Deep differences at Cabinet meet

In-principle nod to RoadMin proposal but FinMin & PlanCom stick to objections; panel to re-examine details

The Cabinet on Tuesday gave an in-principle nod for postponement of premium payments by highway developers on 39 projects but the issue refused to die down, with the Planning Commission and the Finance Ministry opposing the move.

They said any such approval could open a Pandora's Box and dissuade potential investors. The issue is to now go for detailed discussion to a panel; it might be chaired by the finance minister. Officials also told Business Standard the Commission might again approach the Prime Minister’s Office (PMO) over its objection.

“The matter was placed before the cabinet despite the fact that the finance ministry and Planning Commission had strongly objected to the move in the board meeting of the National Highway Authority of India (NHAI), on the grounds that changing the bid terms and conditions after a contract has been entered would  ward off potential investors in the road sector,” a senior official involved with the development said.  He said changing the norms, however grave the situation, might open a can of worms, with all private entities facing financial problems asking for such packages.

DIVIDED ROAD

The Cabinet’s approval to put off premium payment by highway developers seems to have divided the government

• Finance ministry and Planning Commision say the move will discourage investors
• Road ministry wants delay in premium payment by developers
• Rs 100,000 crore of premium to be rescheduled
• Road projects to be affected
• Premium is payment made by the developer to NHAI in build, operate, transfer projects
• Premium based on projected returns from tolls
• Move could benefit private sector players
• Projects by these parties facing delays on account of high premium

The Planning Commission secretary and expenditure secretary in the finance ministry are part-time board members of NHAI.

A finance ministry official said when the entire sector was under stress, there was a moral hazard in giving relief. The issue is how to reduce that hazard to an extent that no one makes any windfall gains. “When you bid for a tender, you have projected risk and benefits. But if at a later date someone asks for a change, you face a moral hazard. There has to be a system. We are asking how do you control it and how it is equitable and just, without leading to any windfall profits to anyone,” the official said.

Due to the objections from these two bodies, the cabinet had a lengthy  discussion and only gave in-principle approval, referring the issue to fine-tune the proposal, officials said.

A senior official said such an alteration in contract terms and conditions after it has been signed will sound the death-knell for all projects being executed under the public-private partnership mode, as private entities would be wary of investing.

According to a proposal mooted by the road transport ministry, premiums amounting to Rs 100,000 crore for 23 awarded BOT (build-operate-transfer) projects were to be rescheduled.The rescheduling was approved as many highway developers could not achieve financial closure and start their projects on time because of difficult economic conditions or problems in land acquisition. It was later decided to add 16 more projects, taking the total to 39.

Premium is a payment made by the developer to NHAI in BOT projects. The premium, offered by companies during the bidding stage, is based on projected returns from tolls. NHAI signs concession agreement with the winning bidder, usually one which offers the highest premium or provides for the lowest grant, and satisfies the technical and financial considerations, after evaluation of bids.

The 23 projects for which premiums are to be rescheduled could not achieve financial closure within a year of signing the concessionaire agreement. Those involved include GMR, GVK, Ashoka Buildcon, Larsen & Toubro and IDFC, whose projects were facing delays on account of high premium.  

“This is absurd. Why should government reschedule the premiums? If the project has not started on time then the developer should exit and the entire stretch should be re-bid. Also, in most of the 23 road projects, not a single penny has been invested by the developer and they are asking for a sort of bailout,” an official said.

He said there were provisions in the Model Concessionaire Agreements (MCA), signed between NHAI and the highway developer, providing for extension of period of concessions if targeted traffic was less than anticipated over the next 30 years. However, nobody can estimate the projected traffic over the next 30 years within two years of entering into a contract.

The Commission also said the MCA entered with the highway developers had clearly stated that if the concessionaire was not able to achieve financial closure within 180 days of entering into an agreement, to be extendable by another 180 days, the contract stands automatically terminated.

“In that case, all these projects for which a bailout is being sought are dead projects which are being uselessly revived, giving an impression that it is being done to favour a few,” the official explained.

The National Highway Builders Forum (NHBF) had last week sought the Prime Minister’s intervention to ensure a level arena for all road projects on premium, saying any restructuring should be made applicable to all such schemes, instead of a selected few. "This policy amendment will be unfair to the developers of those premium BOT (Toll) projects who, despite severe financial hardships and delay in fulfilment of authority's promises, are implementing the projects," its letter said.