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Experts Corner

TALK TO EXPERTS - 24

Author

In this session, we will take up the issues related to the exit policy for the NHAI projects and the concessionaire.

Due to financial crunch, many NHAI projects were allowed to languish depriving the people of the benefits of the projects. In the earlier sessions, we looked into the reasons for the cash crunch the concessionaires faced generally and, necessarily, the government had to step in and find some remedial measures in such a way that the ultimate benefits of the project reach the people at the earliest and the concessionaires also are helped effectively and reasonably.  To come out of the dead end of the NHAI projects that halted without progress, it was found that strategic exit policy would come a long way in redeeming the sorry situations. The government had to revise the exit policy that would bring relief to the concessionaires and at the same time, the stalled projects would get new lease of life. Let us briefly consider the exit policy, both the past and the present.

Earlier, the private party or the consortium awarded the project must hold a minimum level of ownership in the project.  The minimum level usually was 26% of the shareholding of the SPV developing and operating the project.  This provision of the minimum level of ownership expected the developer to remain involved in the project in the sense that a substantial value of his assets cannot be monetized.  It was believed that this lock-in of his assets would motivate him to complete the project as early as possible. But this did not work out effectively.  All the same, the project developers found themselves strangled by liquidity crunch and financial stress and they did approach the government to bail them out of this unproductive and unprofitable situation with some new exit policy.

The government had to act.

The government came out with a new exit policy in 2014. The new exit policy allowed the project developer to exit fully by what is called a ‘harmonious substitution’ mechanism. In the comprehensive exit policy, it was announced that the exit facility was available for all BOT projects “irrespective of the year of award”.

The lenders or NHAI must view that the project developer’s company is most likely to experience financial distress leading to breach of the concession agreement; it only meant simply that the project developer would not be able to complete the project and it would remain languishing. The substitution is permitted if the project developer is likely to land himself in liquidity crunch and financial distress.

In the final shape of the new exit policy, the developers are allowed to divest 100 percent equity two years after the completion of construction. This decision enables the developer to use the divested equity proceeds to invest in non-NHAI projects also. In short, money will be available for investment in all infrastructure projects, not necessarily in NHAI projects alone.

And by proper substitution which includes the competency of the substituting party in all dimensions of the project, the long languishing NHAI projects will see completion soon.

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