Finance Minister P Chidambaram has approved a proposal by the Rangarajan panel to permit rescheduling of premium payment for stressed highway projects. This comes nearly a year after the proposal was first discussed.

Now, the Highway Ministry and the National Highways Authority of India (NHAI) need to notify the rules and a cut-off date by which developers will say whether they would like to make use of the proposal to postpone premium to continue doing their projects.

Premium is the amount offered by a developer to the Government to bag the right to widen a road, maintain it, and collect toll from the road users over a 20-30 year concession period.

Impact

The proposal will help road projects on which work has already started and prevent many projects from turning in non-performing assets for banks, according to NHAI Chairman RP Singh. But the move is unlikely to kick start four-to-six lane projects on which work has yet to start, including the 555-km Kishangarh-Udaipur-Ahmedabad road project bagged by GMR.

NHAI estimates that 21 ongoing two- to four-lane projects would benefit from the recommendations. The total annual premium payable in these 21 projects is around ₹729 crore. The overall premium payable over the concession period is ₹28,577 crore.

According to the recommendations, developers can defer premium payment only if they are left with not enough funds to pay the premium, after undertaking debt servicing and operation and maintenance costs, from the toll revenue.

Simply put, the committee has recommended that after meeting the debt service obligation, and operation and maintenance costs, the developer will have to route the entire toll collections towards paying premium.

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