A final call on the fate of some large road projects awarded by the UPA-II regime — including widening of the 555-km Kishangarh-Udaipur-Ahmedabad bagged by GMR — is likely to fall on the next Government.

This is because some developers will be able to start projects only if the National Highways Authority of India compensates them for escalation in project costs due to delayed clearances.

In such a scenario, even if these projects were to be cancelled, fresh bids cannot be called before project costs are revised. “The move to revise costs upwards requires Cabinet nod, which is unlikely before the next Government takes charge,” said an official source.

Since the Government gets a premium payout for these projects, it is reluctant to cancel them as well.

The costs of these projects were defined at least three years ago. Since then, construction costs have shot up due to the rise in bitumen, diesel and labour costs.

The Government-defined project costs are important as these help to define the banks’ lending exposure to the project.

Cost factor

The recently approved proposal to defer premium payments does not give enough leeway to developers to start projects that have not kicked off, although it will improve cash flow for developers who have already started work but are facing difficulties.

Developers have been seeking relaxation through premium deferment and cost escalation. However, the Government took a call on premium deferment, not on cost escalation.

“Some developers will be able to start projects only if they are compensated for the increase in construction costs,” said M Murali, Secretary General of the National Highway Builders Federation, declining to name the developers.

Several developers, including GMR, had backed out or were looking to back out from projects they had bid for by offering to pay high premium to the highways body.

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