premium rescheduling, it is a welcome move for the sector, but any policy amendment needs to be extended to all premium projects, irrespective of any condition. Those who want to opt for it should be allowed for he relief; that’s all we are asking for."

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