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Road developers in the country, who are seeking to reschedule their premium payment to the National Highways Authority of India, may not be allowed to pay dividend to their parent company until they clear all their dues to NHAI, if the government accepts recommendations made by a committee chaired by C Rangarajan.
GMR, GVK, L&T and Asoka Buildcon are among those who have formed special purpose vehicles (SPVs) to undertake these projects. Road projects are undertaken by developers through the SPV route.
The committee has taken a view that since the premium payment is deferred, the SPV cannot pay back any money to the highway developer until the dues to NHAI is cleared.
The finance ministry had in October set up a panel under C Rangarajan to give its recommendations on the rescheduling of premium that highway developers owe to the government. NHAI is due to receive more than Rs 1,51,000 crore over the next 20 years from developers in return for awarding those projects.
“One of the decisions that the committee is considering is with regard to the dividend payment. Until the liability is completely cleared by the SPV, they cannot pay any return on the equity to the parent company,” a senior official who attended the meeting told Business Standard.
Premium is the amount that concessionaires have to pay NHAI for a BoT (Build-Operate-Transfer) project as they feel that the returns from the project are expected to be very high and is usually decided on the basis of future traffic flow at the time of bidding. The term for payment of the premium is usually 20-25 years and the amount payable by developers range from Rs 3 crore to Rs 680 crore per year. The amount goes up every year by an additional 5%, according to the existing norms.
In addition, the committee is also considering a proposal which will allow the developers to pay only 25% of the promised premium over the first three years and 50% after the first three years.
“During the first three years, they will have to pay 25% of the promised premium and then after that period, they will have to pay 50% of the premium promised,” the official said. He also added that the recommendations are not finalized yet.
If the proposal is considered, payments to the tune of Rs 650 crore could be brought down significantly providing some relief for developers and the balance to be carried forward will attract an interest cost.
Earlier NHAI had informed the panel that it is in favour of fixing the discount rate on highway developers at 10% and dismissed the need for a penalty on developers as proposed by the finance ministry.
The committee is also expected to consider the proposal when it makes the final recommendations to the finance ministry. The NHAI recommendation for fixing the discount rate at 10% instead of 12% is largely due to a fear that developers may reject the plan to reschedule premium and instead choose to walk out of projects.
Discount rate is an interest cost that would be levied on the amount that is rescheduled. A number of developers also threatened to walk out of projects as they found it unviable to operate including infrastructure majors such as GVK, GMR and Larsen & Toubro.
Following the threat, NHAI decided to ask the roads ministry to provide an interim relief to the developers by rescheduling the premium payable until the economy shows signs of recovery.
