NHAI to acquire bad loans of PPP projects

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NHAI to acquire bad loans of PPP projects

The board of National Highways Authority of India (NHAI) has approved plans to float a company that would acquire bad loans from road PPP projects.

NHAI plans to keep banks' balance sheets healthy so that they are able to finance new projects and revive road projects at the same time.

Once the proposed public company takes over road project loans from banks at a discount, it will underwrite completion of the project. After this process, the public company could sell the completed projects to investors.

This plan is one of several measures the country is considering in order to revive the public-private partnership (PPP) model. The sector is in trouble, the proof is that twenty-one road PPP projects bid out by the National Highways Authority of India (NHAI) did not get a single bidder during the fiscal year 2013-2014.

At present 180 PPP projects under the Ministry are under construction through various agencies with total project cost of about Rs1,900 billion (US$31 billion).

Last month NHAI was looking to improve the existing model concession agreement (MCA) that sets out the terms of the PPP contracts. In summary, the MCA is to be modified to allow renegotiation and other flexibilities. In early June we announced that the NHAI is putting all information related to private public partnership (PPP) projects already signed in an online platform to ensure transparency.

The Reserve Bank of India (RBI) has advised all commercial banks to treat road sector debt as secured within the limits of 90 % of debt due, enabling banks to allocate a larger portion of lending to road sector and also to reduce the cost thereon.

NHAI has allowed concessionaires/developers for harmonious substitution and re-schedulement of Premium quoted by them in road projects to compensate for delays incurred by the NHAI.

NHAI has taken other measures for speedy completion of National Highway (NH) projects including streamlining of process of land acquisition and other statutory clearances, securitisation of road sector loans, introduction of revamped dispute resolution mechanism and close coordination with other ministries.

The Minister of State for Road Transport and Highways and Shipping Shri Krishanpal Gurjar, said recently:

"The current market conditions, particularly with reference to the highway sector, focus of the Government is on implementation of highways through public funded Engineering, Procurement and Construction (EPC) mode. Once, the highways sector gathers momentum through execution of the EPC projects and current issues plaguing PPP mode are well-addressed, the focus on PPP mode including Build-Operate-Transfer (BOT) (Toll) would be restored in order to effectively take highways sector forward."

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