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Stalled road project test

- PC nod to re-negotiate contract but with riders

New Delhi, Aug. 17: Finance minister P. Chidambaram has given the green signal for renegotiating a stalled highway project GMR threatened to quit, but with several conditions, in what is seen a test case for the slump-hit road sector.

Renegotiating concessions in existing projects “has an element of moral hazards”, the minister has said, while at the same time acknowledging that considering the severe economic slowdown “it may be necessary to provide a one-time exception to such a stressed project to nurse it back to health”.

But the road transport ministry, which had sought Chidambaram’s views after the firm demanded the terms be reworked, is not willing to take a call because of the several ifs and buts. It wants the cabinet to take a decision.

Chidambaram has set two key conditions related to the widening of the 555km Kishangarh-Udaipur-Ahmedabad highway that covers Rajasthan and Gujarat.

One is to fix responsibility. “Whether the project is stalled on account of the failure of the NHAI to provide right of way for construction of roads or failure of the concessionaire (the firms) to mobilise finance in time,” Chidambaram wrote in reply last week to Union road transport minister Oscar Fernandes.

The NHAI, or the National Highway Authority of India, is responsible not just for acquiring land but also for getting clearances.

The other rider is the road ministry should develop criteria to determine which of the troubled projects is “indeed stressed”.

The ministry is now preparing a cabinet note that will provide all details about the particular project, GMR’s alleged reasons for wanting to pull out and the proposed new terms.

In its pullout notice to the NHAI last December, the company claimed the project costs had increased because of delays in environmental clearances. The firm later pushed for the deal to be reworked.

GMR’s move had a domino effect: GVK, based in Andhra like GMR, pulled out of a Madhya Pradesh project. The 330km highway connects Shivpuri with Dewas.

The Kishangarh-Udaipur-Ahmedabad road, with four lanes, is to be widened to six. GMR had aggressively bid and promised to give the government Rs 636 crore each year. Under the 26-year deal, the payment to the government would have increased 5 per cent each year.

The toll collection at present is around Rs 380 crore annually. GMR estimates it would have gone up to Rs 450 crore after the upgrade.

“GMR argued there will still be a gap of Rs 186 crore between what it will earn and pay the government. Because of this, it said it would have to take bank loans,” said a senior official. GMR, he added, asked for the government’s share of money to be waived for the first five years.

The road ministry’s own estimate, however, is that toll collections from the six-lane road will be much higher at Rs 713 crore. Officials believe GMR will be in a comfortable position to pay the government and earn a profit. These facts will be presented to the cabinet.

The final decision will be closely watched at a time the road ministry is finding it tough to get bidders for projects because of the economic slowdown.

In April-June this year, projects totalling 339km have been given out. This works out to only 37 per cent of the targeted 916km. In 2012-13, the figure was 11 per cent as only 1,093km of the targeted 9,500km had found takers.