Exit route provided in BOT projects to boost infra activities

National highways authority of India to intervene to complete stalled projects

GN Bureau | May 13, 2015


#cabinet   #BOT   #build operate and transfer   #National Highways Authority of India  

With the government looking to award 10,000 km of highways in the current fiscal the cabinet on Wednesday approved 100 percent equity divestment after two years of construction completion for all BOT (build operate and transfer) projects.

In order to provide a renewed thrust to the highway sector and to bring the private sector back on board, the Cabinet Committee on Economic Affairs (CCEA), chaired by prime minister Narendra Modi, has approved two major policy initiatives aimed at improving the availability of equity in the market. The CCEA also authorized the National Highways Authority of India (NHAI) to intervene in languishing projects suffering from lack of funds. This will facilitate one time fund infusion to revive and complete languishing BOT Projects

The CCEA has approved a comprehensive Exit Policy framework that permits concessionaires/developers to divest 100 percent equity, two years after completion of construction.

This step has been taken bring in more parties into infrastructure building projects. During the last few years, PPP (public private participation) projects have not been able to attract bids due to lack of availability of equity with the qualified bidders.  The exit policy is a sort of incentive and it will unlock  equity from completed projects making capital potentially available for investment into new projects. This decision will also harmonise conditions uniformly across all concessions signed prior to 2009 with the policy framework for post 2009 contracts which permit divestment of equity upto 100 percent, two years after completion of construction.

AS per estimate there are 80 such BOT projects awarded prior to 2009 that have been completed and the locked in equity in these projects works out to approximately Rs. 4500 crore. Once this is unlocked and is re-invested in new projects this could support 1500 kms of new highways on PPP mode, thus help in reviving the response to BOT (T) projects.

Meanwhile, out of the ongoing 240 PPP Projects, some are languishing due to delays on account of land acquisition, grant of statutory clearances, local issues and shortage of construction materials etc.  In conjunction with several other measures being taken to revive such stalled projects, CCEA on Wednesday approved a special intervention for the projects that are in the advanced stage of completion but are stuck due to either lack of additional equity or lender’s inability to disburse further.

The NHAI has been authorized to provide funds to such projects from within its overall budget/corpus on a loan basis at a pre-determined rate of return. This loan is to be recovered along with interest as the first charge from the toll receipts immediately after completion of construction.

NHAI has been directed to develop a robust mechanism to determine eligibility of the project as also the extent of funds required to complete projects, in time-bound manner. It is expected that about 16 such projects languishing in various part of the country where public is facing difficulty on account of incomplete works will benefit from this decision. This will also add momentum to the overall growth of the highways sector in India which is already on the path of revival.

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