The NHAI cleared a proposal by GMR group to revive the Rs 7,200 crore Kishangarh-Udaipur-Ahmadabad expressway project. But, the finance ministry and planning commission representatives in the authority have recorded their objections to this decision. In a case which has some parallels to the renegotiation of telecom licences, NHAI has recommended the proposal, which seeks to reschedule the premium payable to NHAI over the concession period by paying lower premium at the initial stages and then enhancing subsequent payments, for final approval by the centre.
While the road ministry is of the view that the government erred in projecting a high growth rate in sector, and given the changed scenario there is no other way to salvage the projects, the critics of the move have questioned if the concessionaire would have asked for renegotiation had the economy grown higher than projected.
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The NHAI decision was taken in a meeting held in late March, according to officials familiar with the development. NHAI is headed by RP Singh and comprises eight members including finmin and plan panel representatives.
In January, GMR Kishangarh-Udaipur- Ahmedabad Expressways Ltd, the concessionaire pulled out of the project as there was a delay in satisfying several “conditions precedent” such as issuance fee notification and procurement of environmental clearance by NHAI. The concessionaire also on its part had not procured several applicable permits required for starting construction. The dispute moved to Delhi High Court.
In February, after NHAI issued the fee notification and procured the environment clearances, GMR submitted the proposal for revival of the project. Apart from the rescheduling of the premium payments, GMR also sought one-time compensation for increase in project cost on the plea that project economics have changed since the award of the project in 2011 and overall costs have gone up. It also wanted NHAI to ensure that environmental clearances for land acquisition, cutting of trees and shifting of utilities are in place.
The authority did not want to set a precedent by awarding one-time compensation and taking any stand on green clearances as “reopening of these issues will create problems in other projects. But it considered the GMR proposal to rework premium “crucial to implement the project.”
A GMR spokesperson said, "No comments," in an email response.
One of the key considerations for NHAI was the falling traffic growth and its impact on the lenders’ confidence in several NHAI projects and ultimately their viability. “Rejection of this proposal could mean a loss of revenue to the government and it is a better option to come to a negotiated amicable settlement of issues, since the concessionaire has offered to protect the NPV value of the premium in the original bid,” the authority said in a note.
BOT projects bid out during 2011-12 had received aggressive bids. 25 projects received premium bids including Kishangarh-Udaipur-Ahmedabad awarded to GMR. From these projects NHAI is to get premium amounting to Rs.98,115 crores over the concession period. These projects are unable to start execution because of their inability to raise the required equity.
However, both finance ministry and planning commission took a different view. In a dissent note finance secretary RS Gujral said, “It was pointed out that the schedule of premium payable by M/s GMR is as laid down in a legally binding contract drawn up at the conclusion of an open bidding process, in which premium payable as also the schedule was a clear bidding parameter. Therefore varying the payment schedule at this stage implies departure from a legally binding contract, an action that cannot be supported.”
He also expressed concerns about this becoming a precedent for other contracts in similar distress. “It should be appreciated that the bidders are expected to have done due diligence and factored in all commercial risks before bidding.” The dissent note also pointed out how the concessionaire would not have agreed to a revision of terms had the economy had grown faster than projected.
Plan panel secretary Sindhushree Khullar said in her note without wanting to be recorded as “dissent”, “Such whimsical changes in legally binding contracts is a poor reflection on the credibility of government and its agencies. Moreover reopening a legally binding contract mitiates against the principle of sanctity of contracts and should not be resorted to on a case to case basis.”
In response to an email seeking comments, NHAI chairman said the authority has put in enough safeguards. “While recommending rescheduling of premium we have proposed following caveats which would ensure the commitment of the Concessionaires: a. In case the project revenues is more than projected, NHAI will have the right to pre-pone the payments in consultation with the Senior lenders. b. During the first 12 years, ie., during the period of debt repayment, the concessionaire shall not pay any dividend to itself, but shall use the cash flows solely to service it’s obligations to NHAI and lenders and project requirements. c. A corporate guarantee of the parent company covering the highest annual difference between the original premium flows and the rescheduled, at their current NPV value,” he said.
The chairman added that there is an argument made by some officers in the Government that these are done deals and should not be renegotiated. If this argument is accepted then most of the projects will get terminated and the developers debarred. “This will unsettle the entire road sector, affecting the economy of the country very seriously. We will have to forget the PPP mode for delivery of infrastructure. The Government would then have to borrow or make budgetary allocation to execute these projects as cash contracts.”
NHAI said the move was win-win and did not have any financial implication for the government. It added, “We are against blacklisting the concessionaires.”
| Timeline |
| November, 2011: Concession agreement inked with GMR for six laning of Kishangarh-Udaipur-Ahmedabad |
| December 21, 2012: GMR issues notice of intention to terminate agreement |
| December 28, 2012: GMR obtains ex-parte order from Delhi High Court to maintain status quo |
| January 1, 2013: NHAI asks GMR to withdraw letter saying it is untenable |
| January 7: GMR serves termination letter |
| January 17: NJAI reiterates stand, moves court to dismiss GMR petition |
| February 25: GMR submits proposal to revice project seeking reworking premium, one time compensation, etc |
| March 26: NHAI agrees to reworking of premium, recommends proposal for government approval |
| KUA six laning project key numbers |
| Estimated project cost: Rs 7,200 |
| Length of project: 555.5 km |
| Concession premium: Rs 636 crore with annual increment of 5% |
| Term of concession: 26 years |
| Source: Ministry of road transport and highways |