NHAI favours allowing early exit of 'developers'

New policy presently stuck with inter-ministerial group

With highway construction industry raising demands to allow them to disinvest from the highway projects when those are commissioned, the National Highway Authority of India (NHAI) is formulating a new policy that would allow the construction companies to exit as soon as the project is commissioned.

The new policy aimed at allowing exit to developers as soon as the project is commissioned is presently stuck with the inter-ministerial group consisting of ministry of road transport and highways, law ministry, finance ministry and the planning commission.

Also, the Authority has favoured the demands that the concessionaires having signed contracts before 2009 be allowed complete disinvestment. The then contracts mandated that the companies maintain 26% equity in the project for the entire concession period. The planning commission and the finance ministry have, however, objected to the move. If it goes through the group, it will be required to be approved by the Union Cabinet.

Companies with a big portfolio of highway projects are currently looking at selling of them to monetise the value and move on to investment in new projects.

An official of the planning commission said that they were not in favour of reopening older contracts as the “sanctity should be maintained”. Moreover, he maintained that the existing policy is much liberal already, he said.

The existing policy allows complete disinvestment after two years of commissioning of project, while they have to maintain 26% equity in those two years.
The one applicable to BOT projects awarded before 2009 requires the concessionaire to maintain 51% equity throughout the time of construction, 33% in the three years followed by the COD and then ataleast 26% in the rest of the concession period.

The highway developers have raised concerns that equity locked up in the older and existing projects is making them cash-strapped and hurting the funding of new projects.

According to M Murali of the National Highway Builders Federation, the exit for the present concessionaires from the existing projects gains importance as close to 21,000 km of highway contracts have been awarded in the last three to four years and an amount of Rs 2,10,000 crores is needed for these projects. Of this amount 30% needs to come from the developers themselves as equity.

“With only about 60 developers in the BOT area across the country, raising that money has become difficult and this will have an impact on the future projects as well,” Murli said, adding that this makes it important that the money locked in earlier projects be released.
However, an official of the National Highway Authority of India (NHAI) said that not many developers have utilized the provisions of the 2009 policy. Though, he agreed that rotation of funds is required in the present scenario and hence they have advocated industry exits.