No moral hazard in premium rescheduling

Oct 05 2013, 03:38 IST
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SummaryThe Cabinet Committee on Economic Affairs is likely to discuss the ministry's proposal soon

Over two dozen highway projects that are in limbo would have the option of rescheduling their premium payments (aggregating R98,115 crore) to the National Highways Authority of India if the road ministry has its way. The Cabinet Committee on Economic Affairs is likely to discuss the ministry's proposal soon, even as the finance ministry and the Planning Commission are not exactly happy with it — the former sees a ‘moral hazard’ in such tweaking of model concession agreements (MCA) signed with the bidders who ought to have assessed the project risks before placing their bids and the latter stresses the MCA lacked a provision for such a change. The ministry for roads, which has made the proposal, however, believes rescheduling is a practical solution to the problems faced by developers and that it is in the overall interest of the sector hit by the slowdown. Oscar Fernandes, minister for road transport and highways, talks about the pros and cons of the proposal with FE. The minister also dwells on the investment famine in the sector, the perception that the PPP model in the sector has failed and recent issues of tolling that have led to a stand-off between the NHAI and the developers (NHAI instructions increase construction cost and it overegulates tolling). Excerpts from an interview he gave Timsy Jaipuria, Rishi Raj and KG Narendranath

Last year was not very good for the highway sector with the total projects awarded declining sharply to 1,116 km from 7,400 km the year before (of course, 2,840 km of highways were constructed in FY13 compared to 2,242 km in the previous year). The general perception is that the awarding target for this year is a difficult one to meet.

There will be a remarkable (increase) in the (quantum) of awards this year. Difficulties are indeed there — the economic scenario is not very good, the investment climate has deteriorated and not many people are now willing to take up projects on premium.

Why we are still confident is because some of the hurdles have been removed. The Supreme Court ruling earlier this year, which de-linked the forest and environmental clearances, would help. The environment ministry, I must say, is doing their best to fast-track approvals.

Premium rescheduling would stand some 23 developers, who

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