The move to restructure stalled highway projects entailing premium revenue of R99,057 crore has run into another roadblock with the National Highways Authority of India (NHAI) taking strong objection to the Cabinet proposals made by its parent ministry. Indeed, the letter written by NHAI chairman RP Singh to road transport and highways secretary Vijay Chhibber says the Cabinet note, based on “super-imposing a number of unworkable conditions” as suggested by the DEA (finance ministry) is both “sub-optimal and practically unworkable”.
Singh sent his letter to Chhibber last week.
While the road ministry was initially in favour of allowing developers to reschedule payments as long as the net present value (NPV) remained unchanged, the finance ministry had raised objections to this. So, in the case of GMR Group’s Kishangarh-Udaipur-Ahmedabad highway, while the original proposal under the contract had envisaged a payment of R636 crore in year one and R668 crore in year two, the new proposal submitted by the company has suggested a much lower payment of R70 crore and R85 crore. At that time, the finance ministry had said the minimum yearly payment had to at least equal the toll collected. Later, the ministry dropped this and said developers needed to take a haircut.
The road ministry’s Cabinet note suggests a penalty of 0.5% of the project cost in the case of GMR’s Kishangarh-Udaipur-Ahmedabad project, while the NPV of what GMR had promised to pay NHAI was R9,000 crore, the project cost was a much lower R5,500 crore. It also suggested the discount rate be raised from 10% to 12%, to ensure developers were encouraged not to back-load the payments.
What has upset NHAI, however, is the finance ministry’s proposal that developers submit a bank guarantee for the difference between what was to be paid under the earlier schedule and what is proposed now.
According to NHAI, since most developers are heavily over-leveraged, they cannot possibly provide such guarantees. A report by Credit Suisse points to the leverage ratio — EBIT to interest payments — for GMR being quite low at 0.7 in FY13, which means GMR’s EBIT was just 70% of its interest payments for the year.
Singh wrote that the authority’s original formula which proposed barring the developers from claiming any return on equity until the premium shortfall was made good was a sufficient safeguard. This, he said, would serve the government’s