NHAI's Covid force majeure fraught with loopholes, say contractors

Encashment of bank guarantees, non-payment of maintenance costs and lower estimation of revenue and expenditure are some issues raised by road developers

Following the notification of its Covid-19 related force majeure measures, the National Highways Authority of India (NHAI) is facing negotiations over several issues raised by road developers. Encashment of bank guarantees, non-payment of maintenance costs and lower estimation of revenue and expenditures are some of them.

NHAI in May announced compensation to address issues of losses due to non-collection of toll on highway stretches for 21 days and loss of traffic during the nationwide lockdown. The measures, however, road operators point out fall short on several counts. They say availing extension of the road concession period is not an easy task.

The relief to companies would, for instance, be available if the parties to the contract were not in default of the obligations on February 19. Under this clause, said an executive from a road company who did not wish to be identified, instances of companies being asked to settle past arbitration claims before the extension is given are coming up. NHAI officials, however, deny any coercive measures. According to a senior NHAI official, "No one can arm twist anyone these days, we can be lenient with the concessionaires if they are also considerate. We are already paying redemption money to the contractors. There are cases where we have given them extension in the contract without any issues."

The executive from a user-fee contract company pointed out to instances of encashment of bank guarantees for non-payment during the lockdown period. "The measures around force majeure are not clear. For instance, there have been cases in the user fee collection model where the bank guarantee was encashed for non-payment to NHAI 'as per contract'. The encashment happened despite having a force majeure in place," he said.

Others, like P C Grover, director general, National Highways Builders Federation, pointed out NHAI's compensation measures do not address current liquidity issues. Grover said representations were made to release performance guarantees and bank guarantees to make cash available to contractors. 

Under the guidelines set out in May for build-operate-transfer projects, loss in tolling is calculated based on daily average collection fee taken as the collection of 2018-19 divided by the number of days with 5 per cent escalation added to it. In case of projects for which the commissioning date falling in 2018-19 itself and, therefore, a full year has not been completed, the period from COD till February 29 will be taken for calculating the average collection.

A lot of discretion, however, comes in since independent engineers make an assessment of the calculations if the fee collection has not been realised for some reason. This forms basis of calculations. While toll collection period for existing contracts has been extended by straight 21 days for which the government had lifted toll, further extension is in proportion to the loss incurred during the entire lockdown phase if it is less than 90 per cent of the average daily collections. The contract period will be extended by one day if the loss is 25 per cent of the daily collections. This means daily loss will be bunched together if it is less than 25 per cent and qualify for a day of extension or if the loss is say 50 per cent in a day, it will translate to two days of extension.

Any concession fee or premium payable to the government has been deferred for the period they incurred loss in toll collection because of Covid-19-induced lockdown. Some companies that have user-fee contracts with NHAI raised concerns over calculation of revenue and compensation of expenditure. "NHAI is calculating revenue for compensation based on traffic seen in the third week of March, which was already hit due to Covid-19. In addition, expenditure compensation proposed was in the range of 50 to 75 percent, while user fee collection contractors were expected to make full payments including salaries," said a top executive from one the large companies with user-fee contracts.

A second senior NHAI official, however, said, "As far as the public funded highways are concerned we have given them complete waiver and even for the private companies we are paying 75 per cent over and above the compensation beyond waiving off the administration charges and other expenses."

NHAI has also not offered compensation related to operations and maintenance (O&M). This is a detour from the compensation announced for demonetisation period in 2016, where road developers were compensated for 90 per cent of O&M costs. 

For projects where operators had bid a premium (negative subsidy) or some kind of concession fee to the government, the extension of contract period would also be decided based on the toll collection loss of less than 90 per cent.