Home » Facilitation of harmonious substitution of Concessionaire in the ongoing and completed National Highway Projects

Facilitation of harmonious substitution of Concessionaire in the ongoing and completed National Highway Projects

Facilitation of harmonious substitution of Concessionaire in the ongoing and completed National Highway Projects

The Cabinet Committee on Economic Affairs today 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 least 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.

The above arrangement can be put in place by a clarificatory Policy Circular to be issued by NHAI.


  • Looking at the previous year's achievement, a very ambitious target of award was set. Unfortunately, the response under PPP was extremely poor. No response was received in respect of many projects even after repeated bid invitations. In addition to the overall economic downturn, changes in policy guidelines relating to environment and forest clearance have also had an adverse impact. A large number of projects awarded during 2011-12 are yet to achieve financial closure.
  • Developers are facing severe shortage of equity and consequently, are unable to raise the required debt and hence the poor response to PPP projects. To revitalise the sector, there is an imperative need for industry to raise fresh equity. Innovative ways of infusing equity are the need of the hour without compromising on due diligence and safeguarding public interest.
  • On the other hand, many investment companies with sufficient resources have shown interest to acquire road projects, but are either unable or unwilling to take up the construction risks. Permitting buy-outs by such entities, which will take over all obligations under the concession agreement, will help facilitate flow of resources for the revival of the road sector.
  • The lack of equity has also affected many projects under execution. Bringing in substitute of Consortium Member(s) of the Concessionaires/ developers will help in timely completion of such projects. So long as the substitute of the Consortium Member(s) of the Concessionaire have adequate technical and financial resources, and concurrence of the incumbent Consortium Member(s), such buy outs would help in completion of the projects that are currently languishing due to financial distress.

Leave a Reply