Even as analysts say the country’s investment cycle is poised for a gradual recovery after a long dormancy, the Modi government on Wednesday announced a raft of measures to catalyse the process: A compensatory tolling/annuity scheme that could help 34 under-construction highway projects to be completed, four new railway projects with a combined cost of R8,351 crore in eastern India to unclog transportation of minerals, a redefined interest subsidy scheme to boost exports and production-linked subsidy for cane farmers.
Apart from these investor-friendly steps, the Cabinet also took a step closer to the mega disinvestment of the year — it approved a 10% stake sale in Coal India (CIL), a stake sale that could fetch about Rs 20,000 crore to the exchequer and give a handle to the government to increase productive public spending and lead the investment binge.
The “reasonable” compensatory tolling period or annuity as applicable to individual projects seeks to mitigate the losses of the developer and encourage completion of the languishing build, operate and transfer (BOT) projects in case the delays cannot be solely attributed to the developer, explained power minister Piyush Goyal at a briefing.
As per the scheme approved by the Cabinet Committee on Economic Affairs, the National Highways Authority of India has been authorised to extend the “tolling period” of under-construction projects facing time overruns based on independent assessment of delays not attributable to the developer, but without changing the operations period as in the original concession agreement. In the case of annuity projects, the developer, on completion of the project, would get concessional extra annuity corresponding to the period of delay not caused by him. Again, the period of delay that can be attributed to the developer will be assessed by an independent engineer. In both cases, the projects will need to achieve physical completion in the next three years.
Road transport and highways secretary Vijay Chhibber said the government’s decisions to authorise NHAI to support under-construction highway projects with extension of concession period or compensatory annuity would “substantially favour the lenders and change the fortunes of the road sector”. He said in these projects, the developers would require to bring in additional equity to complete the project with the comfort of the longer concession (tolling) period/extra annuity.
Wednesday’s decision is the latest in a series steps taken by the Modi administration to revive stalled highway projects and reach its target to build 30 km of roads a day. In October, it extended bridge loans to stalled annuity projects to make them viable as had earlier been decided in the case of toll-based projects.
A recent Crisil report has said that under-construction highway projects with a length of 3,520 km and sanctioned debt of Rs 33,050 crore are faced with “high implementation risks” due to substantial time and cost overruns. Government sources indicated that about 18 road projects (with a length of over 2,000 km) seemed eligible for NHAI’s bridge loan that will carry an interest of 9.75% (bank rate plus 2%).
Also, developers can now unlock equity from completed projects thanks to a recent policy decision allowing them divest 100% equity two years after completion of construction. While the conventional EPC contracts are in focus now, the government has also launched an innovative hybrid annuity structure, under which NHAI will fund 40% of the project costs, reducing the developers’ risks even further. With 11,500 km of highway projects awarded since the start of last fiscal, construction, which has picked up of late, is bound to accelerate in the coming months, analysts said.
As for the CIL stake sale, merchant bankers have already put in bids to manage the transaction. Even though the government’s budget target is to raise Rs 69,500 crore by March 2016 by selling minority stakes in state firms as well as some private ones, finance minister Arun Jaitley indicated recently that disinvestment proceeds could fall short of the target. The government owns 78.65% in CIL.
The timing of the latest CIL stake sale will be decided by the finance ministry, Goyal said during the briefing about the Cabinet decisions. However, given that the stock is beaten down and the market is still volatile, it remains to be seen whether the government would be able to offload the CIL stake in the current fiscal year, analysts say.
Caught in a volatile market, the CIL stock’s closing price of Rs 334.95 on Wednesday is down nearly 25% from a 52-week-high adjusted price of Rs 447 seen on August 5. In January 2015, the government had sold 10% in CIL to raise the highest ever amount of Rs 22,557 crore from any single PSU stake sale at a price of Rs 358 a share, while its IPO in October 2010, when the UPA government was in power, was the largest PSU IPO ever, raising Rs 15,199 crore for government’s 10% stake at a price of Rs 245 per share.
The Cabinet also approved a proposed IPO of Cochin Shipyard, which runs a yard that can build and repair big vessels. The Centre has so far raised Rs 12,700 crore by selling small stakes in four PSUs, or 18% of its FY16 divestment target.
The Cabinet also decided to pay a production-linked subsidy of Rs 4.50 a quintal directly to cane farmers in the 2015-16 season, a move that would cost the exchequer about Rs 1,147 crore. The subsidy, according to the sugar industry, would help reduce the arrears in payments to farmers. Mills and cooperatives across states owed a whopping Rs 7,060 crore to farmers by October 15 for cane purchases in the last marketing year that ended September 30.
Besides, the Cabinet approved construction of four railway projects — the third and fourth rail lines of 85 km each between Budhapank and Salegaon via Rajathgarh railway line at a cost of Rs 1,173 crore and the doubling of Kottavalasa-Koraput line of 189 km, traversing Odisha and Andhra Pradesh, at a cost of Rs 2,978 crore. A long-delayed project to build a rail-cum-road bridge over the river Ganga at Munger in Bihar would be completed at a revised cost Rs 2,774 crore, the government said, blaming the state government for the delay, in what is seen as political message to the Bihar chief minister Nitish Kumar.