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LATEST NEWS UPDATES | Centre plans 10,000km push for road sector -Dipak K Dash

Centre plans 10,000km push for road sector -Dipak K Dash

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published Published on May 10, 2015   modified Modified on May 10, 2015
-The Times of India

NEW DELHI: The government plans a mega push to the crucial road sector and has raised the target to award projects to 10,000 km in the current financial year as well injecting up to Rs 4,000 crore to complete projects stalled due to lack of funds.

The plan, which is being steered by Prime Minister Narendra Modi, also includes the move to allow private developers to exit projects two years after tolling starts. This will enable the developers to take up fresh projects as they would have some funds available with them to get loans for new works. It is also expected to help attract foreign investors in the sector as completed projects would be on offer for them.

The government has taken these three crucial decisions in the past three days to push construction of national highways (NHs) and revive private investment in the vital road sector, which has almost dried up.

The Modi administration is keen to replicate the success of the Atal Bihari Vajpayee government's mega road building programme to jumpstart growth and investment.

The one time fund infusion by the National Highways Authority of India (NHAI) is expected to breathe fresh life into 16 projects worth Rs 16,000 crore. Nearly 50% work has been completed in all these projects which are stalled as contractors have run out of funds and banks have stopped releasing fresh loans due to the tardy progress.

The decision to allow private developers exit projects two years after tolling begins is likely to unlock about Rs 4,800 crore of funds and help boost the availability of funds for new projects.

TOI has learnt that the decision to allow developers to divest their entire equity from projects where tolling is on for over two years can apply to 80 public private partnership (PPP) projects. Out of the total 115 PPP projects in the highway sector, 80 meet the new criteria. Private players are not bidding for PPP projects since they don't have the equity they need to put for projects in order to raise loans from banks and financial institutions.

"PM has observed that while allowing the developers to avail this scheme, ministry should keep track of how this equity is being utilized by the developers. The ministry will need to have some mechanism to see that the equity is ploughed back to the road projects," said a government official.

Under current norms developers need to keep at least 26% of their equity in project for the entire contract period, which usually extends up to 20-25 years.

Sources said this single decision has the potential to help attract foreign investment in the highways sector.

"Foreign investors are not coming as they don't want to risk of delay in construction, which impacts their investment recovery. But when completed projects will be on the offer we will see overseas investors vying for these projects. There is no risk of cash flow since tolling has been on for over two years," said a road ministry official.

Officials said while clearing the proposals that were caught in red tape for almost two years, Modi has asked the highways ministry and NHAI to deliver now. The ministry has assured the PM to push the construction of highways to 17-18 kms per day by the end of this financial year and cross 20 km per day during 2016-17.

Government sources said as per the proposed formula to complete the 16 stuck projects, NHAI will have the first right to recover the loan extended to developers with interest, which is 2% more than the bank rate.

"Banks are not providing fund for these stuck projects and they should not object to this new scheme since no progress would force NHAI to terminate contracts. In that case, the projects would become NPA and lenders would get the maximum hit," said an official.

The Times of India, 10 May, 2015, http://timesofindia.indiatimes.com/india/Centre-plans-10000km-push-for-road-sector/articleshow/47219049.cms


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