The finance ministry wants highway developers ? who are keen to reschedule premium payments worth over R98,000 crore during the project implementation period ? to approach infrastructure lending major IIFCL for financing the premium amount.
Simultaneously, the ministry has also called for stringent norms in all cases where premium payments have been sought to be postponed because they involve long-term commitment by the highway developers to the lenders, official sources told FE. The proposed norms include close monitoring of mandatory equity holding in the projects up for rescheduling as well as tight supervision of rescheduled payments linked to toll collection.
While the toll collected would be the minimum payment requirement in the initial years as per the new schedule, analysts have said the back-loading of premiums could strain developers in the final years if the growth in toll collections falls short of estimates.
Many developers had bagged projects in 2011 offering high premiums to NHAI to develop and operate highways for as long as 30 years. The annual premium rate is finalised via competitive bidding. Owing to the economic slowdown and delays in statutory clearances, several developers are facing difficulties in project implementation and want to reschedule the payment of premiums.
Developers such as GMR and GVK have exited major highway projects, such as Kishangarh-Udaipur-Ahmedabad and Shivpuri-Dewas, respectively, citing delays in environmental clearances and problemsin land acquisition. GMR had written to the Prime Minister’s Office (PMO) and the National Highways Authority of India (NHAI) that the company would reconsider the project if the premium payment is rescheduled .
With the highway sector facing a crisis, NHAI chairman RP Singh had written to the government, including the PMO, to solve the issue of the developers? demand to reschedule premium payments and help revive the sector. The matter was referred to the law ministry, which then asked the finance ministry to sort it out with the developers and bankers.The finance ministry is sympathetic about the issue raised by the developers. Ministry sources told FE that in the present economic scenario, front-loading of premiums could, in many cases, ?destroy? projects as it will make it difficult for developers to pay the amount in the initial years.
Therefore, the ministry has in-principle agreed to ?back-loading? or rescheduling of premium payments, albeit with the earlier said stringent norms. An official added: ?If the developers want back-loading, they can make use of the specialised infrastructure debt finance kind of a set-up. They can take up this matter with IIFCL to utilise their (IIFCL?s) take-out finance scheme.? The ministry also wants the NHAI to hold meetings with developers and bankers to resolve the issue.
However, analysts said that while proposing financing by IIFCL, the government should also consider the risk taken by the company. ?The cost of financing has to be borne by the developer. The solution should take care of the risk of the developers and IIFCL. I personally do not think IIFCL would like to take this much of a risk,” said Sanjay Sethi, senior executive director and head of infrastructure group at Kotak Investment Banking.
The finance ministry, however, is in agreement with the road ministry that in case rescheduling of premium is allowed, the developers should not use the revenues earned from toll to develop the highway. NHAI has also suggested that the entire cash flow, after meeting the requirements of the project and debt-servicing obligations, shall first go towards premium payment.
Although IIFCL sources told FE the company has so far not received any formal communication from the government to finance the premium amount, they added it was ready to help the developers in this regard by extending long-term loans. ?IIFCL can refinance the premium amount, but for this to be done, the Union Cabinet will have to modify the SIFTI (Scheme for Financing Viable Infrastructure Projects) through a special purpose vehicle called IIFCL,? an IIFCL official said.
NHAI had earlier backed the demand to reshedule premium payments, saying it neither affects NHAI’s net revenues during the contract period nor results in higher gains to developers. The rescheduling will only help developers to better manage their accounts in the initial period of the project, thereby ensuring that the project does not fail, the NHAI said.
Experts project that once GDP starts growing, every percentage growth of GDP leads to 1.5% traffic growth on highways. Companies factor in such projections and only then do they place their final bid.
Vishwas Udgirkar, senior director, Deloitte India, said, ?Rescheduling or refinancing will not be the solution ? one needs to understand that the premium projections made by these developers is way too high and the risk will come to the government in an event of default even after rescheduling of premium. The government will then have to take over the project.?