Our Bureau

New Delhi, Oct. 5

THE Government has cleared the last mile hurdle in the finalisation of the new agreement for handing over large road projects to the private sector on a build, operate and transfer basis.

Road operators can now seek compensation only if their earnings are hit by over Rs 1 crore per annum owing to changes in taxation policy during the concession period, according to senior officials.

This is higher than the amount in the earlier proposal that had pegged compensation if the earnings of the road operator or the concessionaire were hit by over Rs 50 lakh annually. However, the Finance Ministry had some reservations on this provision. Consequently, the Prime Minister's Committee of Infrastructure had referred the matter to the Committee of Secretaries (CoS), which met recently to sort out the differences.

To claim compensation, the operator has to provide audited proofs that show the impact of any tax policy change on his earnings. The compensation will be to the extent of over and above Rs 1 crore. "All taxes, except income tax, could be used by the concessionaire," said the official on the various taxes that could be included to calculate the impact.

Another issue to be finalised was regarding the proposed increase in toll rates. "The CoS decided that that toll rates should be indexed to the WPI (wholesale price index) to the extent of 48 per cent every year," said a senior official.

Earlier, though the model concession agreement had proposed an indexation to the extent of 48 per cent, another view was that with increase in traffic, the road operator gets additional revenue. Moreover, from the users' perspective, they are being asked to pay more for a declining (more congested) level of service.

The model concession agreement is applicable to all new projects to be awarded by the National Highways Authority of India (NHAI), including the widening of 6,500 km of highways at a cost of Rs 22,750 crore (that was cleared by the PM's Committee of Infrastructure recently).

The project models will be of design, build, finance, operate, transport basis instead of build, operate and transfer only.

Moreover, the model concession agreement proposes handing over possession of at least 80 per cent of the land required and obtaining eco clearance by NHAI to the concessionaire by financial closure.

(This article was published in the Business Line print edition dated October 6, 2005)
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