Builders say no grants please, we’ll pay you

When the bids for the Rs1,232 crore stretch from Aurang in Chhattisgarh to the state’s border with Orissa were opened on Friday, the National Highways Authority of India (NHAI) was in for a sweet jolt.

The top bidder, Hyderabad-based B Seenaiah & Company, offered a premium of Rs29 crore to the government to bag the project.

This when the NHAI hoped that it would have to give the bidder viability gap funding (VGF) of `381 crore.

NHAI’s surprise did not end with this project. It discovered another of its projects had also attracted a premium or negative grant.

Agra-based PNC quoted a premium of Rs18 crore for the `900 crore Hospet-Bellary project despite the NHAI’s projections of VGF of `324 crore for the same.

Negative grant is a premium a bidder offers to the NHAI in order to bag a contract it finds lucrative despite the payment.

In case of projects which are otherwise not viable, the NHAI offers up to 40% of the total project cost as viability gap funding.

The receipt of premium means a lot to the NHAI. Of late, it has emerged as a new earning stream altogether for the authority whose prime revenue channels are toll and fuel cess.

Elaborating this, a top NHAI official, requesting anonymity, said, “The premium receivable from the developer will span through the concession period of the project.

Also, it will keep rising at the rate of 5% annually — which will be a major boost to the authority’s earnings, which in turn are spent on meeting annuity or VGF requirements.”

VGF, or negative grant, applies only in the case of toll projects. In annuity projects, the NHAI pays the developer every six months and reserves the right to toll the road.

Instances of developers quoting less VGF than government estimates are also on the rise. In case of the 225 km Jabalpur-Katni-Rewa project in Madhya Pradesh, which requires an investment of around Rs1,900 crore, the government estimated a VGF demand at 48% of the cost of the project. But the winning bidder Soma Tollway Ltd quoted a mere 17% as VGF.

On Friday, GMR bagged the Kishangarh-Udaipur (both in Rajasthan)-Ahmedabad stretch costing Rs5,700 crore, the country’s biggest so far, by offering a premium of Rs636 crore.