5 road developers want premia rescheduled

IRB Infra, R-Infra, Essel Infra, SREI Infra and L&T have approached NHAI

Five road developers operating eight highway projects between themselves have approached the National Highways Authority (NHAI) to reschedule the premium they owe the government, after the finance ministry allowed this.

The premium is the amount that companies agree to pay the government in return for bagging a road project. It is usually calculated on the basis of the estimated toll revenues. These eight projects owe the government in 20-25 years Rs 25,000 crore. And, as many as 24 more road projects are now likely to also opt for rescheduling.

According to sector sources, IRB Infra, Reliance Infra, Essel Infra, SREI Infra and Larsen & Toubro have all approached the NHAI so far, after the government announced the policy, a day before the election code of conduct came into effect. Two projects of IRB Infra, three of Reliance Infra, and one each of Essel, L&T and SREI had sought premium rescheduling until last week. The government had awarded these eight projects for a total cost of Rs 13,000 crore.

Of the 24 projects that could be rescheduled, the prominent ones include, two projects of IVRCL, three of Ashoka Buildcon, three of Sadbhav Engineering and one each of GVK, L&T and GMR.

"We have to study their requests and review it before a final decision is taken," said a senior official at NHAI.

 According to the proposal, suggested by a panel headed by C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, road developers facing a severe shortfall on the toll they expected could avail of the scheme. Premium would be rescheduled in cases where developers were unable to service their debt, operating expenditure and the payment of premium. If the projected toll revenue fell short of the cost plus premium, the government will consider the deferred amount as a loan to the developer; it is expected to charge annual interest of 10.75 to 11 per cent.

The developers had bid aggressively over earlier years, promising the government a higher premium during a period in which the government bid out as many as 147 projects.

The high expectation while bidding was attributed to India’s high economic growth, which has slowed considerably over the past few years. So far, companies have managed to complete only three of the 147 bid-out projects. Companies owe NHAI premia worth Rs 151,000 crore, spread over the next 20-25 years across various projects. The GMR-operated 555-km highway stretch between Kishangarh and Ahmedabad alone owes Rs 59,000 crore to the government over the next 26 years.

“The host of policy measures announced by the government over the past few years will resurrect waning investor confidence in the struggling roads sector. However, benefits are likely to accrue only in the long term. The issues have accentuated with the generally-stressed financial and liquidity profile of road developers,” said India Ratings & Research.