Road developers have rejected the conditions put forward by the Finance Ministry for allowing postponement of premium payment for highway projects that are stressed.
The developers are objecting to the discount rate being used to calculate the net value of the premium. They are seeking a lower rate to reduce their costs.
Those affected include developers such as GMR, GVKand Ashoka Buildcon.
The highway developers have already conveyed this to the National Highways Authority of India (NHAI). The matter was discussed at the NHAI Board meeting held a few days ago.
This stance of the builders has implications on the final impact of the Cabinet note on the issue, floated by the Highways Ministry. Premium is the amount offered by a highway developer to the NHAI in exchange for the right to develop, maintain and collect toll from a highway for 20-30 years.
The premium amount, which is payable every year, is arrived through a competitive bidding process.
Due to the slowdown, many highway developers that had won projects two-three years ago promising high premium, are now unable to implement the projects. To continue operating the projects, highway developers want to postpone their premium payment in a manner that the net present value (NPV) of the premium is unchanged.
The bone of contention is the discount rate (basically the interest rate) being used to calculate the net present value of the premium. The Finance Ministry said it should be 12 per cent, while highway builders want it at 10 per cent. The Finance Ministry had said the discount rate should be the same as that used while appraising the project — 12 per cent. A higher discount rate will mean more costs for the developer.
The NHAI Board, which has representation from the Finance Ministry and Road Ministry, is aware of the issue.
“Some of the concessionaires as well as the highway builders lobby body — National Highway Builders Federation — have conveyed that any proposal for rescheduling of premium on a discount rate of 12 per cent does not make the project viable and is thus unacceptable,” the NHAI Board was informed last week.
Cabinet note
Meanwhile, the Road Ministry has invited comments on the proposal to postpone premium payment. The Finance Ministry said it was all right with a one-time rescheduling of premium only if the Law Ministry gives its go-ahead to such a proposal, subject to certain conditions. The Law Ministry’s stance on the issue is the key as it had earlier not favoured any premium rescheduling.
“In the Cabinet note, the Ministry has given all options. Law Ministry had earlier declined to permit such a proposal. This time, there is an option that these projects be cancelled and bids re-invited. Let the Cabinet take a call on whether projects should be cancelled,” said a source. mamuni.das@thehindu.co.in