Road developers can blame ‘economic slowdown’ to defer premium payment

Road developers can now cite ‘economic slowdown’ as a reason to defer premium payment.

The Government has decided to include this as a clause along with political fallout, indirect political fallout and default by the National Highway Authority of India.

Premium is the amount highway developers pay the NHAI for the right to finance, develop and collect tolls from a road project.

Rangarajan committee This avenue has been opened by the committee headed by Prime Minister’s Economic Advisory Council (PMEAC) Chairman, C Rangarajan, which was set up to define a framework for deferment of premium that was approved by the Cabinet. The idea was to allow postponement of premium payment for stressed highway projects but with minimal breach of the model concession agreement.

MCA is the contract document between road developers and the NHAI. The committee’s recommendations have been approved by both Highways and Finance Ministries.

The Rangarajan committee stated that “although the provisions of Article 28 of the MCA are only applicable in case of indirect political event or an authority default, considering the economic slowdown and the fact that the sector is experiencing unprecedented difficulties, ’economic stress’ can be treated as one of the causal factors for invoking provisions of Article 28 of MCA.”

Article 28 allows developers to get a revenue-shortfall loan from the NHAI if the toll collections do not cover the “subsistence” amount in a year.

This clause was also relaxed to add annual premium as a part of the subsistence amount, defined as the money required for a road project’s operation and maintenance and repayment of the principal component of the loan.

The committee said the “current economic slowdown be treated similar to that of an indirect political event, a political event or an Authority default… enabling that subsistence revenue shortfall provisions be applicable for such stressed projects.”

Stressed projects This relaxation will help define stressed projects and allow road developers to postpone premium payments if toll revenues are not enough to pay the annual premium after meeting the operation and maintenance expenditure and debt repayment.

This will also enable priority change in the escrow account mechanism, allowing developers to repay loans to banks while delaying premium payments.