The request of highway developers to permit postponing of premium payment is getting tossed around between three Ministries – Finance, Road and Law.
Now, the Finance Ministry has asked the Highways Ministry to get the proposal vetted by the Law Ministry, according to a senior Finance Ministry official. If the Road Ministry refers the proposal back to the Law Ministry, this will be the third time that Law Ministry will be asked to take a call on the issue.
The final decision on the proposal will have an impact on road projects awarded two-three years ago on public-private partnership basis. Many developers including GMR, GVK and Ashoka Buildcon had offered high annual premium payment to the Government to bag the rights to develop and operate projects.
The latest referral is an indication of the unwillingness within the bureaucracy to take a stance on the issue for fear of attracting scrutiny by audit bodies. This is because the proposal involves reworking the contract terms, based on which the road development projects were awarded initially.
Premium is the amount offered by a highway developer to the NHAI in exchange for the right to develop, maintain and collect tolls 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 who had won projects two-three years ago promising high premium, are now unable to implement the projects.
To continue the projects, they want to postpone their premium payments in such a manner that the net present value of the premium is unchanged. Otherwise, NHAI faces the prospect of developers backing out of projects, or having to cancel and re-invite bids.
PASSING THE PARCEL
Law Ministry had initially turned down the proposal to restructure projects. Subsequently, it put the ball in the Finance Ministry’s court. However, while referring the proposal to Finance, Law did not overturn its earlier stance of not allowing such rescheduling, according to a top Road Ministry official.
After the Law Ministry had shot down the proposal to permit rescheduling, NHAI Chairman R.P. Singh wrote a letter to the PMO and Ministers, requesting for a “top level” intervention on the issue, as the move was aimed at reviving the road sector.
The Chairman had explained that the proposal neither adversely impacted the net revenue of the NHAI over the contract period of the project, nor did it result in any “material enhancement” of returns to developers.
He had added that the proposal was simply an attempt to help the developer manage his cash payment better in the early years of the contract period to prevent road projects from falling into a liquidity trap.