To avoid the risk of concessionaires walking out at a time when highway development has already hit a slump, the ministry had proposed to stagger the premium payment as a one time measure without impacting the net present value of the total premium to be paid over the entire contract period. The proposal is likely to come up in the cabinet shortly.
However, the CAG has observed that the proposal is not “consistent” with the concession agreement and can have implications for the bidding procedures used to determine the concessionaire.
India’s top auditor wants the highways ministry to look into the legality of the proposed plan before going ahead with it.
Even the finance ministry that had recently approved the road ministry’s rescheduling of premium proposal advised “extreme caution” because of an “element of moral hazard” in renegotiating concessions post award.
In view of the CAG’s observation, the ministry has recommended two options to the cabinet. The first is to allow rescheduling of premium as a one time measure after levying a penalty of up to 0.5% of the total project for renegotiating the norms of the contract between the developer and NHAI.
The second option is to terminate such contracts and re-bid the projects again. Officials, however, said that because of the ongoing slowdown, the re-bidding might not be able to attract high premiums like before and some of the projects might instead require viability gap funding from the government.