Govt permits developers to sell equity on road projects

The exit policy announced by the Ministry of Road Transport and Highways for highway projects this year is likely to be changed. This comes in the wake of the policy failing to enthuse developers since it does not transfer the benefits to the new operator.

SPV enables developer to sell or transfer his stake in the project:

The Union ministry is considering a proposal put forward by the National Highways Authortity of India (NHAI). As per this proposal, the developer who is entrusted with a project is permitted to sell or transfer his stake in the project to a Special Purpose Vehicle (SPV), specifically formed for a particular project.

Specifics of the SPV:

The SPV is an integral part of road projects, made up of the highway authority, the concessionaire or the operator and lenders. Such projects are normally awarded for a period of 20-25 years. Construction activity is usually completed in three years, while tolling commences immediately after the project is completed.

New exit policy denounced due to drawbacks:

Substitution of the concessionaire was the only option available as per the current policy, as transfer of equity was not possible. After this, it was imperative that a new vehicle be formed. However, the exit policy that was announced earlier this year failed to find any takers. This is because many of the prerequisites that were offered to  the original vehicle were missing in the new vehicle, including a 10-year tax holiday. The new policy was formulated by the government as opposed to the original recommendation that NHAI put forward. As per the new policy, it was required that a new SPV be created following the substitution of the concessionaire. However, the new policy was riddled with many issues like the issue of a tax holiday.

Travails of developers due to exit policy:

In cases where the developer was planning to exit a project, it was essential that approvals from the lender of the project as well as from the highways authority were obtained. In such cases, the developer was also required to pay a penalty of 1% of the project cost. The director general of the  National Highway Builders Federation expressed his apprehensions with regards to the taxation imposed and hoped that the government would show the resolve to address this issue suitably. Besides, removal of the penalty as well as proposing a comprehensive policy was also needed.

Request made to reschedule developers’ premium:

Due to private developers shying away from road projects in the last few years, many of them have been left in the lurch. Besides, lenders were also reluctant to fund road projects due to their uncertainty factor. Meanwhile, the Road Transport and Highways ministry has requested the finance ministry to reschedule premium worth Rs.1,51,000 crore that developers owed the highways authority.

Govt planning road shows:

The fact that domestic infrastructure companies were reluctant to invest in road projects has come as a jolt to the government. In a bid to revive investments, the government intends to conduct road shows in countries like China and Australia. The ministry is expected to make a presentation to the Prime Minister in this regard soon. If all goes well, there could soon be a reversal of fortunes as far as the investments in the road sector are concerned.