CCEA gives nod for revised highway project costs

New Delhi: In a bid to make the ongoing national highways projects attractive to the bidders, the Cabinet Committee of Economic Affairs (CCEA) approved the new, upward revised project costs for 6 key projects and their sub-projects.

The move allows highways developers to seek higher viability gap funding (VGF) from the Government. The developers are allowed to claim up to 40 per cent of total project cost as VGF while bidding for the projects. While the maximum limit of VGF in percentage terms has not been changed, higher project costs have been allowed.

VGF is basically a Government grant that highway developers can claim to build and operate a highway for a certain period, in case the expected toll revenues during the concession period are not enough to make the project financially attractive.

The Highways Ministry and the National Highways Authority of India (NHAI) had recently decided to allow an upward revision of National Highways projects to make them attractive for highways developers. As per the decision, for projects that had taken into account input costs obtaining in 2007, the total cost will be revised upwards by 10 per cent. And projects that had input costs obtaining in 2006, the total costs will be revised up by 20 per cent. The CCEA on Friday approved the proposal for selective projects.

The CCEA has also approved a move to increase the concession period for some projects to allow for toll collection for longer durations. Usually, the highways projects have a 12, 15 or 20-year concession period. Now, the CCEA has allowed longer concession periods of 20 to 30 years for some projects.

The highways widening projects for which there has been an upward cost revision are Hyderabad-Vijayawada, Ghaziabad-Aligarh, Amritsar-Pathankot, Patna-Buxar, Khagaria-Bhaktiarpur, Kuttipuram-Edapally, Pune-Sholapur, Coimbatore-Mettupalayam, Muzaffarnagar-Haridwar-Dehradun, Kishangarh-Beawar, Kundapur-Surathkal and Mangalore, Tirupati-Tiruthani-Chennai and elevated road from Chennai port to Maduravoyal.

The highways development programme has suffered during the last one year due to multiple reasons, with NHAI unable to bid out any project.

In January, when there was a huge demand for highway projects, the developers moved Delhi High Court against a clause in the bidding process, which they termed “anti-competitive”. The clause basically limited the number of bidders who could participate in the financial bidding stage of projects to six.

While the court case was still on, Government, in the last week of September, decided to drop the clause for all new projects undertaken by NHAI. However, by September, highway developers had started getting hit by rising input costs and the liquidity squeeze. NHAI resorted to extending the last bid dates for most of the projects due to lack of bidders.

The Government then started considering measures such as bringing in a new toll policy, allowing developers to seek higher VGF and increasing the concession period to make the projects attractive for the bidders. During the last four-five days, NHAI has been able to attract bids for six highway projects.