The Hindu Business Line : Highway projects: Last word on model concession agreement

The Finance Ministry recently raised its concerns on issues regarding taxation in the MCA that was taken up by the Prime Minister's Committee of Infrastructure. The project models would be of design, build, finance, operate and transport instead of build, operate and transfer.

"The decision of the Committee of Secretaries will be final on the issues raised. The MCA need not be referred back to the Committee of Infrastructure for finalisation," said a senior official.

One issue to be reviewed is regarding the proposed increase in toll rates. "The MCA proposed that toll should be indexed to the WPI (wholesale price index) to the extent of about 48 per cent," said a senior official. However, it was pointed out that traffic would increase over time and this may result in users being asked to pay more for a declining (more congested) level of service. Moreover, increased traffic also means increased revenues to road operators.

Another proposal of the MCA was that during the concession period, due to some changes in taxation policy, if the revenue stream of the concessionaire is hit by over Rs 50 lakh, then the Government would compensate the concessionaire. "On this, the Finance Ministry felt that the issue could prove to be a minefield.

To start with, taxes that could be used for computing the impact on revenue stream of the road operator could be wide ranging and include changes in excise duty or some tax implemented by any State Government. There could be several points based on which the concessionaire might claim that his revenues are getting affected negatively," said official sources.

"Moreover, the MCA may appear to be unreasonably tilted in favour of the concessionaire if there is a clause for compensating him in case of increase in taxes, whereas there is no reciprocal clause for the concessionaire transferring benefits to Government if taxes were to be reduced," the Finance Ministry officials are understood to have pointed out.

The MCA recommends that the highway should continue to be used by local residents without any payment of tolls (owing to the absence of an alternative road) until free service lanes are provided. Moreover, the MCA proposes handing over of possession of at least 80 per cent of land required and obtaining of environmental clearance by National Highway Authority of India (NHAI) to the concessionaire by financial closure.

It also links the period of concession to the extent of variation in actual traffic volumes as compared to the projected traffic volumes.

All the new NHAI projects, including the widening of 6,500 km highways at a cost of Rs 22,750 crore ( cleared by the PM's Committee of Infrastructure recently), would be awarded as per the new MCA.

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