State governments have indicated that they will not be in favour of any state support agreement for road projects, which can have negative implications on their revenue flows.
Tamil Nadu's minister for transport S Krishanan said it was difficult for them to accept the state support agreement in its current form since this would directly affect their capital and maintenance expenditure for state highway projects.
The agreement under the draft concession pact for build-operate-transfer projects involves payment of compensation to private operators by the National Highways Authority of India (NHAI) in case of a default by the state and its recovery from the defaulting state by the NHAI.
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The agreement also includes creation of parallel facilities which could charge lower toll rates than the existing facilities or toll-free facilities and enforcement of axle-load stipulations under the Motor Vehicles Act.
At present the state governments are expected to support the project through the Motor Vehicles Act.
Wherever there are violations especially where axle-loads are exceeded, there is no provision for compensating the project operators.
The fine of around Rs 1,000 per tonne of axle weight belongs to the state government.
However, Tamil Nadu indicated that it was not opposed to passing on part of the powers vested with the transport authorities to the private operators for enforcement of axle load stipulations. This means that project operators would be allowed to offload vehicles which do not conform to the axle load specifications, so that operators could protect their targeted rates of return.
Potential road project investors pointed that currently the axle load of commercial vehicles is almost double the 10.5 tonnes limit prescribed by the Act.
The capital costs of road projects of Rs 3 crore per km have been worked out on this basis. However, if roads are built on the basis of the actual axle loads there can be a 20 per cent increase in capital costs.
Alternatively, if the roads are built on the original specifications, the maintenance expenditure can shoot up to Rs 5 lakh per km as opposed to Rs 3 lakh per km.
The increased costs and the inability to recover the same from users within the existing legal framework can adversely affect the targeted internal rates of return of private operators. These operators have been assured of a minimum 18 per cent internal rate of return.