14 November, 2015
Exit Policy under NHAI Concessions
With a view to provide an impetus to the road sector and to renew private sector investments, the Cabinet Committee on Economic Affairs (‘CCEA’) has in the past few months ap- proved policies to increase the liquidity of equity in the road sector.
On May 13, 2015, the CCEA had approved a comprehensive exit policy framework that per- mitted concessionaires in National Highway Authority of India (‘NHAI’) projects awarded till September 30, 2009, on a build, operate and transfer basis, to divest 100% equity, 2 years after completion of construction. The stated purpose of the policy was to free up equity from com- pleted projects that had to be used for reinvestment in ongoing NHAI projects. This decision of the CCEA had failed to garner much interest from the road sector developers due to the con- ditionality related to use of funds. It is pertinent to mention that the concession agreements signed with the NHAI post 2009 already had a similar clause allowing divestment of up to 100% equity, 2 years after completion of construction.
Following the issuance of the above policy, the National Highways Builders Federation made a representation for the modification of the policy, as developers who did not have exist- ing unfinished NHAI projects would not be able to utilize the exit mechanism provided under the policy. In this background, the CCEA has, in its meeting held on August 26, 2015, approved a new exit policy, whereby the CCEA has expanded the permitted end use of the proceeds from the divestment of 100% equity, upon expiry of 2 years from the completion of construction of the relevant project. The revised policy will be applicable to all the road projects irrespective of the year of grant. The press communication issued by the Government of India states that the aforesaid approval will allow the concessionaires / promoters to use proceeds from the sale of such divested equity in one or more of the following:
- incompleteNHAIprojects;
- any other highway projects;
- any other power sector projects; and
- to retire their debt to financial institutions in any other infrastructure projects.
The NHAI has issued a circular dated September 9, 2015 pursuant to the aforesaid approval of the CCEA.
22 (2002) 4 SCC 105
23 Civil Appeal No. 610 of 2015
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
