By TIOL News Service

NEW DELHI, JUNE 23, 2013: THE Cabinet Committee on Economic Affairs has approved the proposal to facilitate harmonious substitution of Concessionaire in ongoing and completed National Highway Projects. This will expedite implementation of road infrastructure in the country and insulate the National Highway Authority(NHAI) from heavy financial claims and unnecessary disputes.

The proposal aims at revival of the sector by facilitating substitution of Concessionaire in case of both ongoing and completed projects, in both these cases, appropriate substitution of the Consortium Member(s) of Concessionaire for project therefore, shall require to be effected by the Lenders with the consent of NHAI. In view of the prevailing lack of interest among prospective bidders for highway projects under the PPP mode and difficulties faced in achieving financial closure for such projects awarded in the recent past in an already subdued investment climate, it has been decided that existing Concessionaires both in case of completed and on-going projects be permitted to divest their equity in totality. This would bring about required flexibility for existing Concessionaires in terms of exit options.

This is proposed to be made applicable both for (i) already awarded projects that have achieved appointed date; and (ii) projects to be bid out in future, as per the prescribed mechanism.

The mechanism to be adopted for substitution is as follows:-

• Subsequent to the substitution, the leading substituting entity shall require to maintain at feast 51 percent equity holding in the project SPV. • Substitution, as mentioned above, shall require the prior approval of Lenders before implementation.

The substitution of Concessionaire shall be carried out in the following manner:

• The Concessionaire shall make a written representation to the Lender`s Representative with a copy to the Authority requesting the Lender`s Representative to seek approval of the Authority for its Substitution.

• Upon receiving the request, the Lender`s Representative shall make its own assessment regarding the said request of the Concessionaire and upon being satisfied that it will be in the interest of the project, the Concessionaire may be substituted by a nominated company shall make a representation to the Authority.

• The Authority, upon receiving the said representation, shall satisfy itself on the credentials of the substituting entity and give its decision regarding the said Substitution.

• The said decision of the Authority shall be communicated to the Lender’s Representative and the Concessionaire along with the reasons recorded in writing.

• Thereafter, Lender’s Representative in consultation with the Concessionaire would invite, negotiate and procure offers either by private negotiations or public auction or tenders, for the takeover and transfer of the Project Highway including the concession to the Nominated Company upon such Nominated Company`s assumption of the complete liabilities and obligations of the Concessionaire towards the Authority under the Concession Agreement and towards the Lenders Representative under the Financing Agreements.

• The decision to permit substitution will be taken by the Lenders. It can be on the request of the Concessionaire, Lenders will permit such substitution based on their assessment of the substituting party as creditable.