NHBF moots for revised Bailout Package
With the government giving its approval for the bailout of the highways sector, developers have requested the Prime Minister to have a revised rescue package implemented for highway projects. This request was primarily promulgated by the developers to ensure that the bailout package that the government implements is dissimilar to the flawed exit policy that was implemented earlier. A committee headed by the chairman of the Prime Minister’s Economic Advisory Council was also set up by the government to draft the details of the package. The committee would present its recommendations on premium restructuring in a month’s time. Following the approval by the finance minister, a final decision will be taken, which will be implemented by the highways ministry.
NHBF requests to reschedule premium for highway projects:
As opined by the National Highway Builder’s Federation (NHBF), guidelines to reschedule the premium for highway projects was required so as to address concerns raised by the highways sector. If not, the very purpose of the policy would be defeated, thereby resulting in the road sector not being revived. It has been seen that due to the flawed exit policy announced by the government in the past for the road sector, investments were hard to come by.
Developers seek reduction in costs of deferred premium payments:
It was decided that in case there was a default made by developers, they were required to pay 12% on the premium as well as a penalty of 0.5% of the total project cost. This decision was taken based on a Cabinet note sent by the finance ministry, including suggestions from the finance ministry as well as the Planning Commission. However, road developers felt that such a move would be harsh on them, and sought a reduction in costs for deferred premium payment. Besides, it was also required that a bank/corporate guarantee should be submitted by the concessionaires. According to the cabinet note, this would amount to the maximum difference between the premium that was promised during bidding and that amount that was fixed under the revised payment schedule.
NHBF argues for discount in deferred premium payments:
According to a letter send by the NHBF to the finance minister and the roads minister, it was argued that a discount rate of 9.75% should be allowed in the case of deferred premium payments. Incidentally, this was the rate at which the Cabinet had allowed telecom operators to differ spectrum fee payments. As explained by the NHBF, the proposal to defer premium payment by the highways sector was similar to that of the telecom sector on various factors like terms and conditions of contract, the contract period and the cost involved.
Rejig needed due to challenges faced by developers:
It was vehemently argued by industry experts that in the current context, the 12% rate imposed needed a rejig. The situation of the highways sector is similar to that faced by the telecom sector some time back, when they were going through a stressful phase. In such a scenario, it was essential that both parties made some concessions. There are many challenges faced by developers of highway projects, with many facing high leverage, issues related to execution of projects due to delays on the part of NHAI, as well as project cost escalations.
Issues faced due to governmental bottlenecks and bank guarantee clause:
Arguments were put forward by the NHBF against the penalty clause citing issues that were faced by developers. Some of these issues are with regards to dent in the viability of projects due to various hassles related to environmental clearances, land acquisitions, ban on procurement of aggregates etc. Besides, the NHBF also opposed the bank guarantee clause due to the fact that most of the concessionaires were involved in corporate debt restructuring due to which they were facing leverage issues. Moreover, most bankers were unwilling to lend money to them in such a scenario.
