Sunday, April 28, 2013

More highway developers are looking to postpone their premium payments to the Government
[Editor: Ahmedabad-Vadodara highway development project in Gujarat is IRB Infrastructure Developers Ltd's largest road project and accounts for 38.65 % of its total road projects order book, being undertaken on a build-operate-transfer (BOT) basis]
IRB Infrastructure, a Rs 3,131-crore listed firm, is the first to approach the National Highways Authority of India to reschedule its premium payments — the amount offered by a company to NHAI for developing/widening a stretch of road and collect toll from users over a set period — for two highway development projects, even as it collects toll from the projects.

The developer wants to stagger payments to the NHAI so as to pay lower amounts in the initial years of the concession period and higher sums in later years. However, the net present value of premium accruing to the NHAI remains same.

NHAI has already received such proposals from GMR and GVK, though these firms have not started collecting toll from the specified stretches.

The projects of GMR (Kishangarh-Udaipur-Ahmedabad stretch), GVK (Shivpuri-Devas), and IRB (Tumkur-Chitradurg; and Ahmedabad-Vadodara) involve six-laning. For such projects, revenue in the form of toll collection starts during construction as commuters are already using the four-lane roads. But the premium payout to NHAI, as offered by the developer during competitive bidding, also starts immediately. So, in the initial years of project development, the developer incurs two costs — construction and premium payment to NHAI. This is what the developers want to stagger. IRB has sought relief for the Karnataka and Gujarat projects. For widening the 114-km stretch between Tumkur and Chitradurga in Karnataka, the company started collecting toll in 2011.

And to develop the 196-km Ahmedabad-Vadodara stretch in Gujarat, it began collecting toll from January 1 this year.

IRB had committed to paying Rs 140.4 crore a year for 26 years for the Karnataka project and Rs 309.6 crore/year for 25 years for the Gujarat project. The premium payment will go up 5 per cent every year. But toll collections and construction work on both the stretches were delayed by about a year due to pending regulatory nods leading to higher project costs, claimed an industry source.
The source also said that IRB wrote to the NHAI after all the developers were asked by the National Highways Builder’s Federation to inform the regulator in advance if they would like to make use of the premium reschedule payment scheme being considered for GMR.

GMR has offered to pay Rs 59,000 crore instead of the originally committed Rs 32,000 crore over 26 years. But in the first year, GMR will pay less than Rs 100 crore instead of the Rs 636 crore it had committed. 


GMR’s proposal for rescheduling premium has been approved by the NHAI board, while GVK submitted its proposal recently. But to implement these proposals, Cabinet approval is required.

In fact, anticipating such proposals from many more developers, the Highways Ministry is working on a common policy for all such projects, said a Government source.

For developers, staggering the committed premium over the 20-25-year concession period helps, as their cash outgo becomes less in the initial years, when they also incur construction costs. This also keeps the debt from ballooning.


For some 20 highway projects awarded in 2011-12, the firms concerned had offered to pay premium to NHAI to get rights to widen the stretch, and collect toll for the concession period of 20-30 years.

Developers are yet to start collecting tolls on these stretches, as the collection date is linked to NHAI making available requisite land with regulatory clearances for initiation of construction.

Ashoka Buildcon, Essel Infra, and Abhijeet are some of the other developers that have approached the NHAI with different proposals for highway projects.