Lenders can now transfer stuck BOT projects to other developers

A move that may provide relief to stuck highway projects, the National Highways Authority of India (NHAI) has introduced the ‘harmonious exit’ clause in the new concession pacts for build-operate-transfer (BOT) projects. 

The NHAI on Wednesday sought views on the draft model concession agreement, which mentions harmonious substitution of the concessionaire.

“This would essentially allow the lenders to transfer the stuck project to another construction company if the first one is unable to deliver on time,” an official said. 

According to the draft model concession agreement, the NHAI and the concessionaire would agree that in case of any financial default, the lender or banks can invite, negotiate and procure offers, either through private negotiations or public auction or tenders for the takeover and transfer of the project highway.

“If the authority has any objection to the transfer of concession in favour of the nominated company in accordance with this agreement, it shall within 15 days from the date of proposal made by the lenders’ representative, give a reasoned order after hearing the lenders’ representative,” the draft said.

If no objection is raised by the NHAI, it shall be deemed to have been accepted.

The NHAI’s latest available annual report, for 2017-18 (FY18), shows the authority had 1,014 cases of arbitration — significantly higher from 125 in 2016-17 (FY17) and 119 in 2015-16 (FY16). The value of claims for FY18 was pegged at Rs 55,344 crore, against Rs 42,074 crore in FY17 and Rs 30,071 crore in FY16. The data for 2018-19 was not available.

The NHAI is in the process of reviving the BOT (Toll) model and amendments proposed in the draft model concession agreement are in sync with this objective, an official statement said. The amendments have been proposed after deliberations with the Ministry of Road Transport and Highways, Department of Economic Affairs, Ministry of Finance, and NITI Aayog. 

Besides harmonious exit, the other major modifications proposed in the model concession agreement are related to capping of liabilities of either party throughout the subsistence of the agreement, tightening of conditions precedent prior to declaration of the appointed date, and amendment in dispute resolution mechanism. 

They also include changes incorporated from the recent updates in model agreements in other modes of implementation, such as hybrid annuity model and engineering, procurement, and construction.

This move will draw a fine line of functional balance of public-private partnership for development of highway infrastructure in the country.