NHAI to make road agreements more flexible

In a bid to make contract rules for road projects more flexible, the National Highways Authority of India (NHAI) is planning to tweak the Model Concession Agreement (MCA) so that it suits the changing market conditions.

NHAI is redrafting the MCA, which will give it the powers to change bidding documents if the projects are stuck for any reason, a senior official from NHAI told Business Standard. Currently, MCA norms do not give any scope for changes or additions. In the absence of such provisions, earlier, the government had to come up with a policy for rescheduling premium as well as an exit policy for developers. A proposal in this regard has already been sent to the Ministry of Road Transport and Highways for approval.

“The purpose is to make adjustments in the project costs due to delays that happen at various clearances level and steep increase in input costs. Secondly, in case of any dispute, we should be able to take decisions at our end rather than going to the highest level authority,” said another NHAI official. Due to the economic slowdown in the past few years, awarding of contracts for national highways has slowed down. Besides, issues related to environment and forest clearances, and land acquisition have come in the way of projects. Many road projects have been stalled with developers running short of cash, forcing the government to allow them to reschedule the payment of premiums. “Seeing this situation, where many projects got stuck due to inflationary costs or delays in acquiring land or getting environmental clearances, we need to have a dynamic MCA, wherein provisions can be allowed due to changing market conditions,” said a senior official of road ministry.

Given that road projects have not been able to attract private investment for the past few years, it is necessary to make changes in the existing MCA, the official added.

During 2010-2012, developers had bid aggressively when the government awarded a record 147 road projects worth Rs 1.47 lakh crore. India’s economic growth was much higher then, but it slowed down subsequently with the input and inflationary costs going up.

Currently, road projects worth Rs 83,000 crore are awaiting completion. Since 2009, the United Progressive Alliance government recorded the completion of only three projects, adding just 315 km to the existing highways' network.