Economy

Ministry considers relaxing exit clause

Mamuni Das New Delhi | Updated on November 25, 2017

The Highway Ministry is working on a proposal to allow developers to fully exit from projects after construction. At present, there are limits on when developers can exit. For instance, in road projects awarded before 2009, developers, who originally bagged the highway projects, are required to maintain 26 per cent stake through the entire project life.

The Ministry will also take a call on whether developers can sell equity after achieving commercial operations date.

Incidentally, in June last, this proposal was approved by the Cabinet, though the manner in which it was done, led to concerns. The Cabinet had permitted such exit through a circuitous route called “substitution of concessionaire,” which is driven by lenders and requires formation of a new special purpose vehicle (SPV) to manage the project. This could hamper tax benefits for new developers.

This issue has been flagged up in the “white paper” released by the Ministry, stating that though the Finance Minister was agreeable on the issue, officials in Department of Economic Affairs were unwilling to go beyond what was permitted in the concession agreement — the contract between a road developer and the National Highways Authority of India (NHAI).

Developers also had concerns regarding the penalty levied on projects that have been completed and are under operation.

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Published on July 02, 2014
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