FinMin gives green signal to bailout proposal for highway developers | delhi | Hindustan Times
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FinMin gives green signal to bailout proposal for highway developers

delhi Updated: Aug 13, 2013 22:43 IST
Moushumi Das Gupta

In a move aimed to ease the fund crunch being faced by highway developers, the finance ministry has agreed to a proposal to allow restructuring of premium payable by developers, subject to approval by the law ministry.

Premium is the amount that a private concessionaire offers to pay annually to the government -- for the entire duration of the concession period which varies between 20 to 30 years -- in return for bagging the right to build the highway and collect toll from users.

Finance minister P Chidambaram in a letter to Oscar Fernandes, Union minister for transport, road and highways in the road ministry has said, “… considering the severe economic slowdown, increase in the number of the stressed projects and its adverse fallout on the assets of the banks, it is recognized that it may be necessary to provide a one-time exception to such stressed projects to nurse them back to health.”

Pesently over 25 highway projects where developers had offered premium worth Rs 96,000 crore is stuck as they are finding it difficult to pay owing to fund crunch. To help ease the financial woes of the developers, the highways ministry had proposed to stagger the premium payment of such developers.

Chidambaram, however, said that “extreme caution” should be taken by the highway ministry while renegotiating concessions post award because it has an “element of moral hazard.”

The finance minister has written that such relief should be given to developers only once through the life of the concession. Developers will also have to cough up a “penalty” for availing this facility. “This is necessary to deter the concessionaires from wasting the project to force a renegotiation,” he states in the letter.

Chidambaram has directed the highways ministry to finalize its proposal for restructuring of premium and get it cleared by law ministry.

Over the last one year some big ticket infrastructure majors including GMR and GVK who had offered high premium had threatened to pull out of highway projects worth over Rs 10,000 crore citing fund crunch.