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Reeling under cost over-runs and facing lower revenue prospects, a team of highway developers met Prime Minister Manmohan Singh on Friday and put up three key demands to revive the sector.
The developers included Soma Enterprises, Oriental Structures, Simplex Infra, Lanco, Ramky, Progressive and BSCPL.
One demand related to the Government compensating the project cost escalations that developers are facing due to delays in attaining clearances such as environment, forest and land availability. The incremental cost could be based on some fixed formula.
Another demand related to back-ending the premium payments of developers towards the end of concession period. For developers, payment of premium during construction phase of project adds to project costs in most projects. So, they have demanded that the premiums payable during construction phase may be back ended to the last five years of the concession period in such a way that the net present value of premium offered to the NHAI remains the same. GMR has submitted a demand on similar lines to NHAI for its Kishangarh-Udaipur-Ahmedabad project, which is currently in dispute.
The developers also reiterated their earlier demand on relaxing the exit options from projects. At present, there are different rules regarding exit options depending on when the project was signed. For post-2009 projects, developers can sell their entire stake in a project after operating the road stretch for two years. For pre-2009 projects, developers can exit after two years of project completion, but have to maintain 26 per cent stake till the entire project life.
With road project awards coming to a standstill, the Government has started taking multiple steps to kick-start the highway sector. A few days ago, RBI said that loans to highway and power sector can be considered as secured lending, subject to certain conditions. The conditions are such that the project revenues such as toll revenue and electricity tariffs are deposited in an escrow account and lenders should have the first right on the account.
Treating loans to highways and power sector as secured lending will make it easy for banks to lend, and also lower the cost for project developers.
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