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Highway Ministry accepts new formula for stressed road projects

13 Dec 2013 Evaluate

The Highway Ministry has accepted the formula proposed by a high-level panel for restructuring the annual premium owed to the government by developers of stressed road projects. Now, final report would be sent to finance ministry after receiving comments from various government departments include the National Highways Authority of India (NHAI), Department of Economic Affairs (DEA) and the Planning Commission. The panel, headed by PMEAC chairman C Rangarajan, was set up in November to decide the modalities of the premium rescheduling policy, whose final decision could be implemented by the highways ministry after the finance minister's approval.

As per the panel report, developers of stressed highway projects will have to pay 25% of the annual premium committed upfront for the first three years of the projects and would have to pay 50% thereafter. The report further added that if there is any cash surplus after debt servicing and meeting O&M expenses, then it would have to be paid too and developers must fulfill all their premium obligations three years before the contract expires. The discount rate for calculating the net present value would be 10.75%. For the four-laning projects, developers can avail the policy after commercial operations have begun and construction is complete. Meanwhile, in case of six-laning projects, developers can avail the policy during construction but would have to provide a construction milestone-linked bank guarantee for the premium deficit of 75% during this period.

The development of infrastructure is a most critical prerequisite to boost the economy’s growth and the ministry of road transport and highways is taking measures to revive the growth in highway road projects in the country. The government has also entered into the 'Public Private Partnership (PPP)' programme in order to bring adequate resources for setting up of a sound and efficient infrastructural base. Meanwhile, it has set the $1-trillion investment target for the infrastructure sector for the 12th Five Year Plan (2012-17).

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