Concession agreements for highway projects will be counter-signed by the ministry of surface transport because the National Highways Authority of India (NHAI) is not allowed to enter into concessions with private developers.
Under Section 16 of the NHAI Act, 1988, the authority is empowered only to develop projects, collect tolls and entrust part of its functions to any person. This definition does not allow it to sign concession pacts for development of highways, the law ministry feels.
Besides, under Section 8A of the National Highway Act, 1956, the government has the power to enter into agreements for development and maintenance of National Highways.
Under this section, the government has thrown open projects for widening highways, bypass development and bridge works to the private sector on build-operate-transfer basis with a maximum concession period of 30 years.
The ministry of surface transport can empower project operators to enforce regulations set out in Chapter 8 of the Motor Vehicles Act, 1988. This chapter lists certain powers, including specifying speed limits. But a major portion of rule-making powers is vested with state governments. NHAI is not in a position to pass on these powers to project operators without an amendment to the NHAI Act.
Accordingly, all concession agreements entered into by NHAI will be counter-signed by the ministry to allow highway operators to restrict certain categories of commercial vehicle traffic. This is necessary to allow project operators to restrict maintenance costs to 1 per cent of total project cost.
In all the 11 projects that have been awarded for bypasses and bridges, the ministry has signed pacts with operators. NHAI has functioned as project originator and, in some cases, supported operators through subordinated loans.
Maintenance costs have been estimated at Rs 3 lakh per km, or about 1 per cent of total project cost. In case maintenance costs exceed this limit, the operators' targeted rates of return may not materialise.
Project operators are targeting a minimum internal rate of return of 18 per cent and above and an equity internal rate of return of over 22 per cent.
