The Article published in Financial Express on dated 25.09.

2013 titled Toll time for UPA has highlighted a few issues which also included a commentary on reported reluctance on the part of NHAI to follow the Government policy of building highways on PPP. The issues raised in the article and corresponding factual status as under: Accusation 1: NHAI not keen on following Government policy of building projects through PPP mode, but wants to reverse the cloak and go back to bad old cash contracts wherein the Engineers at NHAI decide whether a road has been built properly and then release payments for a job done. Fact: 1. NHAI has awarded more than 150 projects on PPP since financial year 2009-10 under Model Concession Agreement (MCA) and most of these projects are in various stages of implementation. However, since 2012-13, a large number of projects under PPP mode did not receive any response from the bidders. Seventeen (17) projects on BOT (Toll) and three (3) projects on BOT (Annuity) did not receive any response even though these projects were put to bid 1 to 5 times. Government decision for permitting disinvestment / exit through substitution route also did not receive any response due to non-clarity on many issues including passing of taxation benefits, clearances, pay ability of stamp duty etc to/by the new players. The most important reason for poor or no response to the bids for BOT(Toll) road projects is acute shortage of equity and over leveraged and deeply stressed balance sheet of the prospective developers. There is neither any space available nor most of the developers are able to raise additional equity from the market as there is hardly any appetite for IPO/FPO/OFS of the infra companies. Private equity fund and other players are also not willing to fund the equity requirements of new or under construction PPP projects. For want of suitable empowerment of the Chairman or even the Board, Authority is not able to pro-actively and dynamically manage the Concession Agreements even in situations where underlying conditions have undergone a drastic change like shortfall in the growth rate of the traffic and the economy. This has also contributed a great deal in making the concessionaires as well as the lending institutions risk averse resulting in poor response to BOT (Toll) road projects. Due to these factors, even if NHAI get bids in few BOT (Toll) projects, the same is likely to be sub-optimal. In such a stark back drop, NHAI had proposed that for all projects wherever there has either been or likely to be poor or no response, such projects should be taken up under EPC mode so as to revive road sector and kick start the economy. 1.1 NHAI is not against PPP and is still inviting bids on BOT (Toll) basis in appropriate cases. For example, Notice inviting RFQ have already been issued for Eastern Peripheral Expressway and Delhi-Meerut Expressway. Once the economy picks up and there is liquidity in the market, NHAI would again try PPP mode on a much larger scale. 2.0 On the other hand, the experience so far in award of EPC projects has been quite good and the bids received are generally below the project cost estimates prepared by NHAI contrary to perception in some quarters that Total Project Cost (TPC) of NHAI is on lower side, taking into account that the cost methodology for estimation is same for both PPP and EPC projects. The contention that the NHAI is planning to go back to old EPC contract on item rate basis (where the design and estimate of itemised work is pre-fixed and the contractor get the payment for work done for each item) is grossly misplaced. NHAI has adopted Engineering, Procurement, Construction (EPC) mode whereby the design and construction responsibility assigned to the contractor for a lump sum price and the monitoring and supervision is to be undertaken through a qualified Firm (known as

Authority Engineer) selected through a transparent process. The model EPC document being followed has been approved by the Govt of India with recommendations of InterMinisterial Group (IMG) comprising of relevant Ministries of Central Government. 3.0 The Engineers community is appalled to read the sweeping and misguided statement of the Author on the premise that NHAI is intending to go back to EPC system for clasping the powers within the department obliquely linking it with corruption. On the contrary, the Indias success story on PPP implementation is almost entirely attributable to NHAI who turned ideas into reality through implementation of about 240 odd highway projects on PPP. This myopic view of the Author on whole class of Engineers displays his poor judgement and adoption of misguided facts from someone constantly averse to NHAIs point of view. Therefore, these unwarranted and outrageous comments of the Author are unacceptable. Accusation 2: Instead of junking privatisation process, NHAI can moot for higher VGF Fact As per Model Concession Agreement (MCA), VGF is limited to 40% of the TPC which is roughly equal to 50% of civil cost. Any further increase in VGF will undermine the private partnership in the project. In present circumstances, the existing waterfall mechanism of mandatorily trying out bidding in BOT(Toll) mode, then on Annuity mode and finally on EPC mode only after failing to receive responses in PPP mode, will not serve any purpose. There is a need for judicious mix of PPP and EPC projects on the basis of viability and optimally roll out of projects available on shelf. Accusation 3: NHAI Engineers insistence on more and more over bridges, instead of underpasses, rise the cost dramatically even as it does not make sense to make 4/6 lane road go over an existing 2 lane structure. Fact The myth that NHAI is insisting for sub optimal solutions for providing underpasses instead of overpasses (wherein the cross road will go over the main highway) is not based on any technical considerations, but seems to be based on experience on green field motorways abroad. The following are difficulties associated with construction of overpass (cross roads fly over 4/6 lane highway): i) It would necessitate land acquisition along the cross roads which is generally existing SH/MDR with limited ROW. As these cross roads generally have settlement near junction of highways, any acquisition will be involve large scale displacement which is not possible in Indian context. ii) The approach shall have to be designed either as viaduct or solid RE wall. If viaduct is provided, it will increase the cost substantially. Solid RE wall embankment may not find favour on the cross roads as it may be perceived as blockade for habitation on either side. iii) The cross roads cater to non-motorised traffic such as bullock cart, cycle, rickshows, tangas in addition to motorized traffic. In highways, a gradient of 2.5 to 3.3% is provided in approaches. However, this gradient may not be suitable on the cross road where non-

motorised/pedestrian traffic are predominantly using the roads. It may require gentle gradient and the length of the approach road may increase resulting in even higher cost . iv) The dispersal of traffic from NH to overpass and overpass to NH shall require elaborate design and larger areas involving additional land. Accusation 4: NHAIs proposal for stopping Toll collection during construction period of 4 to 6 lane projects shall increase financial stress to the developers As far as four to six lane projects are concerned, the extant MCA did not foresee the difficulties associated with collection of toll from day one even as construction work is in progress. During construction period, number of road diversions are created resulting in constraint of carriageway thus hampering smooth flow of traffic. Taking advantage of the present MCA, the Concessionaires, under the pretext of Authoritys default on account of non- availability of land in isolated pockets, do not carry out the work with due diligence even in available fronts resulting in major bottleneck for smooth flow of traffic . One of the reasons of such a trend, observed in most of the four to six lane projects is that the Concessionaire do not get any bonus of additional revenue for early completion of the project as the toll collection commences from date of commencement for construction. Even when the Concessionaire defaults in achieving the matching progress in available front or breach in maintenance obligation, it becomes difficult to reign in the Concessionaire as the lenders have to be taken in loop for terminating the concession which will take considerable time putting the road users to further hardship. Accusation 5: NHAI need not counter-sign every loan refinancing, which is the crux of its dispute with IDFC on the Delhi-Gurgaon Expressway, as long as the amount it pays on termination of a project remains unchanged and the agreement to get a part of the upside toll once traffic on a road exceeds a certain target. Fact: As per obligations of the Concessionaire under the concession agreement, the concessionaire shall not make any modification to any of the project agreements without a prior written consent of NHAI where the modification has or may have the effect of increasing or imposing any financial liability or obligation on NHAI in any manner M/s. IDFC and Concessionaire signed a loan Agreement on 09.09.2010 for a loan of Rs.1600crore (against original debt of Rs.383.3 crore and conditional NOC from NHAI in July, 2009 for a loan of Rs.1275 crore from SBI & others) and disbursed Rs.1250 crore on 13.09.2010, without signing of Substitution Agreement and then the Concessionaire submitted a draft loan agreement to NHAI on 09.10.2010. The monthly Escrow Account Reports from July, 2010 to April, 2011 were also suppressed by the Concessionaire. Further, M/s.IDFC downsold the loan to 4 Public Sector Banks (Bank of India Rs.500 cr; Oriental Bank of Commerce Rs.100 cr; Punjab National Bank Rs.400 cr; and State Bank of Bikaner & Jaipur Rs.50 cr) thereby reducing their exposure from Rs.1600 crore to Rs.550 crore. Due to such a huge loan (resulting in huge debt servicing obligations), no amount is left for O&M. Against net inflow of Rs.16.8 crore per month, the debt + interest payment itself is Rs.16.3 crore. Further, major maintenance expenditure was understated in the loan agreement, Rs.14.6 crore in 2013-14 and Rs.18.7 crore in 2019-20, whereas as per

provisions in the concession agreement, the entire project highway is to be re-laid with 50mm BC atleast once in every five years. In the loan agreement, the receipts/ revenue was over considered. Even the claims/ dues, which the Concessionaire did not raise with NHAI at the time of signing of loan agreement in Sept, 2010 were considered under the project receipts. The loan agreement provides for a mandatory pre-payment of Rs.100 crore by May, 2012, should the net toll revenue be less than the projected and a mandatory pre-payment of Rs.300 crore, if claims to the extent of Rs.300 crore are not received by the Concessionaire by 31.12.2013. As a security for these mandatory pre-payments, Rs.100+300 crore, the personal guarantees of Mr. HS Narula for Rs.400 crore were taken. Against TPC of Rs.555 crore of NHAI and change of scope sanctioned of Rs.155 crore (Total = Rs.710 crore), the Concessionaire inflated the project cost to Rs.1406 crore by paying claims of EPC Contractor (its parent company). Further, IDFC allowed loan /ICDs to parent company of Concessionaire including the interest earned thereon (@ 11.6% p.a.) under the Authorized Investments. The loan /ICDs to parent company of Concessionaire stands at Rs.754 crore by June, 2013. It is only in the MOU dated 18.09.2012, the Concessionaire and IDFC confirmed that the debt due to be considered for Termination Payment by NHAI is the debt as would have been outstanding to the original lenders led by HUDCO (it is astonishing to note that the original debt outstanding as on 31.03.2013 was Rs.131 crore against Rs.1552 crore of IDFC).