NHAI Authorized for rationalized compensation to concessionaires in case of delays not attributable to concessionaires

By | November 18, 2015

Press release by Cabinet Committee on Economic Affairs  (CCEA)of Govt of India on 18-November, 2015

Authorizing National Highways Authority of India (NHAI) for rationalized compensation to concessionaires in case of delays not attributable to concessionaires for languishing highway projects on BOT mode

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi has given its approval for:

(i) Authorizing NHAI to allow extension of concession period for all current projects in BOT (Toll) mode that are languishing during the construction period due to causes NOT attributable to the concessionaire, subject to the following:

a. The tenure of the Operations Period as envisaged originally in the concession agreement may remain unchanged. This will result in a corresponding increase in concession period.

b. The decision regarding eligibility of projects for the extension of concession period, and the extent of time extension required may be taken by NHAI on a case to case basis based on the recommendation of the concerned Independent Engineer (IE). The concerned IE, both individual and the firm, shall be accountable for the assessment of the extension recommended in the concession period.

c. Authority shall follow the guidelines while determining the period of delay NOT attributable to the concessionaire.

d. The projects using the above special dispensation shall have to achieve physical completion in the next 3 years.

(ii) Authorizing NHAI to pay compensatory annuities to the concessionaire corresponding to the actual period of delay NOT attributable to the concessionaire upon successful completion of the project i.e on achieving COD, subject to the following:

a. While the construction period will get enhanced, the tenure of the concession will remain unchanged.

b. The total number of annuities payable, including the compensatory annuities, will be capped by the number of annuities envisaged in the said Concession Agreement.

c. Compensatory Annuity(ies) payable by the Authority to the concessionaire for such delayed period would be the product of Average Daily Annuity and the actual period of such delay in number of days as recommended by the Independent Engineer (IE) of the concerned project, and approved by the Authority as per guidelines.

d. The decision regarding eligibility of projects for accessing such dispensation for delays NOT attributable to concessionaires and the duration of such delays may be considered by NHAI on a case to case basis based on the recommendation of the concerned Independent Engineer (IE). The concerned IE, both individual and the firm, shall be accountable for the above assessment.

e. Authority shall follow the guidelines while determining the period of delay NOT attributable to the concessionaire.

f. The projects using the above special dispensation shall have to achieve physical completion in the next three years.

By adopting the policy, all major stakeholders in the PPP arrangement – the Authority, lender and the developer, concessionaire would have an increased comfort level resulting in revival of the sector and this will bring relief thereby to citizens /travellers in that area.

The main object of the proposal is to revive the languishing highway projects in the country. It will facilitate uplifting the socio-economic condition of the entire nation due to increased connectivity across the length and breadth of the country leading to enhanced economic activity. This dispensation will, however, NOT be applicable for those BOT projects where tolling is permitted from the Appointed Date.

Background:

• The Model Concession Agreements (MCA) for NH projects through Public Private Partnership (PPP) on Build-Operate-Transfer (BOT) (Toll) and BOT (Annuity) modes were prepared by the Planning Commission and NHAI respectively which are being followed at present for the majority of NH projects.

• Performance of contracts and expeditious completion of works largely depend upon timely possession of land and grant of statutory clearances like Forest, Environment and Wildlife clearances, approval of General Arrangement Drawings (GAD) from Railways, utilities shifting, etc. In the MCAs for BOT (Toll) & BOT (Annuity) projects, these issues have been identified as Conditions Precedent and NHAI (Authority) is required to fulfil these before the concessionaire can start the construction on the project, i.e., the Appointed Date. Some of these conditions are mutually waived to ensure an early start of the project. However, during project implementation, lack of such clearances often lead to cost escalation and undue delays.

• In respect of almost all BOT projects awarded by NHAI during 2011-12 and 2012-13, mutual waiver of Conditions Precedent were granted for declaration of Appointed Date. In several cases, Appointed Date was declared without full availability of land and without statutory clearances like Environment/Forest clearances, etc. being provided. Such deficiencies prevented timely construction of such projects although technically, the Appointed Date was declared in these projects.

• Lenders who are major stake holders in highway projects have, on many occasions, raised the issue of non-availability of land and/or statutory approvals and clearances as amongst the most critical issues contributing towards delay and consequent cost overruns in the execution of highway projects. They have also indicated that this problem needs to be suitably addressed in the MCA for BOT projects.

• Therefore, BOT (Toll) projects, suffer from double jeopardy because of: o Reduced tolling period; and

• Increased construction cost on account of delays in proving land and regulatory clearances by the Authority.

• Further, in case of BOT (Annuity) projects, the extant MCA limits the entitlement of the Concessionaire to One Annuity Payment only in case of delays in Completion of Construction due to reasons NOT attributable to the concessionaire, irrespective of the period of such delay. It is evident that such entitlement is inadequate for the concessionaire in cases where such delay extends beyond one annuity period or six months, i.e. 180 days. Such a provision lands the concessionaire with financial losses, despite there being no reason attributable to him for the delay. These anomalies requires to be addressed.

• When projects are languishing, asymmetric allocation of risk between the Authority and the concessionaire as per extant provisions of the MCA often encourages the private party to resort to legal recourse. Apart from inordinate delays in execution of projects, there are substantive financial claims that impact the Government/Authority. In most such cases, the awards made by the judicial authority are in favour of the concessionaires. During such prolonged process of litigation, the highway asset under construction deteriorates further.

• The above issue will be addressed through an appropriate policy intervention which would provide for reasonable compensation for concessionaires for delays NOT attributable to them; both for DOT (Toll) and EOT (Annuity) projects.

Category: Uncategorized

Leave a Reply