The government, on the basis of a traffic survey, has decided to levy fixed toll rates on various types of vehicles using the roads. However, FIs have been insisting on a back-up arrangement in case the government's calculations on tariffs and traffic flow go awry. The institutions want the government or the appointed agency to meet shortfalls in revenue collections every six months.

The FIs have also insisted that the land adjoining the roads be developed to generate additional revenue and have asked for concessional agreements for developing these areas.

A committee set up recently by the government under the surface transport ministry has cleared a package for private sector participation inhighway and road projects.

All outstanding commercial and legal issues as well as differences between ministries have been resolved and the committee has pegged the compensation rate for premature termination of project contracts at 175 per cent of equity if the termination is due to a political cause. In case of non-political causes, the compensation rate has been pegged at 125 per cent.

Other decisions taken by the panel include allowing the conversion of four-lane projects into six-lane projects after repayment of debt and the redefinition of the outstanding debt clause to include sub-ordinate debt. The panel has also appointed a Canada-based firm -- ND Lea -- as technical consultants for four-lane projects.

Meanwhile, the finance ministry is likely to clear the model four-laning concession agreement soon, which delineates the policy and legal framework for undertaking privatisation of roads in India. Two crucial changes in terms -- the tenor of the loan and the escrow provisions -- may be made inorder to make the agreement attractive to financial institutions.

These two provisions in the model agreement have been causing glitches when it comes to debt financing by FIs. One issue which is being rationalised in the final model concession agreement is the tenor of the loan in the case of widening of existing two-laned highways to four-lanes and later to six-lanes.

Under a six-laning contract, the highway is first expanded to four lanes and after seven to eight years, when traffic flows increase, the promoter would be obliged to expand it to six lanes. However, if the promoter fails in his obligation to commence six-laning the project after eight years, FIs run the risk of the project devolving on them. In order to safeguard FIs from this risk, it has been suggested that the project should be financed in phases and the FI can actually treat it as two separate projects each with their own concession periods.

Govt guarantee needed

If revenues to the project operator are assured by thegovernment, it will most certainly lead to a unmanageable situation. The little experience one has had of building toll roads and bridges in this country has shown that the revenue projections are invariably wide off the mark. Under these conditions, the government will be effectively minimising the risk in these projects. Instead, what the government should do is guarantee the loans provided by the FIs. In the absence of such a guarantee, the FIs may not be tempted to lend to such projects only on commercial considerations.