Developers looking to delay premium payment to National Highways Authority of India (NHAI) will have to agree to additional conditions.
The additional conditions include audits and even cancellation of contracts midway during the concession period if it emerges that their bids were so aggressive that even a premium deferment does not improve the project’s financials.
Premium is the money offered by a developer to the Government to bag the right to widen a road, maintain it, and collect toll from road users over a 20-30 year concession period.
During the high economic growth period leading to 2010-11 and 2011-12, many bidders had offered to pay high premium to bag such projects and spruce up their order-books. But, now, hit by lower than expected toll collection, high inflation and finance costs, road project financials have turned awry. A key condition will allow NHAI to step in and cancel the contract if it realises that the project cannot be salvaged despite allowing deferment of premium.
“During any time of the concession period, if it becomes evident that the potential toll to be collected in the remaining period will be so low that the developer cannot repay the debt, deferred premium, and the interest on deferred premium, then we can cancel the project,” explained an official.
Moreover, in such a case, the clause to be used for cancelling the contract would be “deemed concessionaire default”. In effect, the developer would have to take the blame for bidding so aggressively that despite using the premium deferment clause, the project is unable to generate enough toll revenues.
Report dailyThe road developers also have to accept that they have to report their toll revenues on a daily basis. They also have to put in place electronic toll collection systems, using the same technology platform as decided by the Government, so the toll collections can be monitored on a real-time basis. Moreover, they have to agree to allow additional audits and opening of books.
NHAI has defined the maximum amount of premium that each company can defer in a year. These values were worked out based on the actual toll collection of 2013-14 and projected collections for 2014-15 onwards. So, they can change the deferment amount if the toll revenues improve.