Lockdown impact: NHAI to extend contract for private highway developers

25% average toll collection loss to get one-day extension

In a relief to infrastructure companies, the government has given between three- and six-month extension to all private highway developers whose contracts had ended on or after February 20. 

Any concession fee or premium payable to the government has been deferred for all private national highway projects for the same period they incurred loss in toll collection because of the nationwide lockdown.

Toll collection period for existing contracts has been extended by 21 days. Moreover, the days can be extended in proportion to the loss incurred in toll fee during the lockdown phase, if it is less than 90 per cent of daily average collections. 

The contract period will be extended by a 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 into two days of extension.

The National Highways Authority of India (NHAI)  sent a letter laying down the principles of force majeure in national highway contracts with private developers to all its offices on Tuesday after extensive meetings with industry representatives and the government. 

An infrastructure expert, however, said the provision of extension does not alleviate the pain of contractors who have to service interest on debt even if they go for a moratorium on the payment of principal. 

"This is because cash flows of companies will not immediately improve and costs, like salary, interest and maintenance, will continue. In the case of projects built on the hybrid annuity model, these force majeure principles would not apply, but they would not be majorly impacted by the lockdown since subsidy payouts to them are milestone-based," added the expert.

The relief to companies would, however, be available if the parties to the contract, which means both the NHAI and operators, are not in default of the obligations on February 19, 2020.    

The NHAI letter defines daily average toll collection fee as the collection of 2018-19 (FY19) divided by the number of days, with 5 per cent escalation added to it. 

In case of projects for which the commissioning date was in FY19 itself and, therefore, a full year had not been completed, the period from the commercial operation date till February 29 would be taken for calculating the average collection. 

Independent engineers will make an assessment of the calculations if the fee collection has not been realised for some reason. This assessment will then form the crux of calculation.

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

The force majeure principles are applicable to all toll-based projects constructed on the build, operate, and transfer model. 

If the concession agreement or the contract which operators sign with the NHAI does not permit the force majeure principles laid down on Tuesday, the contract clauses will prevail.