New Delhi: To revive the highways sector and attract developers, the government on Friday approved a proposal for allowing companies to exit projects "harmoniously" without attracting punitive measures.
"The Cabinet Committee on Economic Affairs (CCEA) today approved the proposal to facilitate harmonious substitution of concessionaire in ongoing and completed National Highway Projects," an official statement said.
"This will expedite implementation of road infrastructure in the country and insulate the NHAI from heavy financial claims and unnecessary disputes," it added.
It has been decided that existing concessionaires both in case of completed and on-going projects be permitted to divest their equity in totality, the statement said, adding this would bring about required flexibility for existing concessionaires in terms of exit options.
Subsequent to the substitution, the leading substituting entity shall require to maintain at least 51 percent equity holding in project special purpose vehicle (SPV), it said.
The proposal aims at revival of the sector by facilitating substitution of concessionaire and "appropriate substitution of the consortium members of concessionaire for project therefore, shall require to be effected by the lenders with the consent of National Highways Authority of India.
The decision follows lack of interest among bidders for highway projects under the public-private-partnership mode and difficulties faced in achieving financial closure for such projects awarded in the recent past already subdued investment climate.
A large number of highways projects are stalled for various clearances including 20 major projects involving investment of Rs 27,000 crore.
Road Transport and Highways Minister Oscar Fernandes said the long-pending demand of highways developers has been met.
"This year, many people did not participate (in bidding for road projects). Our thinking is that by giving this concession, we can attract many people. If there is any contingency, they will be allowed to leave without affecting the project," he said.
As per the statement, the mechanism for implementation would include a written representation by concessionaire to the lender's representative with a copy to the Authority requesting the lender's representative to seek approval of the Authority for its substitution.
The statement said lender's representative in consultation with the concessionaire would "invite, negotiate and procure offers either by private negotiations or public auction or tenders, for the takeover and transfer of the Project Highway".
The decision to permit substitution will be taken by the lenders, it said.
Infrastructure players GMR and GVK had recently walked out of mega road contracts while a large number of projects awarded during 2011-12 are yet to achieve financial closure.
The government said developers were facing severe shortage of equity and consequently were unable to raise the required debt and hence the poor response to PPP projects.
"To revitalise the sector, there is an imperative need for industry to raise fresh equity. Innovative ways of infusing equity are the need of the hour without compromising on due diligence and safeguarding public interest," it added.
It said relaxing exit norms was needed as many investment companies with sufficient resources have shown interest to acquire road projects, but are either unable or unwilling to take up the construction risks and "Permitting buy-outs by such entities, which will take over all obligations under the concession agreement, will help facilitate flow of resources for the revival of the sector."
It added that lack of equity has also affected many projects under execution. Bringing in substitute of Consortium Member(s) of the Concessionaires/ developers will help in timely completion of such projects.