24 ‘premium’ highway projects hit roadblock,seek bailout

Cite problems like delays in green nod,land acquisition

Two years back,27 high-density national highway corridors were awarded amid much fanfare to developers who outbid competitors by promising to pay the government a premium,instead of the general practice of seeking a capital grant from the Centre. Of these projects,all of which were touted as a testimony to renewed investor confidence in the roads sector,24 sections worth a whopping Rs 34,000 crore and spanning 3,500 km have failed to take off due to different reasons,including delays in environmental clearances and land acquisition.

The National Highways Authority of India (NHAI) had hoped to earn over Rs 1,00,000 crore through premium income,spread over a period of up to 30 years. Flagging the issue,NHAI chairman R P Singh,in a recent letter to the road transport ministry,listed the affected projects and asked the government to expedite a bailout.

As in other infrastructure projects,the government can step in to increase the viability of the project by bridging the funding gap,with the assistance taking the form of a capital grant. While grant is what is paid by the government to the concessionaire,the opposite is called a negative grant or a premium. Quoting a premium for a project amounts to committing an annual payment to the government over a period of the concession duration. Companies resort to offering a premium if they are confident that toll revenues from the project will be able to offset their project cost.

In 2011-12,NHAI awarded a record 51 projects covering 6,700 km,of which 27 were awarded to developers on premium.

The problem with the projects bid on premium came to light during 2012-end,when the developers of the 555-km Kishangarh-Udaipur-Ahmedabad and 332-km Shivpuri-Dewas road projects sent termination notices,indicating their unwillingness to continue.

The companies cited the delay in getting regulatory approvals as the primary reason for the projects becoming unviable. Morevover,the cost of material required for building roads is estimated to have increased by 25 per cent since the time the projects were awarded.

The government is discussing bailout proposals,including allowing the companies to offload the premium amount to be paid in the initial years to later years. The proposal has,however,failed to find acceptance in the law ministry,which feels that offloading of premium would require changes in the agreement.

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However,a senior road transport ministry official said not all the projects awarded on premium are actually in trouble. Many of these projects are just being held up because they expect a bailout from the government, he said.