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Govt permits road concessionaires to divest equity

Projects

The cabinet committee on economic affairs has approved a proposal to facilitate harmonious substitution of concessionaire in ongoing and completed national highway projects. This will expedite implementation of road infrastructure in the country and insulate the National Highway Authority (NHAI) from heavy financial claims and unnecessary disputes.

The proposal aims at revival of the sector by facilitating substitution of concessionaire in case of both ongoing and completed projects, in both these cases, appropriate substitution of the consortium member(s) of concessionaire for project therefore, shall require to be effected by the lenders with the consent of NHAI.

“In view of the prevailing lack of interest among prospective bidders for highway projects under the PPP mode and difficulties faced in achieving financial closure for such projects awarded in the recent past in an already subdued investment climate, it has been decided that existing concessionaires— both in case of completed and on-going projects— be permitted to divest their equity in totality. This would bring about required flexibility for existing concessionaires in terms of exit options,” the government said.

Looking at the previous year’s achievement, the government had set a very ambitious target of award. But the response under PPP was extremely poor. Despite making repeated bid invitations, the government received no responses for many projects. In addition to the overall economic downturn, the sector was adversely impacted by changes in environment and forest policy guidelines. This resulted into a large number of projects (awarded during 2011-12) still to achieve financial closure.

Developers are also facing severe shortage of equity and consequently, are unable to raise the required debt and hence the poor response to PPP projects. Lack of equity has also affected many projects under execution. Bringing in substitute of consortium member(s) of the concessionaires/ developers will help in timely completion of such projects, the government feels.

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