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UPA a step closer on Bailout package for Road Projects

<p style="text-align:justify">The government moved a step closer to finalizing its bailout package for roads after a panel proposed that a section of developers be allowed to convert their premium owed to the government into a loan. Premium here is the money road developers agree to pay the National Highways Authority of India (NHAI) for building highways and collecting toll from users. The suggestions aim to ease some of the fiscal pressure on developers and consequently kickstart the projects, which will also assist in unlocking bank loans tied up in these.</p> <p style="text-align:justify">The panel, headed by Prime Minister&rsquo;s economic advisory council chairman C. Rangarajan, was to look into a proposal to restructure premium commitments of stressed road developers. The panel submitted its recommendations on Wednesday. The recommendations of the panel will first have to be approved by roads minister Oscar Fernandes after which they would be sent to finance minister P.Chidambaram for approval. The panel has said that the bailout for rescheduling of the premium owed to the government should be restricted to developers with toll collections insufficient to service debt, maintenance and premium obligations of the project, according to a road ministry official, who spoke on condition of anonymity.</p> <p style="text-align:justify">The rescheduled premium will be treated as a revenue shortfall loan by NHAI, according to the panel&rsquo;s recommendation. The shortfall in the premium due can be back-loaded to the later years of the concession but will invite an interest charged at the rate of 2 percentage point more than the bank rate (1 percentage point above the benchmark policy rate), the panel has said. &ldquo;According to the current rates, this comes to 10.75%,&rdquo; said the official cited earlier.</p> <p style="text-align:justify">To overcome the opposition of the Planning Commission, the Rangarajan panel has in the final document included a penalty for availing the dispensation. The panel has recommended that a maximum penalty of 0.5% of the total project cost be imposed if a developer avails the option to reschedule the premium obligation. &ldquo;The penalty will ensure that only genuinely stressed road projects come for this bailout. Even the criteria for stressed projects has been made tighter by only allowing projects with toll revenue shortfall to be eligible. The earlier suggestions of year-wise rescheduling was completely done away with as it was tantamount to paying for the developer&rsquo;s equity,&rdquo; said another official confirming the development. He too declined to be named.</p> <p style="text-align:justify">NHAI conducted fresh traffic studies for 48 projects in November that had evinced interest in getting their premium obligations rescheduled. It has estimated a growth in traffic of 11% a year over the lifetime of the project. &ldquo;We think now that only 10 projects of the 48 that initially wanted to reschedule their premium will come forward,&rdquo; the second official said. The terms on which the panel has proposed to allow rescheduling of premium will not provide much relief to the developers, according to Parvesh Minocha, managing director of the transportation business at infrastructure consultancy Feedback Infrastructure Services Pvt. Ltd.</p> <p style="text-align:justify">&ldquo;The first challenge this model will face is that if the traffic numbers of NHAI will be accepted by the developers and lenders. Secondly, this provides relief only to projects which have premium obligation and excludes those projects that have viability gap funding&mdash;which too are equally stressed. Thirdly, the recommendations assume higher than expected traffic numbers in later years that will help repay the rescheduled premium,&rdquo; Minocha said. &ldquo;This will not help most developers make any progress forward in their projects.&rdquo; The government gave an in-principle approval on 17 October to the proposal to restructure premium commitments of stressed road developers with riders. The cabinet had directed that a committee be formed headed by Rangarajan to look into the fine print of the policy.</p> <p style="text-align:justify">The road sector saw a slowdown with just 1,322km of road projects awarded by the ministry in 2012-13 compared with a target of 9,500km. The roads ministry has had to lower its internal target for the award of road projects for the second time this fiscal year. It nearly halved its target of awarding highway projects under the National Highway Development Project to 2,128km in 2013-14, from 4,028km earlier and much lower than its original 7,500km target. The bailout in terms of restructuring the premium was expected to provide relief to road developers to revive activity in the sector.</p> <p style="text-align:justify">Source-On Request</p>