Cos may get low-cost loans for state highway projects

NEW DELHI: Firms undertaking construction of state highways may get loans at concessional rates for shortfall in revenue collection due to any government default or political event. The proposed model concession agreement (MCA) for state highway projects provides for loans at the rate of 2% above the prevailing bank rate.

At present, most states offer these loans at an interest rate based on the least present value of return (LPVR). In the case of national highways, the rate at which the loan is given is equal to the State Bank of India’s prime lending rate per annum.

According to the proposed MCA, if the realisable fee in any accounting year falls short of the subsistence revenue as a result of a government default or direct or indirect political event, the concessionaire can request the government for a ‘revenue shortfall loan’ at 2% over the bank rate. The MCA is yet to be approved.

The state government will have to disburse the loan within 30 days of receiving the concessionaire’s request. The concessionaire will also have to furnish a detailed account of the event or default and its impact on his fee collections, it said.

The concessionaire will have to repay the entire revenue shortfall loan and interest within one year before the concession period terminates. If, however, the concessionaire is unable to do this, the government is entitled to terminate the agreement.

In case a concessionaire faces a shortfall in the first six months of the accounting year, he can take a ‘provisional’ revenue shortfall loan on the condition that he repays it, with interest, not later than 60 days after the close of the accounting year.

The government is in the process of finalising an MCA for public-private partnership (PPP) projects in the state highways sector. State highways are undertaken by respective public works departments (PWDs). Many states are exploring the scope of PPP to modernise and upgrade the network of state highways.