Issues Faced by Exit Policy for Highway Projects
The exit policy for highway projects that was announced in July, 2013 has encountered a new hurdle. The policy that intended to release equity into the sector was being reworked by the highways ministry to make it more acceptable to investors. However, the Department of Economic Affairs (DEA) has come out in defense of the policy saying that it does not require any modification.
Proposal for new SPV fails to evince investor interest
According to the policy proposed by the National Highway Authority of India (NHAI), substitution of concessionaires is possible subject to approval by lenders. In such a case, a new Special Purpose Vehicle (SPV) would be formed to take over the project. Despite the initial interest evinced, no developer has come forward to accept the proposal. This was due to the lack of clarity with regards to passing of tax benefits, licences and permits from the old SPV to the new one following the exit of one developer and the stepping in of another. In a counter move, the highways ministry has come up with a fresh proposal.
Transfer of equity
According to the new proposal, the policy was proposed to be modified in such a manner that there would be transfer of equity instead of substitution of SPVs. This proposal was initially agreed upon by the DEA. The NHAI is currently working on its response, which will subsequently be sent to the DEA. Even though there is a misunderstanding on this issue between the DEA and the NHAI, it is likely to be sorted out soon. Transfer of equity was suggested as a more feasible proposition than the substitution of SPVs. This is because of the cumbersome procedures involved in the latter. The formation of a new SPV would require fresh licences, permits, stamp duties etc. The NHAI is planning to draft a reply to the DEA to explain the need for this modification.
Most of the highway projects have been indefinitely stalled in the last few years. This was due to the lack of bids received from private bidders as per the Public-Private Partnership (PPP) model. With developers keeping away from these projects since 2012-13, the highways ministry had to put on hold its plans to build highways through the PPP model. Even during the current financial year only two PPP projects have received bids.
Developers bemoan inadequacy of policy
To defend their stance, developers informed the government that the policy in its present form was inadequate. This is because it had failed to address the issue of unlocking of equity in healthy operational projects. This would have released about 6000 crore of equity in older concessions. Besides, it would also have presented the potential for long-term foreign direct investment in the road sector. It was also pointed out that sellers would not be able to deal with the large number of legal, commercial and taxation challenges involved with investors. To sort out this imbroglio, officials in the highways ministry are planning to resolve this issue with the DEA so as to bring about the necessary changes in policy.