The Telegraph
Wednesday , March 5 , 2014
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Premium aid for highways

New Delhi, March 4: The Centre has provided financial relief to private builders of road projects, easing a constraint that had prompted walkout threats by companies, a day before the model code of conduct kicks in.

From now on, the builders can stagger their payment of premium to the government, buying themselves some leeway during an economic downturn that they say has hit their returns.

The premium is the amount builders have to pay the National Highways Authority of India for build-operate-transfer projects on the assumption that the returns from the project would be high.

Today’s decision, which comes after almost two years of discussions, lifts the threat of builder walkouts and seeks to ease the way for big-ticket road projects ahead of the elections.

GMR was the first to threaten to walk out of the 555km Kishangarh-Udaipur-Ahmedabad highway in December 2012. GVK threatened to dump a 330km highway in Madhya Pradesh connecting Shivpuri to Dewas.

Companies bag lucrative contracts — long and wide roads with potentially heavy traffic that promises a sizeable toll collection — on the strength of the premium they offer the government.

The annual premium and the number of years it is to be paid — increasing 5 per cent a year — is decided during bidding. The term of payment is usually 20 to 25 years and the annual payment usually ranges between Rs 3 crore and Rs 680 crore.

The Centre’s decision frees the companies from having to pay the agreed amount every year. They can pay less in the initial years but have to make up the arrears one year before the agreed term ends.

Companies involved in at least 48 road projects, running into 5,781km and worth around Rs 55,000 crore, have been citing the downturn’s rising costs and reduced commercial traffic to demand a moratorium on the premiums.

“They say they cannot pay the premium after repaying their bank loans and spending on highway maintenance,” a ministry official said.

Last October, the cabinet had approved the idea of staggered payments in principle and set up a committee under former RBI governor C. Rangarajan to decide the nitty-gritty. The panel handed in its report on January 22 and the finance ministry cleared it today.

The decision means the government will accept delayed payment of Rs 1 lakh crore worth of premium.