In the road sector of the country, lenders are set to get more flexibility in public-private partnership (PPP) projects, where investor interest is waning. The government is planning to amend the model concession agreement (MCA) for road sector PPPs, empowering lenders to seek replacement of a concessionaire failing to meet milestones even before the project starts commercial operation.
The move comes soon after the proposal to relax the exit policy for highway developers. Currently, financial institutions get the right to play a proactive role in replacing a concessionaire only in the event of a financial default.
As there cannot be a 'default' prior to the commercial operation of a project, financiers are unable to guide progress on a project and seek replacement of developers missing other deadlines in getting local-level clearances, appointing contractors and laying out a road map for time-bound completion of work on stretches.
A government official said that the road Ministry is planning to amend the MCA to include an enabling provision which will give lenders the right to invoke the Substitution Agreement even if a project is terminated before it gets operational.
At present, the Substitution Agreement under the MCA between the NHAI, concessionaire and lenders gives the right to financiers to substitute a developer in the event of a financial default. The need for amendments was felt after the Finance Ministry raised objections about the MCA’s silence on the issue. When projects get delayed due to problems faced by developers, beleaguered financiers are unable to change the concessionaire.