Clearing roadblocks PDF Print E-mail
Wednesday, 01 January 2014 11:17
AddThis Social Bookmark Button

Re-auctioning smaller stretches a good idea

Given the dramatic slowing in the number of road projects being awarded by NHAI—this fell from 6,491 km in FY12 to 1,116 km in FY13 and to a mere 123 km till November this year—it is just as well that it is planning a Plan B for the 23 road projects it has put up to the Rangarajan Committee to find a solution for. These projects, over 3,470 km, have promised to pay NHAI a premium of R22,160 crore in NPV terms—the largest, the Kishangarh-Udaipur-Ahmedabad one by the GMR Group, was to pay NHAI R8,925 crore by way of premium, in NPV terms. With the environment ministry not providing clearances in time for several projects, and the economy growing much slower than expected, many developers have expressed their inability to deliver on the projects—some, like GMR and GVK, cited delayed environmental clearances as the reason for wanting to exit the project. While the Rangarajan Committee is examining the possibility of coming up with a renegotiation formula, given the opposition of the finance ministry and the Planning Commission, NHAI has readied a Plan B, as FE reported a few days ago.

This is eminently sensible since renegotiation of these projects is going to be a very tricky process, more so since, technically, all the projects are in any case infructuous given there has been no work on them for more than the stipulated period. More important, if the Rangarajan committee were to recommend a cut in premiums, this will have to be approved of by the Cabinet and could take a very long time given the objections raised in the past. The finance ministry, for instance, had said it would be incorrect to reduce the premiums to below the annual toll collections since this would mean the road developer would earn more money from the project and could, theoretically, ask for another renegotiation when the time came for a larger repayment—under what is proposed, payments are to be lowered in the earlier years and this is to be made up by larger payments in later years.

NHAI’s proposed solution is to break up the projects into smaller lengths and rebid them—the idea of the smaller lengths is to attract more players since, under the current circumstances, not too many firms have the ability to pay out large sums of money. The added advantage of rebidding will be that, since it will be market-determined, there will be no allegations of favouritism. What NHAI needs to keep in mind though, since the documentation for the road projects is ready, is that the bidding should be done at the earliest.


You are here  : Home Infrastructure/Urbanisation Clearing roadblocks