Cash-strapped highway developers may get exit option

NEW DELHI: The government may allow cash-strapped highway developers to exit projects at any stage after financial closure if lenders agree to change the concessionaires at the request of the existing developer.

The surface transport ministry feels that this could be a shot in the arm for stalled highway projects since equity released from old projects can be used to develop new ones, and companies with relevant expertise can take over the construction or operation and maintenance of the existing ones.

The road ministry is now tweaking its equity takeout proposal to incorporate suggestions received in a meeting with the finance ministry and Planning Commission on Monday. The proposal is part of the road ministry’s note to allow developers to fully exit projects which is restricted under the current concession agreement for Public Private Partnerships (PPP) in national highways.

“Right now, lenders’ right to substitute concessionaires is a grey area in the model concession agreement (MCA) because it doesn’t specifically rule out lenders from changing concessionaires in a project even before a default. We are working around that to incorporate a harmonious process where a concessionaire wanting to exit a project can approach the lenders,” said a senior road ministry official after Monday’s meeting.

At present, MCA specifies that lenders can change developers in case of a financial default or when NHAI asks them to do so in case of a concessionaire default. Developers can exit after two years of completing the project, and in case of projects awarded before 2009, firms cannot fully exit a project any time during the concession period.

Experts say the equity takeout option would be particularly helpful for projects awarded before 2009 who cannot exit the project completely before the end of the concession period. “There are foreign investors who may not want to get involved in the construction phase but would like to come into completed projects. But if there’s a project which is in the construction phase and has all approvals in place, there should be interest in these as well,” said Abhaya Agarwal, Partner - PPP, Ernst & Young.