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With around 80 BOT projects awarded before 2009 complete, the equity locked in these projects could support 1,500 km of new highways in the PPP mode
In two policy moves designed to provide a renewed thrust to the highways sector, the Centre on Wednesday allowed developers to exit projects two years after completion and National Highways Authority of India (NHAI) to intervene in projects facing a funds crunch. The former move is expected to unlock investments worth Rs 4,500 crore that could be re-invested in new projects and help boost private sentiment in the public-private-partnership (PPP) model.
"The Cabinet Committee on Economic Affairs (CCEA) approved a comprehensive exit policy framework that will now permit concessionaires/developers to divest 100 per cent equity two years after completion of construction. It has also authorised the National Highways Authority of India (NHAI) to intervene in languishing projects suffering from lack of funds," said an official statement.
In the last few years, PPP projects have not been able to attract bids. One of the primary reasons for that has been lack of equity in the market among qualified bidders. This would help unlock equity from completed projects, making it potentially available for investment into new projects, said the statement.
The previous policy did not allow transfer of equity, only substitution of a concessionaire, following which a new vehicle had to be formed. The policy had no takers, as the new vehicle did not get the perks offered to the original one, including a tax holiday. However, even with this new move, the risk profile and health of the project could still be an issue in the opt-out process.
"I think this is a helpful step but not sufficient by itself. The larger problem is the low volume of investable projects. Unless the revenue generated from the project is adequate enough to service debt, there could really be no takers even when the concessionaires want to opt out," said Manish Agarwal, partner and leader (capital project and infrastructure), PwC India.
With around 80 build-operate-transfer (BOT) projects awarded before 2009 complete, the equity locked in these projects could support 1,500 km of new highways in the PPP mode. Besides, there are 240 ongoing PPP projects, of which some are languishing due to delays on account of land acquisition, grant of statutory clearances, local issues and shortage of construction materials.
"NHAI has been authorised to provide funds to such projects from within its overall budget or corpus on a loan basis at a pre-determined rate of return. This loan is to be recovered along with interest as the first charge from the toll receipts immediately after completion of construction," the statement said.
