Consultants To Vet Concession Pacts For Road Projects

The surface transport ministry is set to commission the services of international consultants to vet the concession agreements to be entered into with domestic/foreign investors for highway projects to be taken up on a build, operate and transfer basis .

In this regard, the ministry is exploring the possibility of commissioning the services of consultants available with the World Bank and the Asian Development Bank (ADB).

French consultants, including Scetarote Company, are also being considered for the assignment.

The ministrys dilemma stems from the fact that while it has drawn up an ambitious plan for highway development in the ninth plan, fund constraints have forced it to rely heavily on the investment support from the private sector.

 

So far, the response from investors in India and abroad is rather lukewarm. Those who have come forth, such as Reliance Industries and HKK Reynolds , the front-runners for the Ahmedabad-Badodara expressway project, want a host of risk safeguards and other facilities to be in-built in such concession agreements.

The primary concern of these investors is that the government should not only make promises and commitments to attract private capital, but these should also stand the test of time and should be legally enforceable so that in the event of the commitments being breached, the aggrieved party is able to get speedy judicial remedy.

For example, in the event of the government terminating the agreement for any reason attributable to it, the promoter is to be compensated for all the costs incurred by it on the project besides the interest thereon as per the given formula.

There is some element of skepticism among investors in this regard following the consequences of the termination of the Dabhol power project and the losses caused to Enron on that account until the project was revived.

These investors, therefore, want a fool-proof legal document to be signed by both the entrepreneur and the government after the project is finally allotted.Officials admit that they have already received two such draft agreements which they have forwarded to the ministries of law and finance.

The drafts have thrown up some 50 odd new issues which are beyond the competence of the ministry to decide. For instance, the investors want some kind of a sovereign guarantee from the government regarding its payment obligations, a certain minimum fixed rate of return on their investment too is being sought and an adequate and in-built safeguard in the agreement to protect their interest against exchange rate variations.

Sources say the government is ready to give the investors a fair deal but may not concede to all of their demands. It is thus necessary for the government to be acquainted with the international norm and the practice.

Such a situation had not arisen earlier because so far only a small number of such agreements have been signed far projects like bridges and bypasses. For the big projects which are on the anvil, commissioning of international consultancy services has, therefore, become necessary.