NHAI plans funding to road developers

In a bid to prevent work on road projects from coming to a halt,the government is considering a proposal to allow the National Highways Authority of India....

Written by Gunjan Pradhan Sinha | New Delhi | Published: March 11, 2009 1:43 am

In a bid to prevent work on road projects from coming to a halt,the government is considering a proposal to allow the National Highways Authority of India (NHAI) to extend working capital loans to developers. In a meeting held on March 7,the roads secretary and NHAI officials discussed the possibility of such a move with road developers. According to developers present at the meeting,the move may help them tide over the tight credit situation they face for projects undertaken by them under the National Highways Development Programme (NHDP).

Under the proposed model,NHAI will provide credit at a rate equivalent to the prime lending rate (PLR) of the State Bank of India plus 1 per cent. Currently,SBI’s PLR is about 12.25 per cent and project finance loans are given on an interest rate of upto 14.25 per cent,depending on the credit rating of the borrower. This means that NHAI loans would bear an interest between 13.25 and 15.25 per cent going by current rates. The Ministry of Road Transport and Highways had initially written to the finance ministry,raising the issue of lack of credit to developers in the road sector. However,even such a proposal would have to wait another few months before the new government takes charge.

The stakeholders that attended the meeting included Gammon India,GMR,Somdutt Builders,GVK,L&T,ITD- Cementation,IVRCL and Afcons. These players have been part of the government’s NHDP programme,having bid for various stretches in phases I,II,III and V of the road development programme. Some of these developers are also concessionaires under the build-operate-transfer mode of public-private-partnership projects.

The meeting is a sign of the fact that the NHAI wants more bidders to come on board after a couple of projects opened to bidding in the last two or three months of 2008 received single bids. The government may not be able to proceed and award these projects as a single bidder is considered to be anti-competitive. Moreover,with the viability gap funding having been limited to only 10 per cent of the project cost under NHDP phase III,the ministry is looking at other ways to ease credit flow.

However,this is not exactly new,say developers. The NHAI used to give a discretionary advance to developers at 2 per cent above SBI PLR for EPC and annuity projects. This was later adjusted in the bills. But in the case of working capital the concessionaire will have to prove that the money was utilised for the purpose it was sanctioned and only then will the next tranche be given.

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