Highways body makes a case for premium rescheduling

Our Bureau New Delhi | Updated on May 27, 2013 Published on May 27, 2013

The National Highways Authority of India NHAI has put up a few broad points while seeking support for premium rescheduling proposal.

First, the proposal neither adversely impacts the net revenue implication for the NHAI over contract period of project, nor results in any “material enhancement” of returns to developers, it has argued.

The proposal is simply an attempt to help the developer manage his cash payment better in early years of the contract period to prevent road projects from falling into a liquidity trap.

The proposal also has stringent conditions for those who seek premium rescheduling. For instance, it says that equity investors will not draw any return on equity for first 12 years and the entire cash flow, after meeting the project requirement and paying off the debt, shall be appropriated first towards payment of premium.


Second, in most of these projects the NHAI has not been able to meet its obligations within time including land acquisition, environment and forest clearance, and allowing toll collection. In this context, NHAI may not be able to cancel these contracts smoothly without facing claims or counter-claims.

For 17 of 21 projects offering premium, land acquisition was delayed by 6-18 months. Also, Environment and Forest clearance was obtained for 14 projects in March-April after Supreme Court intervention. Even now, land acquisition is below 80 per cent for six projects; and environment and forest clearance is pending for five projects.

Third, even if 21 projects were to be re-bid, NHAI may not get the kind of premiums that developers had offered earlier. Some may offer low premium, while some may actually demand grants.

“The potential gross premium if Rs 97,700 crore with a net present value of Rs 25,627 crore will be put to risk,” Singh has said.

Fourth, the Chairman has pointed out precedents where the Government has reopened closed contracts, in telecom and power. He has referred to the recent decision of central electricity regulatory commission, which permitted higher electricity tariffs for Mundra Ultra Mega Power Project, following increase in imported coal costs.

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Published on May 27, 2013
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