Road project developers can exit two years after work completion
In a major respite to the highway developers, the government on Wednesday allowed developers to exit road projects two years after they are completed, a move that will help in unlocking investments to the tune of Rs 4,500 crore.
The decision by the Cabinet Committee on Economic Affairs (CCEA) will help in unlocking these investments that can be re-invested to lay down 1,500 km of new highways <g data-gr-id="49">on</g> PPP mode, thus reviving the private sector’s response to Build, Operate and Transfer (BOT) projects. Besides, the special intervention <g data-gr-id="52">on</g> projects that are at advanced stages of completion but are stuck due to lack of additional equity or lender’s inability to disburse further can help revive about 16 road projects languishing in various parts of the country.
“The CCEA has approved two major policy initiatives aimed at improving the availability of equity in the market on the one hand, while on the other has authorised NHAI to intervene in languishing projects suffering from lack of funds,” said an official statement. The CCEA has also approved a comprehensive Exit Policy framework that permits concessionaires or developers to divest 100 per cent equity two years after completion of construction, it added. In the last few years, public-private partnership (PPP) projects have not been able to attract bids and one of <g data-gr-id="58">main</g> reasons behind this is the lack of availability of equity in the market among qualified bidders. The government decision will help in unlocking equity from completed projects making it potentially available for investment <g data-gr-id="54">into</g> new projects, the statement said.
Besides, it will <g data-gr-id="71">harmonises</g> conditions uniformly across all concessions signed prior to 2009 with the policy framework for <g data-gr-id="72">post 2009</g> contracts which permit divestment of equity up to 100 <g data-gr-id="73">per cent</g>, two years after completion of construction. There are 80 BOT projects awarded before 2009 completed and the locked-in equity in these projects works out to be around Rs 4,500 crore. Once this amount is unlocked and re-invested in new projects, it could support 1500 <g data-gr-id="74">kms</g> of new highways <g data-gr-id="57">on</g> PPP mode, reviving the response to BOT projects. BOT is an arrangement in which a private company builds an infrastructure project, operates it and then transfers the ownership to the government. Generally, the government becomes the company’s only customer and gives assurance to acquire a predetermined amount of the project’s output, thereby ensuring that the firm recoups its initial investment in a set time span. That apart, of the ongoing 240 PPP projects, some are languishing due to delays on account of <g data-gr-id="67">land</g> acquisition, <g data-gr-id="68">grant</g> of statutory clearances, local issues and shortage of construction materials.
Govt clears way for stalled road <g data-gr-id="66">projs</g>;revives response to BOT “NHAI has been authorised to provide funds to such projects from within its overall budget or corpus on a loan basis at a pre-determined rate of return. This loan is to be recovered along with interest as the first charge <g data-gr-id="55">from</g> the toll receipts immediately after completion of construction,” the statement said. The government hopes that about 16 such projects that are languishing in various parts of the country where <g data-gr-id="63">public</g> is facing difficulty on account of incomplete works will benefit from this decision. This will also add momentum to the overall growth of the highways sector in India which is already on the path of revival.
According to government data, as many as 437 road projects have been running behind <g data-gr-id="60">schedule,</g> while 101 are under disputes and 57 got terminated over the last three years.
Besides, the government has sanctioned 1,427 projects and completed 1,022 road projects during the last three years. The government had set a target of constructing 6,300 <g data-gr-id="40">kms</g> of roads in 2013-14 and 2014-15 each, of which 4,260 <g data-gr-id="41">kms</g> and 4,410 <g data-gr-id="42">kms</g>, respectively, were achieved during the two fiscals,
Minister of State for Road Transport and Highways P Radhakrishnan told Rajya Sabha earlier this week. “To expedite completion of these projects and attract private participation, various steps are taken, which includes streamlining of land acquisition and statutory clearances, award of projects after ensuring acquisition of land and obtaining all regulatory approvals for the project to avoid post-bid delays and litigation...,” Radhakrishnan had said.
Besides, the government has decided to adopt new variants of <g data-gr-id="38">public private</g> partnership (PPP) model such as Hybrid Annuity Model to attract bidders for new projects, he added. The model is a mix of EPC (engineering, procurement and construction) and BOT (Build Operate Transfer) formats, with government and the private sector sharing the total project cost in the ratio of 40:60, respectively.