Upset with the new recommendations of the Prime Minister’s Economic Affairs Advisory Committee (PMEAC) on rescheduling of premium payments of road projects during the construction phase, the National Highways Development Federation has written to Finance Minister P Chidamabaram seeking help.
In its letter, the road developers’ body has requested the Minister to consider the cause of big construction houses. Outlining the pitfalls in the recommended policy, they have asked the Finance Minister to be sympathetic of the cause of big developers, looking at the poor equity situation in the markets. Chidambaram has to take the final call on the report.
Premium is the annual up-front payment of one per cent of the total project cost that developers pay to the government within six months of bagging highway projects on build-operate-transfer (BOT-toll) mode.
“The recommended policy will not in any way help in reviving the stalled six-laning highway projects. In cases of developers who had begun construction work on similar stretches and are nearing completion could opt for this provision. Also, developers undertaking projects to widen two lanes to four lanes may go for the option,” said an industry insider.
In highway projects involving expansion to six lanes, developers are allowed to collect toll from day one and premium obligations also start simultaneously. But in case of four laning, both toll collection and premium obligations begin after construction is over and commercial operations have started.
“By not providing any relief to stuck six-laning projects, the entire exercise may prove futile,” said an official from the ministry of roads, transport and highways (MoRTH).
According to the new formula suggested by the C Rangarajan panel, rescheduling of premium will be allowed where the toll collection is poor and insufficient to meet the project expenses such as servicing of debt, operation and maintenance expenses and payment of quoted premium to National Highways Authority of India.
“This shortfall in premium payment would be delayed on year-to-year basis, attracting an annual interest rate of 10.75 per cent. The total outstanding premium will have to be paid one year before the completion of the contract,” said a MoRTH official.
Earlier, the panel had proposed to allow developers to pay only 25 per cent of the quoted annual premium in the first three years of the construction period and 50 per cent after completion of the project.