In a major development, the Government has conceded the longstanding demand of private road developers for rescheduling their premium. Now, instead of paying the premium upfront, the developers will have the option of paying it gradually through the duration of the project.
Premium is the upfront payment of one per cent of the total project cost that is made by the developer to the Government within six months of bagging a contract. The special committee formed under Prime Minister Manmohan Singh’s economic advisor C Rangarajan has agreed to meet the demand.
The good news is that most big projects, which were stalled due to bad market conditions, will finally see the light of day. On the flipside though, the NHAI, which was to get Rs 1.5 lakh-crore by way of premiums from private developers over the next few years, will now get it in 20-30 years (usually, the duration of recovery of costs incurred by the developers). According to the new formula devised by the panel-the road developers for new projects will be allowed to stagger about three-fourth of their
1 per cent premium in the first three years of the project-and the rest will have to be paid, the year after that. “For road projects, consisting of four and six-lane expansions, the developers will have to pay up to one-fourth of the 1 per cent premium upfront and the rest can be rescheduled over the next three years,” said an official in the Road Ministry.
“In this case, the panel has allowed the road developers the leeway to reschedule the remaining 75 per cent of their premium. The road developers cannot delay or postpone the payment of the premium till the last three years of the concession period,” he explained. The panel was entrusted to chart out a bail-out policy for the 39 projects awarded since April 1, 2010. The premium committed in case of already started 16 projects is around Rs 55,000-crore and developers of yet-to-be-started 23 projects have committed to pay over Rs 1 lakh-crore. But owing to poor market sentiment, these developers were demanding re-scheduling of premium payments.
The panel has also allowed the road developers involved in six-lane expansion projects to start charging toll at the start of the project, but with the condition that the premium payment to be made to NHAI would also start simultaneously. For road projects involving four-lane expansions, the toll collections could start only on construction completion.
“The panel has also asked the road developers doing six-lane expansion projects to submit a bank guarantee of two per cent as their toll collections would also start from the day of construction,” said the official. The discount rate on the premium has also been decided at around 10.50-10.75 per cent, as against the 12 per cent suggested by the developers. “The panel has also decided to do away with the penalty on late or defaulting premium payments by road developers, which was earlier being suggested by the Road Ministry,’ said the official.