Road developers to get financial aid from government
On a move to attract private developers to take up road development projects, the government is planning to provide a bailout package for road developers. According to sources, the government is close to finalising the plan.
Rangarajan committee
A committee headed by C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council has been formed in this regard. It will recommend the restructuring of a portion of the premium commitment of a developer and it also seeks to conduct traffic studies of projects, in order to identify the eligible developers who can avail relaxation under the new policy.
Six-laning projects
For six-laning of highway projects, it is likely that the committee would probably allow restructuring of 75 percent of the road developer’s premium commitment for the first three years while the construction work is in progress. And after that, it would allow 50 percent of the premium for the remaining time (annually).
The builders will be asked to provide a bank guarantee in lieu of the relaxation. The restructuring would be done over three years short of the concession period. It has been planned that the committee would even come up with a proposal as per which, the annual cash flow that is in surplus to the debt servicing and operation and maintenance (O&M) obligations will be adjusted against the accumulated deficit in premium payment obligations.
Four-laning projects
In case of four-laning of highway projects, the restructuring of premium payments will be started only after the completion of construction. In this plan, the developer should be paying 75 percent of the premium commitment for the first three years after the completion of the project and 50 percent for the remaining years.
Which projects to be taken up?
The Rangarajan Committee has suggested the National Highways Authority of India (NHAI) to conduct a traffic study, on the basis of which the importance of various projects could be known. Determining the current traffic trends help meet the revenue projected in the financial statement. Once the study is done, the projects which are tracked with a shortfall in projected revenue, will be considered as “stressed” and will be eligible for the relaxation.
Other privileges
Another privilege offered in this model is that, to meet the shortfall in premium, the developers would be allowed to borrow loans from the government. The discount rate would likely be set around 10.75 percent and an additional 2 percent if bank guarantee is required.
Besides all these, the issue of imposing penalty has been dismissed, which is a major relief to many developers. As per sources, promoters of about 48 projects are now in talks with NHAI regarding the restructuring of premium payments.
By the end of this month, the committee is likely to come up with its recommendations regarding the government’s proposal. And it is said that NHAI will decide which projects can avail premium restructuring. In general terms, the government has already agreed to the move to restructure premium commitments of the road developers along with certain riders.
