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Jun 21, 2013, 06.11 PM IST | Source: CNBC-TV18

CCEA approves fully exit norm for developers of NHAI

CCEA today approved a mechanism through which cash starved concessionaries will be given an option to fully exit the projects and make way for substitute developers. Reports CNBC-TV18 Rituparna Bhuyan.

In a major relief to the roads sector, the Cabinet Committee on Economic Affairs (CCEA) today approved a mechanism through which cash starved concessionaries will be given an option to fully exit the projects and make way for substitute developers. Reports CNBC-TV18 Rituparna Bhuyan.

Also read: Govt okays Rs 774-cr road project in Rajasthan under NHDP

There are several aspects of this approval.

1) For projects which have achieved a financial closure, the developer has to find a substitute developer and pay 1 percent penalty based on their total project cost after, which the developer can exit.

2) For projects, which have not achieved financial closure because of the fault of the National Highways Authority of India (NHAI), in such cases developers can fully exit such highway process without paying any penalty.

3) As far as the substitute developers are concerned they will have to be vetted by the lender as well as NHAI. Such a substitute developer will have to maintain 51 percent equity in the special purpose vehicle (SPV).

Finance Minister, P Chidambaram said, "We are trying to protect the integrity of the original contract. At the same time in the larger public interest we are allowing substitution under very strict conditions. We think that with these conditions wherever substitution becomes necessary a new concessionaire will substitute the existing one and the project can be taken forward. However, the substituting concessionaire should fulfill all the financial and technical qualifications that were required in the original bids. He will assume all the obligations of the project under the concession agreement."

One major implication of this approval is on completed highway projects. Sources in Road Ministry told CNBC-TV18 that highway developers who have completed construction of road projects, they will be now able to fully exit and sell their equity to private players.

Road Ministry expects a huge interest from private equity players on completed highway projects. So, clearly a series of demands made by the highway sector have been met today in just one stroke. It now remains to be seen how the highway development program especially in the PPP space goes forward in the coming months and years.

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