NHAI to release debt dues of defaulting contractors

The National Highways Authority of India (NHAI) has decided to release 90% of the debt dues where the contracts are terminated due to default by contractors. In case of NHAI's fault, the highways authority will release 100% of the outstanding debt and the equity of the highway builders. The government has sought to address a key irritant for banks and financial institutions that was making them averse to lending to highway projects. A decision to this effect was taken after the protracted discussions between Union finance and road transport ministries. Payment has been released in around half-a-dozen cases being executed on build-operate-transfer (BOT) mode. Although several lenders are waiting for the clearance of their rightful due that has been blocked by NHAI. This had prompted them to take up the issue with the finance ministry, citing court pronouncements in the matter, although NHAI has not awarded any BOT contract in the last four years.

The newest norms for "calculation of the termination payments" for BOT projects have brought greater clarity and will speed up the release of the termination payment. Clarity on how to calculate the termination payment is crucial, considering that the lenders have taken the risk of putting their money in projects simply because the NHAI has assured to pay at least 90% of the outstanding debt in case of termination due to default of either the authority or highway builder. The policy guidelines further specify that the outstanding principal amount of the subordinate debt released by the lender will also be included while calculating the debt due for making termination payment. Guidelines say that the total project cost will be based on the specific provision in the concession agreement, which means the NHAI won't accept revised project cost by concessionaires, without the approval of the highways authority.