New amendments to model concession agreement can give fillip to highway projects

Q: How will the new amendments to the model concession agreement affect highway projects?

Mansoor Bithal, Mumbai

21st September 2015

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Replies (2)

Earlier it is also observed that no penalties have been charged on the awarding authority in such cases. Almost half the projects awarded between 2011 and 2013 had to be terminated because of delays in land acquisition and other clearances.

Deepankar Godbole, Mumbai

21st September 2015

Comment

Right Deepankar,
In this way lender's confidence, which was harshly damaged in the last few years, will revive with the change in the clause related to premium payment, and introduction of the clause on deemed termination.

Further, doubling the cap on equity contribution by the NHAI will make more projects viable at a time when majority of the BOT projects being awarded are on a grant basis.

Further, doubling the cap on equity contribution by the NHAI will make more projects practicable at a time when majority of the BOT projects being awarded are on a grant basis.

Anuj Gupta, Mumbai

21st September 2015

The state of including of new clauses on real time data for toll collection and electronic toll collection will also increase transparency and lender comfort.

The interest of users has also been protected because developers cannot increase toll rates prior to or more than what is given in the official notification.

Bikram, Mumbai

22nd September 2015

Hi Mansoor,
Under the amended MCA, premium payment starts only from the 4th year after the completion date compared with the 1st year previously. That is a significant relief to both developers and lenders because most projects end up with debt service coverage ratio of less than 0.8-1.0 time in the first 3-4 years after completion date.

Deepankar Godbole, Mumbai

21st September 2015

Comment

The govt. has also increased the scope of revenue shortfall loans to include projects where judicial declaration effect cash flows.

Considering end of project that do not progress even after a year of award gives greater clarity on the termination process.

Padma G, Mumbai

21st September 2015

Right Bikram,
Refuse to obey will attract a shart penalty of up to 200% of toll fees. Also, if traffic is more than what the road is designed for, developers will have to spend on maintenance and increase capacity.

Padma G, Mumbai

23rd September 2015