All approvals will be given to GMR for Kishangarh-Ahmedabad Expressway:Chidambaram

New Delhi, 27 August 2013

Finance Minister P.Chidambaram today in a press conference in New Delhi announced that all approvals will be given to GMR for Kishangarh-Ahmedabad Expressway. The project has huge significance considering it being the country’s first mega highway project. Rs. 6,000 crore 6-laning project of 555 km Kishangarh-Udaipur-Ahmedabad section of National Highways NH-79, NH-76 and NH-8 is India’s biggest highway project at present. It was announced in November 2008 by NHAI under Phase-V of the National Highway Development Programme (NHDP).

Bids to construct the six lane was awarded to GMR Group in July 2011. Other interested bidders included a consortium led by GVK Power & infrastructure, Reliance Infrastructure, L&T Infrastructure, IRB Infrastructure and HCC Infrastructure. GMR bagged the contract after agreeing to pay Rs.6.3 billion annually over 26 years as negative grant to NHAI.

Negative grant is paid by the contractor to NHAI in order to get the contract, if they feel the project is commercially attractive. Otherwise in case of projects which are otherwise not viable, NHAI finances 40% of the total investment as viable gap funding (VGF).

Financial closure for the project was achieved in May 2012. GMR had awarded sub contracts to Larsen & Toubro Ltd and KNR Constructions Ltd. Essar Oil was roped in to supply high quality bitumen from its Vadinar refinery. However, in December 2012, GMR requested NHAI for termination of the agreement to implement the Kishangarh-Udaipur-Ahmadabad six-laning highway project.

The request was initiated after NHAI failed to comply with the provisions of the concession agreement. NHAI was suppose to get environment clearance (EC) for one of the tunnels along the highway as agreed in the agreement. But no clearance was received even after sixteen months of the contract awarded, neither had NHAI requested GMR for more time to get EC clearance.

GMR in December last year served notice to National Highway Authority of India(NHAI) to exit from the project citing NHAI’s failure to get an environmental clearance for the project and to notify the revised toll rate on this stretch being widened from four to six lanes.

The authority, in its reply to GMR said that the company did not give a 90-day cure period (to rectify and address the deficiencies), and how it is in violation of the norms laid down in the concession agreement.

As GMR pulled out of the project in December, the NHAI was in position to lose revenue of Rs 636 crore annually, which increases 5% every successive year. As per the authority’s own estimate the total revenue during the entire contract period would be at least Rs 9,000 crore at net present value.

The Ministry of Environment & Forests (MoEF) gave an in-principal forest clearance to the project in January 2013. This was for part of the road stretch passing through the state of Rajasthan.

While court battle was on, the GMR Group in March/April this year approached the National Highway Authority of India (NHAI) saying that the company is ready to re-start work on the Kishangarh-Udaipur-Ahmadabad highway project provided, the annual premium amount of Rs.6.3 billion to be paid for the initial years is reduced by 75% for the first 10 years. Once the debt portion of the project loan is cleared the company is ready to pay three times the premium which will be due at the beginning of that period.

NHAI approved a proposal to restructure the premium payment but the proposal required Government nod before implementation. As per this GMR will now have to pay about Rs 59,000 crore instead of Rs 32,000 crore to NHAI over the 26-year period, when it gets to collect the toll revenues. The numbers have gone up as the premium payout has been back-loaded. However, the net present value of the premium remains same at about Rs 8,500 crore. Two members of the Board – from Finance and Planning Commission – opposed the move, but they did not have veto power to stop the proposal. Other Board members – from Highway Ministry and NHAI – supported the move. According to the proposal, the developer will get a year’s moratorium from paying the premium.

GMR and NHAI are also in court with regard to the project. GMR wants to protect its bank guarantee of about Rs 260 crore with NHAI. The case will come up for hearing in Delhi High Court on April 30. It was slated for hearing on February 28, when the Court was informed about GMR’s proposal to NHAI.

The latest deveopment is clash of opinion over this project between Planning Commission and NHAI. While Planning Commission is of the view that NHAI should go for re-bidding of the Kishangarh-Udaipur-Ahmedabad project in the wake of GMR walking out of it, NHAI is insisting on rescheduling the premium involved in the project. The issue of premium restructuring came up after GMR had approached the Prime Minister’s Office (PMO) asking for back-ending of their annual premium of Rs 636 crore to salvage the Kishangarh-Ahmedabad project.

Planning Commission believes that it’s been more than a yearand-a-half since the project was awarded to GMR. Since work has not started we think NHAI should cancel it and rebid the project so that a new player comes in and take it over.It is impossible for the government to reschedule the premium of GMR Infra and other players involved in over 20 similar projects, as is being proposed by NHAI.

In a letter dated August 7, 2013, NHAI chairman RP Singh has written to planning commission that the concessionaire will not be in a position to raise private equity, originally estimated to be Rs 2080 crore, owing to the terms of contract.

“However, by allowing the cash flows available through the toll revenue in the first three years to be used for the project we would be only ensuring timely completion of the project without giving any material benefit to the concessionaire,” the letter said. NHAI has requested the government to accept the proposal on grounds that it would help salvage as many as 21 projects with premium of at least Rs 1 lakh crore.

With today’s statement by Finance Minister P.Chidambaram, the project is set to go ahead with GMR.