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Negative Grant

In case of a road construction project on a BOT (toll) basis, if there arises a gap between the investments required for a project and the gains arising out of it, then the Government steps in to increase the viability of the project by bridging the gap. And the assistance takes the form of capital grant. Up to a maximum of 40% of the project cost has been provided under NHDP (National Highways Development Project) under capital grant.

While `grant’ is what is paid by the Government to the concessionaire, the opposite is `negative grant’.

Under negative viability gap funding, a constructor pays the government to get a contract because the returns from it are so good. A company would offer to pay the government instead of receiving the grant is because the company estimates that a large surplus will arise on account of high traffic usage.

The payment can be either in the form of an upfront premium or revenue share.

“The government is formulating policy guidelines for awarding highway projects on negative viability grant basis. The move comes after 10 private developers approached the National Highways Authority of India (NHAI) with negative grant offers for projects costing Rs 7,666 crore”, reported ‘The Hindu’ on Feb 2010.

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Categories: Roads
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