Model agreement to protect investors’ interest

The model tripartite agreement (TA), cleared by the government for financing of infrastructure projects would secure the interest of investors, experts argue.

In October 2012, the Cabinet Committee on Infrastructure cleared the model tripartite agreement which would be signed between the project developer, infrastructure debt funds (IDFs) and the project awarding authority.

The TA is hailed as an important step in creating IDFs to channelise long-term funds into the sector. The TA leverages on the existing termination payment clause in the project’s concession agreement, to protect the IDF-NBFC from the risk of payment default.

IDFs that are structured as non-banking finance companies (IDF-NBFCs) will be regulated by RBI. The TA ensures that the IDF-NBFC should receive termination payment within seven months of the first financial default by the project.

The TA allows the IDF-NBFC to initiate termination of the concession if the project defaults, and outlines well-defined timelines for each step of the termination process till receipt of termination payment.

It also ensures adequacy of the termination payment in relation to the outstanding dues from the project, and prioritises the termination payment to IDF-NBFC. The TA enables IDF-NBFCs to enhance their asset quality, and in turn, their credit ratings.