Parekh panel moots easier exit for core developers

NEW DELHI: The Deepak Parekh committee on infrastructure financing has called for relaxing norms that stipulate lock-in periods for consortia executing projects in transportation, port and power sectors.

In a bid to provide greater flexibility, it has been suggested that the initial consortium awarded a project should be allowed to exit after a certain period by unlocking its ownership and selling out to some other qualified bidder.

If the recommendation is accepted, the provision will have to be included in the model concession agreement (MCA).

Current MCA provisions do not allow the lead bidder of a consortium to exit the project for the entire period of the concession (ranging from 15-30 years).

The Parekh panel has recommended that “all bidding documents for infrastructure projects should provide a clause for dropping the initial bidders or replacing them by a new entity, if agreed to by all the parties concerned”. Further, it has been said the deed of adherence should bind the new entity to the terms of the original contract.

“It is time build-operate-transfer (BOT) projects get into the tradeable arena. The current guidelines are restrictive. If someone wants to exit, he should be allowed after a certain period. All over the world there is a secondary market for such projects and developers have the option of selling out just like in any other business,” Simplex Infrastructure’s Amitabh Mundhra.

Consultants said flexible guidelines will help attract international investors, who may not be comfortable with the existing lock-in clauses.

“There are a lot of restrictions on the lead partner in a consortium, which prevents developers from unlocking value in a project during the concession period. Developers should be given an opportunity to exit a project if they so desire after a certain period.

As long as the new entity sticks to all the terms and conditions of the original agreement, it is merely the sale of ownership by the existing consortium,” said PwC associate director Vishwas Udgirkar.