Ashutosh Kumar
In what could be seen as an extension of a helping hand to the highways construction sector, the government has approved increase in the concession period of certain stretches, in addition to upward revision in cost of the projects. The sector has remained a non-performer throughout the year as the National Highways Authority of India (NHAI) could not award a single big-ticket highway project this year.
The Cabinet Committee on Economic Affairs (CCEA) approved the increase in concession period in case of ten projects worth around Rs 12,465.65 crore. In case of the road projects, which are long-term projects, the concession period is normally 20 years, including a three-year construction period. Now in the case of the ten projects the government has increased the concession period up to 25-30 year period. (See Table).
Also, with the cost of the projects being revised upwards, the private concessionaire will be able to access more government grant, even as it is capped at 40% of the project cost. NHAI provides an upfront grant of 20% at the time of commencement of the project and the balance 20% is given during the maintenance phase. NHAI recently increased the cost of the projects for which the detailed project report was prepared in 2007 by 10%. The projects for which the detailed project report was prepared before 2007 has been revised upwards by 20%. peaking on the rationale of the increase in concession period, a top NHAI official said, ?This will entitle the private concessionaire to collect toll for a longer period of time. With the increased scope of revenue generation, there will be lesser risk for the participant and will also make projects more viable.?
However, experts feel that tying up loans for projects with such long concession period will be a problem as the banks may not prefer such long-term lending. ?The concession agreements in the country do not have scope for project restructuring or selling the projects to another interested parties mid-way and also the market is not developed enough. In this scenario, the banks are not likely to opt for project funding for such long tenure. Even if they do so, they may introduce clauses like increase interest rate mid-way,? said Vishwas Udgirkar, partner (Infrastructure), PricewaterhouseCoopers.
?The concession period is being increased as the projects were not viable in a short-term period. However, a major part of the construction companies in the country are contractors who wish to go for short-term projects. So the move may fail to strike a chord with the highway builders,? he added.
However, NHAI feels tying up funds will not be a problem as they are many institutions that can be approached for the purpose. ?Apart from the banks, there are other agencies like Infrastructure Development Finance Corporation, India Infrastructure Finance Corporation along with the overseas lenders like Asian Development Bank. For them long term or short term financing hardly matters. So there will be many credit lines open to the highways construction companies,? said the NHAI official.