Breather for road developers likely on premium payments to NHAI

The relief could be extended to 39 road developers such as GVK, GMR and L&T, which owe Rs 1.51 lakh crore to the NHAI and have been seeking rescheduling of premium payment

Road developers can expect a major financial relief after a committee set up by the finance ministry on Friday finalised the terms and conditions to restructure the premium that developers owe the National Highways Authority of India (NHAI). Developers, who owe Rs 1.51 lakh crore to the NHAI, have been seeking rescheduling of payment, citing economic downturn. The relief will be extended to 39 road developers, including GVK, GMR and L&T.

Premium is the amount concessionaires have to pay the NHAI for a build-operate-transfer (BoT) project on the assumption that the returns from the project would be quite high. The amount is decided at the time of bidding on the basis of projected future traffic flow. The term for payment of the premium is usually 20-25 years and the amount payable by developers range from Rs 3 crore and Rs 680 crore a year, which will go up every year by five per cent, according to the existing norms.

“The report is ready and it will be submitted soon. NHAI, the roads ministry and the Planning Commission have now come to a final agreement on the matter and the proposals are acceptable to all. The chairman will submit the report to the finance ministry very soon,” said a senior NHAI official, who attended the meeting on Friday.

According to the proposal, road developers will not be allowed to pay dividend to their parent company until they clear all their dues to NHAI. The government will allow the developer to pay 25 per cent of what they actually owe NHAI during the first three years; thereafter, the amount will be raised to 50 per cent. The developer will have to pay the remaining over the following years and the amount carried forward will attract an interest rate of 10.75 per cent.

Road projects in India are undertaken by special purpose vehicles (SPV) comprising the highway developer and NHAI as partners. The committee has taken a view that since the premium payment is deferred, the SPV cannot pay back any money to the highway developer until all the dues to NHAI are cleared.

The total payment will remain the same and the move is only a relief during the current economic downturn, which has forced a number of companies to exit road projects which created a major crisis in the sector. Many companies had threatened to walk out of projects unless the government reworked the premium payment schedule. The finance ministry then set up a panel under C Rangarajan to give its recommendations on the rescheduling of premium.

“There were some concerns raised by the Planning Commission on the proposal to cancel a penalty. But that is not possible under the current circumstances if we need the sector to come through. During the first three years, they will have to pay 25 per cent of the promised premium and then after that period, they will have to pay 50 per cent of the premium promised. The discount rate on highway developers is also agreed at 10 per cent,” said another senior official who attended the meeting.

The report got delayed after Gajendra Haldea, advisor, Planning Commission, recently raised some concerns on the committee’s suggestions on the structure of premium rescheduling and penalty norms. Following this, the committee had sought more clarity from the roads ministry.