Govt Mulls Forex Cover For Investment In Highways

The government is considering a proposal to hedge foreign investment in the highway sector against the risk of foreign exchange fluctuations.

Some foreign investors have suggested that the rate of toll to be charged by the investors be linked to the rupee-dollar exchange rate prevailing at the time of signing the concession agreement. This, they say, will ensure that the investors do not stand to lose if the rupee depreciates against the greenback.

Such a protection against the exchange rate fluctuation risk, say the foreign investors, will not only give them the anticipated return in dollar terms, but also help them redeem their dollar loans.

 

Sources say the matter was discussed by the Union cabinet, which directed the ministries concerned to study the demand and take a decision. The issue is now being examined by the finance ministry, to which the issue was referred by the surface transport ministry.

Under the current guidelines, the toll rate can be linked to the domestic inflation rate, so that it automatically goes up with the rise in the wholesale price index and the interest of the domestic investors are fully protected. But no protection is available to foreign investors against exchange rate fluctuations.

A protection of this kind has been allowed to private investors in the power sector, but officials do not see an analogy between the two cases, although no final decision has been taken yet.

The government, however, has made it clear that no sovereign guarantee can be offered to national highway promoters on the lines of the counter-guarantee available to the eight fast-track power projects, since no assured rate of return can be guaranteed to investors in highways. On the other hand, the demand for power is assured.

The official argument is that an investor takes up a project only if he considers it viable and profitable despite the vagaries of the traffic flow.

The government has, however, undertaken to guarantee payment of a suitable compensation to investors in highways in the event of a change in policy, nationalisation, or law and order problems.

This provision will be incorporated in the concession agreement. The compensation will be in accordance with internationally accepted norms, say transport ministry sources.