NHAI mulls deferring 75% of premium payment

Package on premium restructuring expected to be announced by Jan-end; analysts say might not be enough

The road sector is paying a heavy price for past excesses. After earlier promising sky-high premiums, developers have queued at the doorstep of the National Highways Authority of India (NHAI) to return these projects.

The ministry of road transport and highways awarded road projects of 7,957 km in FY12, growth of 57 per cent compared with the previous financial year. In FY13, both execution and new project awards hit the slow lane, as many developers found it difficult to proceed and the appetite for new projects was weak.

Analysts and investors say NHAI is looking at options to resolve the deadlock by giving some relief to developers. In a meeting with analysts, NHAI has conveyed a package on premium restructuring is being worked out and will be announced by the end of the month. Quoting NHAI, Emkay Global says the package is looking at deferring 75 per cent of the premium payment payable in the first three years of construction. While the construction is on, the developer would have to pay 25 per cent of premium, 50 per cent after construction and 75 per cent once the project is operational.

 

Under public-private partnership, NHAI tendered 48 projects on premium.Analysts believe almost all these developers will apply for premium restructuring, as traffic growth has slowed and these projects will be unviable if not restructured. While all developers are eligible for such restructuring, they might have to pass a stress test. The penalty clause for not executing the project has been removed. So far, NHAI has cancelled nine build-operate-transfer projects, scheduled for re-bidding.

The highway authority plans to tender about 2,000 km of road projects in FY14. So far, it has done 600-700 km. However, the planned measures might not be enough to ease the stress in the sector. Emkay’s Nitin Arora says premium restructuring is a short-term measure to kick-start stuck projects, on the assumption traffic will improve in the later part of the concession period. However, this might not be sufficient to improve the viability of projects which were aggressively bid.